"The Chinese use two brush strokes to write the word 'crisis. ' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger--but recognize the opportunity."
John F. Kennedy, US President
It's the sort of blockbuster movie plot you'd expect to see while sitting in the dark confines of a movie theater, booming audio and a gasping crowd. A thrilling plot has your eyes riveted to the screen, where the dramatic tension is only broken when you run out of popcorn or the movie ends. In that scenario, you can return to your "real life" in a little over an hour, with no discernible life altering impact. It is now clear this COVID-19 provocateur is no movie; this virus will not go away so quietly without leaving an indelible impact on the world. It most certainly will impact how you and the leadership team rely on your EPM software and Enterprise Performance Management in general.
For this article, we'll define EPM software as Gartner does as dealing with “the process of monitoring performance across the enterprise with the goal of improving business performance.” Other activities we'll include under the Enterprise Performance Management umbrella are FP&A modeling, budgeting, forecasting, reporting, and consolidation. Keep reading to find out how our plot unfolds. You'll learn how to avoid high latency, Excel centric planning. You'll also learn 3 stages of recovery and the leadership principles needed to accelerate your Enterprise Performance Management and remodeling during COVID-19.
I believe EPM plays a key role for the world to achieve better outcomes while navigating thru our movie plot against our evil villain, COVID-19. This will be a 5-part blog series helping FP&A and Accounting professionals cope with and recover from the COVID-19 crisis. This first blog defines the critical choice you now have to make as the hero in our movie - how to cope with the effects of COVID-19. Four more blog posts will follow. I'll be defining stages leadership can follow using Enterprise Performance Management to rapidly re forecast, avoid cash shortfalls and ultimately recover and grow past COVID-19. Read on to find out how.
I acknowledge there is an important debate to be had in the right place and time about the virus origins, appropriate medical intervention, and quantifying damage attributed to this phenomenon. However, my purpose in this space is to explore a practical path to navigate and even positively influence the economic impact for you, your organization, your community and even the world. I will provide these thoughts organized in three stages:
- Early stage focused on triage and crisis navigation
- Midterm stage focusing on recovery & acceleration
- Long-term stage involving sustaining the new normal.
I believe these management principles can be applied through your EPM software to any jarring event that impacts a single business, a market segment, or businesses globally.
Before I lay out a framework on what I believe each organization should do to maximize their recovery through the value of their EPM software, I would like to provide some context about leadership in moments of crisis in general. This will lead to the choice you have to make as I eluded to above.
I observe the way commercial and political leadership seem to be divided into two camps who appear to embrace differing approaches. I submit both camps are merely opposite ends of the same continuum, defined by a shared confusion as to what to do. The common line joining both response mindsets is fear and uncertainty. This is understandable on some levels, as the data is not clear cut, and therefore almost any analysis can be supported by available data. This inherent uncertainty yields one of two strategies:
- Hope is actually our strategy: Leaders embracing this strategy seek to comfort by assuring those under their charge that the organization is 'monitoring the situation', doing all they can to focus on health, and they're sure a return to "normal" is coming soon. They seem to be embracing a "business as usual" will resume, not because they believe this to be the case, but they find the notion to be soothing. For this mindset, leadership is about not panicking, going slow and feeling your way through a problem. This approach eschews experimenting with anything too aggressive, instead relying on instructions from others and waiting to see how things pan out. This is received as a conservative approach.
- The end is near: This type of leader is personally very concerned, may have extreme anxiety about the future, and isn't too bothered about being transparent about who knows it. Their fear-based decisions are conveyed through rapid adjustments to the downward business trend to "prepare for the worst." Jarring adjustments (retreats) are explained as the virus is forcing management's hand to make "difficult decisions" and make radical moves in the name of being conservative.
What I observe is that both mindsets have common qualities that serve to make the economic outlook worse, not better. Like an investor who smells a short sale opportunity – one or two observing the trends and exploiting the market can be tolerated without upending the market. A lot of short sellers can unintentionally play the role of market makers and crash a market.
Choosing a strategy in crisis mode: Either inaction while hoping for improving fortunes without adequate information or radical action absent specific information can both produce a severely damaging outcome to the future of the business, and the market as a whole. In the case of a global event, the risk of companies acting in stampede mode is elevated.
Note the common thread: Information, or the absence thereof, is a critical component in making decisions. This isn't a new concept caused by this viral strain. This is a common weakness present in all businesses since the beginning of trade. This particular incident just exposed how inadequate our analytics systems are. Stay tuned for the next blogs in this series to see how you and your EPM software can help.
The good news is, typical with any extreme edges of a spectrum, neither the "it will get better" nor "things are going to be awful for a long time" are likely to be realized. Meaning, things will not return to normal, but our system will not totally fail either.
When a crisis hits and our established institutions and proven systems buckle and fail - health, economic, government and even cultural - it can shake the foundations of everything we believe in and certainly be confusing. There's your moment of commiseration. Now we must get down to business, and I believe EPM software and procedures play a key role for the world to achieve better outcomes while navigating this crisis.
I laid out the spectrum most businesses are on – "not too worried about it" and "sky’s falling”. They sound prudent on one level, but this mindset skips the alternatives. One such alternative is to refuse to assume the ‘response stance’. Yes, we need to take cues from the market from time to time. But relying exclusively on reactions to external events is not the path of leadership, it’s the path of following by definition.
Leadership Summary & Homework:
The quote I opened with talks about danger and opportunity in crisis. By focusing on and reacting to the danger, that spectrum of reaction options is available to you. By focusing on opportunity, another set of options opens. I’ll conclude this first blog post in the series by encouraging you to be balanced in your response, keeping an eye on both the danger and the opportunity as you navigate through the three stages of the crisis, which I’ll lay out in the next three blog posts. Until then, your assignment as our plot’s hero, is to resist the two poor strategies as outlined above. How can you base your strategy on data instead? How can you improve your forecasting, planning, reporting, and analysis processes to accelerate your recovery?
Stay tuned for the next blog posts coming in our series:
Short term stage: Triage. How EPM can assist with crisis navigation (part 2 of 5)
Synopsis: Given our nefarious provocateur, COVID-19, we all can see the needed ability to rapidly (and accurately) re-forecast with emphasis on cash management. This requires linkage of operational activity to finance as directly as possible. We simply can’t rely on slowly changing assumptions like standard costs, inventory Par levels, or avg headcount being in place for a year or longer.
The new EPM model needs to be highly dynamic with driver-based controls & sensitivity, as well as boosts from allocations and AI discovery and rate validation.
Medium term: Recovery acceleration Leveraging EPM to make wise choices as the market stabilizes (part 3 of 5)
Synopsis: To make financial sense of the choices going forward you’ll need the ability to quickly model the impact of government programs, and dynamic opportunities like acquisitions of distressed assets, rapid hiring, rapid capacity expansion, accelerated manufacturing, and hedging. You’ll want to exploit these tactics to accelerate your recovery and even growth. This requires proforma financial modeling, what if, and tight linkage between operations and finance.
Long term: Sustain. Advancing EPM solutions while settling into the new normal (part 4 of 5)
Synopsis: What should the state of play be in the future? Can anyone afford to return to high latency, excel centric planning? If driver based, extended planning (linking strategic, operational and financial plans), as well as AI assistance are the new tools that have suddenly become de rigeur, is there a more incremental approach to arrive at this solution configuration with excel, and legacy solutions on the same path?
Futurist vision: The Auction Economy (part 5 of 5)
David Den Boer, Founder, Column5 Consulting