Leading Organizational growth in the new Reality

As companies adapt to thrive in the new reality, they must prioritize reassessing their growth opportunities, reconfiguring their business models to better realize those opportunities, & reallocating their capital more effectively.

Understanding the full impact of the Covid19 Pandemic will take quite sometime. First, even in severe economic downturns and recessions, some companies are able to gain advantage. Among large firms doing business during the past four downturns, 14% increased both sales growth rate and EBIT margin.

Second, crises produce not just a plethora of temporary changes (mainly short-term shifts in demand) but also some lasting ones. For example, the 9/11 terrorist attacks caused only a temporary decline in air travel, but they brought about a lasting shift in societal attitudes about the trade-off between privacy and security, resulting in permanently higher levels of screening and surveillance. Similarly, the 2003 SARS outbreak in China is often credited with accelerating a structural shift to e-commerce, paving the way for the rise of Alibaba and other digital giants.

In the following pages we’ll discuss how companies can reassess their growth opportunities in the new normal, reconfigure their business models to better realize those opportunities, and reallocate their capital more effectively.

Reassess Growth Opportunities

The Covid-19 pandemic has severely disrupted global consumption, forcing (and permitting) people to unlearn old habits and adopt new ones. A study on habit formation suggests that the average time for a new habit to form is 66 days, with a minimum of 21 days. As of this writing, the lockdown has already lasted long enough in many countries to significantly change habits that had been the foundation of demand and supply.

Companies seeking to emerge from the crisis in a stronger position must develop a systematic understanding of changing habits. For many firms, that will require a new process for detecting and assessing shifts before they become obvious to all. The first step is to map the potential ramifications of behavioral trends to identify specific products or business opportunities that will most likely grow or contract as a result. Consider how the pandemic has caused people to stay at home more. Implications include an increase in home office refurbishment, driving greater demand for products ranging from paint to printers. Unless we sensitize ourselves to new habits and their cascading indirect effects, we will fail to spot weak signals and miss opportunities to shape markets.

How to Identify Growth Opportunities

STEP 1 Cascade changes in habits. Start by drilling down from a big behavioral shift to identify specific products or business opportunities that are likely to grow or contract as a result of the pandemic. The graphic is a flow chart showing three behavioral trends that are increasing or decreasing as consumers spend more time at home because of the global pandemic. For example, the first flow shows changes related to an increase in working at home. Opportunities related to home office spaces are increasing in several areas including refurbishment, equipment, and digital coordination, driving increased demand in products and services such as paint and flooring; printers and desks; collaboration platforms; and bandwidth and connectivity. Opportunities related to commercial office spaces, such as commercial real estate, and business travel, such as airlines, hotels, and mass transit, are decreasing. The second and third flows show changes related to dining and entertainment. Source: BCG Henderson Institute
STEP 2 Identify type and duration of new trends. Categorize behavioral shifts according to whether they are likely to be short- or long-term and whether they existed before the pandemic or are new since it began. Entertainment, for instance, shows opportunities in each of the four quadrants. The graphic shows a standard 2 by 2 matrix.  The upper quadrants are for existing trends; the lower are for new trends. The left quadrants are for temporary shifts; the right quadrants are for structural shifts. The upper left quadrant, labeled “Boost,” is for existing behavioral trends that are experiencing a temporary acceleration, for example, video games. The upper right quadrant, labeled “Catalyst,” is for existing behavioral trends that are experiencing a lasting, or structural, acceleration, for example, streaming platforms. The lower left quadrant, labeled “Displacement,” is for existing trends that are experiencing temporary increase, for example, jigsaw puzzles. The lower right quadrant, labeled “Innovation,” is for new trends with lasting, or structural acceleration, for example, D2C theatrical releases. Source: BCG Henderson Institute

The next step is to categorize demand shifts using a simple 2×2 matrix, on the basis of whether they are likely to be short-term or long-term and whether they were existing trends before the crisis or have emerged since it began. The four quadrants distinguish among boosts (temporary departures from existing trends), displacements (temporary new trends), catalysts (accelerations of existing trends), and innovations (new lasting trends). Consider again the behavioral shift of “stay at home more,” which has had a serious impact on retail shopping. The question is, Will the shift away from retail stores to online be temporary, or will it be a structural change with permanent knock-on effects in other areas, such as commercial real estate?

We would place shopping in the catalyst quadrant. The pandemic has amplified and accelerated an existing trend rather than created a new one; people were shifting to e-shopping before the lockdown. But the shift is structural rather than temporary, because the scale and duration of the enforced switch, coupled with the generally positive performance of the channel, suggests that in many shopping categories customers will see no need to switch back. So retailers must shape their strategies to the new normal. Indeed, before the lockdown many retailers were responding to the digital challenge by redefining the purpose of the physical store, often by reimagining shopping as not a chore but an attractive social experience.

This framework can therefore be used to highlight which trends to follow and which to shape more aggressively. Companies cannot pursue all possibilities and should not try to. To get an idea of which ones to back, ask yourself whether any shift in demand is temporary or permanent. Many of the immediately observed shifts in response to Covid-19 were driven by fear of infection or compliance with official directives, and therefore were most likely temporary. But others were accompanied by greater convenience or better economics, so they are more likely to stick.

Any analysis of growth opportunities must go well beyond a simple categorization of what you already know. You need to challenge your ideas about what’s happening in your traditional business domains by taking a fresh, careful look at the data. This requires that you actively seek out anomalies and surprises.

Dive deep into the data.

Anomalies usually emerge from data that is both granular (revealing patterns hidden by top-line averages) and high-frequency (allowing emerging patterns to be identified rapidly). As behavior changed with the outbreak of Covid-19, for example, rich sources included data on foot traffic and credit card spending. An analysis showed that the recent drop-off in cinema attendance occurred before theaters were shut down in the United States. This, combined with an existing trend of declining attendance, suggested that the shift was consumer-driven and perhaps likely to persist in the absence of innovation. Live sports attendance, in contrast, declined only when events were officially canceled, suggesting a stronger possibility of a behavioral rebound.

Take multiple perspectives.

In the military, a technique for discovering what you don’t know is to use the “eyes of the enemy.” Military leaders ask themselves, What is the enemy paying attention to? and then shift their own attention accordingly to illuminate potential blind spots and alternative perspectives. The same can be applied to industry mavericks and competitors: Who is doing well? What market segments are your rivals focused on? What products or services are they launching? The same principle can be extended to customers: Which ones are exhibiting new behaviors? Which have stayed loyal? What new crisis-induced needs do customers have, and what are they paying attention to? It can even be applied to countries: What patterns emerged in China, where both the outbreak and the recovery came ahead of those in Western nations? In your own organization, ask: Which workplace innovations are taking hold in leading firms? What new needs are employees responding to? What opportunities do they represent that could potentially be developed and rolled out more broadly?

Adapted from HBR

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