Q&A: Post-pandemic recovery

May 2022 | SPECIAL REPORT: BUSINESS STRATEGY & OPERATIONS

Financier Worldwide Magazine

May 2022 Issue

FW discusses the post-pandemic recovery with James J. Loughlin, Jr, John Krupar, Ross Forman, Amy Rojik and James MacDonnell at BDO.

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FW: Could you provide an overview of the economic upheaval and business hardships caused by the coronavirus pandemic?

MacDonnell: Supply chain disruptions were the single most disruptive outcome of the coronavirus (COVID-19) pandemic. While some normality has returned in consumer demand, buying habits, forecasting, commodities markets, distribution channels and employment status, the overall situation remains in flux two years later. Early in the pandemic, slow-moving incumbents failed to respond quickly, leading to widespread disruption. Nimbler companies were more successful in adjusting their partners, products and expectations, but they have lost ground as situations have improved and incumbents have ramped back up. Instead of leading to a more resilient system, supply chains, for the most part, snapped back to their pre-pandemic state with the same pre-pandemic players. Short term government stimulus initiatives provided relief, but more robust interventions did not materialise. Furthermore, long term economic impacts from increased remote working, the growth of hybrid work, the voluntary relocation of employees from high- to low-cost areas and changes to long term consumer behaviour will continue to materialise over the coming years.

FW: What factors are most likely to dominate recovery initiatives in the post pandemic environment? What are the key elements that companies should include in their recovery plan?

Loughlin: For two years, a collective clamouring to ‘return to normal’, including for entertainment, travel and making purchases, created tremendous and widespread demand. However, manufacturing and supply chain interruptions contributed to pervasive shortages. Global supply chain restoration is taking many months to restore, and product shortages continue. This dynamic, combined with high demand, has created an inflationary environment with pressure on consumers and business. Labour disruptions created challenges. Many workers exited the workforce, and millions of open positions are unfilled. Additionally, many are rethinking objectives and commitment to full-time employment. Analysis has yet to determine if this is temporary or permanent. Businesses can proactively address upward cost pressures throughout their operations. Labour, product and supply chain costs are increasing dramatically. Businesses should understand their cost structure to establish pricing that maintains profit margins. Depending on competitive positioning, it may be difficult to pass costs onto customers and maintain sales.

FW: To what extent has the new normal brought about by the pandemic prompted companies to review and transform their operations?

Forman: Companies are still processing lessons learned during the pandemic about how best to transform operations for agility and resilience. However, there are key themes that have emerged, consistently. First, digital transformation is ‘mission critical’. Customer expectations and buying behaviours are more digital-focused than ever. ‘Winners’ during, and emerging from, the pandemic have been organisations with a highly mature, easy to navigate and integrated digital technology capability. Second, the fragility of the supply chain. Supply chains have finally obtained C-suite attention. Businesses must update their vision and strategy to account for ongoing and unpredictable disruption to global networks, operating models and stakeholder demands. Third, flexibility in workplace strategy. Employee-centricity is driving workplace strategy as businesses transition to a post-pandemic environment. If face-to-face engagement and collaboration are driving the need to be in the office, businesses should provide a range of collaboration spaces, ubiquitous and user-friendly technology, high-quality in-office services, and amenities focused on health and wellness.

“Managing controllable elements and establishing optionality on critical issues allows leaders the best chance at business continuity during volatile periods.”

FW: What obstacles might companies need to overcome when repurposing assets and capabilities for post COVID-19 markets?

Loughlin: Obstacles for transitioning to a new business model include extensive financial commitments and capital requirements. Many companies are unable to reduce their office space costs due to long-term leases. Landlords endured COVID-19 by relying on the cash flow from existing leases and tenants’ legal obligations to pay their rent. Depending on the term, companies do not have the flexibility to make the changes they would like to reduce office space costs. Modifying the supply chain and vertically integrating company operations require time and money. As a company makes these changes, what is done with current assets? How does it redeploy to reinvest for the future business model needed to achieve future profitability? Access to capital is key. Depending on enterprise profitability, cash flow and debt structure, it may not be possible to make all operational changes required to be successful in the ‘new normal’ marketplace.

FW: How important is it for companies to get their change management strategies right? What are the consequences for those that fail to do so?

Krupar: Previously, change management practitioners claimed that ‘effective change is the product of the technical solution times the acceptance’. That equation was controversial because it gave equal credit to the buy-in for the change as to the solution itself. As companies now find the management-labour balance swinging toward employee needs, this concept of participative management and selling solutions is again seen as a critical step. It will be difficult, if not impossible, to reach the expected return on investment (ROI) for capital investments if the projects are not accepted by the employees. The consequences of not gaining the acceptance for the change is wasted capital expenditure in the best case, but typically, enterprise project failures are seen as an avoidable error on the part of the management team. There seems to be little patience, and rightly so, among corporate boards for avoidable failures.

FW: In your opinion, should sustainability strategies be high on the agenda as companies build back? How can boards embed sustainability into their long-term recovery and growth agenda so they can respond to future challenges?

Rojik: Sustainability is grounded in being in tune with stakeholder priorities while ensuring the future of the company as a purpose-driven organisation, as well as prioritising and embedding thoughtful goals about people, processes, planet and productivity within short- and longer-term business strategies. The board plays a significant governance oversight role in ensuring this business strategy is being executed, considering the material risks and opportunities that impact its defined business objectives and goals. As boards look to ‘build back’, they should recognise the significant scrutiny from employees, vendors, customers and lenders who want to ensure the organisations they are doing business with align with their expectations and values. They can engage investors, as well as regulators, to share their views on emerging risks and how these are being handled by their management teams through transparent and timely disclosures. Businesses that prioritise sustainability strategies in recovery and growth put themselves in a stronger position.

FW: What essential advice would you give to companies on fine-turning their business models, capturing opportunities, shaping their futures, and, ultimately, positioning themselves for success in a post-COVID world?

Krupar: Whether faced with a pandemic, global supply chain failure, inflation or geopolitical tensions, there are many macroeconomic issues that have impacted businesses’ ability to serve their customers. These issues are beyond the control of the management team. The most effective and successful business leaders focus on the areas they can control when the unexpected occurs, such as finding alternative sources of supply, taking care of their employees, prioritising their clients, managing cash-flows and rationalising the expense base to maximise profitability. Managing controllable elements and establishing optionality on critical issues allows leaders the best chance at business continuity during volatile periods. In some scenarios, a business may be able to play a leading role in addressing the crisis through the expansion of product and service offerings. Being able to respond to these unplanned scenarios is the result of strategic focus and disciplined execution.

James Loughlin is a nationally recognised restructuring professional with 30 years of financial and operational restructuring experience working with distressed companies, senior lenders and other creditors. He has led more than 200 client engagements and has successfully restructured more than $75bn of debt, including several large and complex cases in a variety of industry sectors, including retail & consumer products, healthcare, manufacturing & distribution, energy, media, and telecommunications. He can be contacted on +1 (917) 414 1411 or by email: jloughlin@bdo-ba.com.

John Krupar leads BDO’s operational value creation practice. He has amassed more than three decades of military, industry and consulting experience focused on assisting US manufacturing and service companies with reaching their potential. He has led more than 125 client engagements and delivered more than $25bn in benefits. His work has included strategy, organisational redesign, operational enhancements, global sourcing, marketing effectiveness, LEAN operations and LEAN Six Sigma deployment. He can be contacted on +1 (602) 293 2545 or by email: jkrupar@bdo-ba.com.

Ross Forman is a managing director in BDO’s workplace & operations strategy practice. He has over 25 years of experience in strategic planning, organisation assessment, M&A integration and back-office cost optimisation. He also has extensive experience advising leadership, clients and staff, as well as identifying strategies to enhance revenue and market share. He can be contacted on +1 (610) 724 9557 or by email: rforman@bdo.com.

As a partner within BDO’s national professional practice, Amy Rojik directs BDO’s Center for Corporate Governance, overseeing the firm’s communications and governance efforts. She has more than 25 years of experience in the auditing profession, engaging with financial reporting executives, audit committees, board members and professional organisations focused on audit quality and sound governance practices in support of capital markets. She can be contacted on +1 (617) 239 7005 or by email: arojik@bdo.com.

Jim MacDonnell leads BDO’s national resilience practice. He is a risk management, business continuity and crisis management professional with over 20 years of experience supporting Fortune 100 clients and federal agencies prepare for and respond to crises and emerging risks. He has designed enterprise risk management, business continuity and crisis management programmes involving diverse stakeholders in support of commercial, national security and military clients. He has experience providing crisis response support during real world events across multiple threat vectors. He can be contacted on +1 (703) 245 0382 or by email: jmacdonnell@bdo.com.

© Financier Worldwide

THE PANELLISTS

James J. Loughlin, Jr

BDO Consulting Group, LLC

John Krupar

BDO Consulting Group, LLC

Ross Forman

BDO USA, LLP

Amy Rojik

BDO USA, LLP

James MacDonnell

BDO USA, LLP