Buenos Aires (14 April 2020)
The COVID-19 pandemic has exposed people, organizations and governments to face changes in the ways they think and act.
The connectivity to communicate, shop online, educate and inform increased. It’s not that it wasn’t done before; it’s just that the number of people and businesses connected was increased and apps to facilitate those actions became widespread.
Increased work at home is generating experimentation with massive remote operations. There are a lot of employees and employers who are discovering this new way of doing what they have always done. It has exposed communications and security gaps for data transmission and is forcing companies to check if their business applications are prepared for this new challenge.
Educational institutions at all levels went out to purchase distance education software that has been available for many years but was not utilized. Educators are adapting or remaking their materials for this new modality imposed by the crisis. Students are experimenting with and adapting to a modality that may be the way to acquire knowledge of the future.
In the area of health, the use of digital credentials, online prescriptions, telephone health care or video communication platforms are examples of the use of technology to get things done. Test results or images that can be consulted from any device are already a common fact. Digital shift ordering is growing as a possible modality and there are already indications of assigning remote shifts so that people do not wait long hours on call.
Economic activity has been retracted and is expected to continue, with a recovery that no one can predict in time or manner.
The consequences on capital markets are already being felt. It is not the first crisis affecting the world, but perhaps it is one of the few that affects all sectors of the economy.
Central sovereign bond rates approach zero, and some countries even offer a negative rate as a way to encourage investors to make risky investments. But these actions do not ensure that capital flows to these type of placements, since in a recessive context, the risk of the industry increases and the greater risk of the company is added, demanding returns that may be considered impossible to achieve, leaving a certain unknown about the speed of recovery to normal activity.
The use of technology in transactions is accelerating, either to buy or pay. Although they have been available for a long time, the rate of adoption by new sectors is increasing.
The incorporation of technology into business models requires rethinking operations in the company and rethinking delivery processes to customers. This impacts the cost structure, the need for investments and the rapid conversion of employees’ capabilities to move in a different universe.
Impact on Businesses
The most immediate impact is financial. Demand retraction, delay in the payment chain, absence of staff for health reasons and the impossibility of adjusting fixed expenses in the short term all generate a disastrous mix for corporate cash flow. If we add high levels of indebtedness with exorbitant rates for a normal level of activity, but applied in a recession context, we will get a mixture that makes the business unviable.
Assuming that the company and its shareholders have the capacity to provide liquidity to deal with the financial tsunami generated by the crisis, it remains to be seen if there is operational and technological capacity to rearrange products and services to fit the new demand. This demand will not only affect the type of products or services or the mode of access to them, but can also affect the perception of the value of the same and therefore their direct impact on prices, which may further complicate the financial situation.
This new reality tests whether the company has developed the skills and knowledge to face a transition to the new balance of market forces and whether it is in better positioning conditions or if it needs to think of alternatives to survive.
It is essential to understand that the change has already occurred, what remains to be known is the depth of this change and adoption time of the new modalities in consumers.
Successfully travel the path that leads us to the future
Decisions in Times of Change
In times of change and uncertainty, assuming that what was successful in the past will continue to be effective in the future can be fatal. A misdiagnosis can lead to untimely decisions. When what happened until today is just one more piece of information, when the accumulated experience can influence very little the business of the future, imagining the competitive framework that will come is vitally important. Identify the key factors for success, identify and develop the skills and competencies needed in the organization to be winners in that future market.
Know where you start in order to decide the strategy. The current position is the result of past decisions; the assets generated and the value to the shareholder arose from those options. Maintaining and increasing that value in the future involves considering the choices of success in a new context based on current strengths and weaknesses. Conditions, that in contexts of change and volatility, can vary very quickly. Ensuring financial and operational backup is a vital decision.
The essential things about decisions are the results. Decisions in times of change, when there is complete uncertainty, require that the decision-maker be clear about the objectives he/she pursues and even clearer on how to measure the outcome of the decision. A competitive move at the wrong time, not correcting the course of the wrong tactic can leave the organization in a disadvantaged position to fight for the market share of the future. Strengthening information systems for decision-making is crucial at this stage.
Passing the Crisis
The ideal situation is to get out of the crisis as strongly as possible to be able to face a new competitive stage with the resources that you have. Some organizations will be able to rise with a portion of the market and others will give it up. The best situated will be able to choose between acquiring the resources of the weakest or developing them, condemning the latter to closure or shrinking without any benefit.
Those of us who make up Valuation Research Group understand that we can help organizations at this stage because we have the experience and proven methodology to face what is coming. Our experience in debt restructuring, mergers and acquisitions, corporate valuation, business conversion programs, and readjustment of processes and systems allow us to ensure that we can be useful in times of change and uncertainty. The international VRG network adds industry expertise and specialized support to more accurately meet the needs of our customers.
Author: Gustavo Cotarelo, Valuation Research Group (VRG), Argentina Member, VP Financial Advising
Gustavo Cotarelo is a graduate of Economic Sciences in the area of Public Accountant and holds a Master’s degree in Business Administration, with extensive experience in executive functions and business consulting. For more information, contact Gustavo Cotarelo at email@example.com.
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