Protecting your company’s economic health

The behavioral changes needed to fight the public health threat are resulting in an immediate decline in revenue for most businesses. From near-term take-out tactics to longer-term changes to operating models and rewards spend, developing the right response to those economic challenges will help to ensure a full and quick recovery.

Donna Lehman 

And now I'd like to introduce you to your host Esther Colwill.

Esther Colwill 

Moving from San Francisco and welcome to a webinar series on leading through and beyond COVID 19 I missed a call that either Korn ferry is global technology practice and I'm the host for today's session on protecting your company's economic health

Well, thank you for joining us in the midst of this crisis. We're all going through this for the first time.

And many of us have experienced disruptions, the current generation of leaders has never experienced a global pandemic.

This is a serious health crisis impacting the most vulnerable populations in our society and our first responsibility is to support our employees, our partners and our communities.

Business leaders have gone to great lengths to prioritize public health closing your doors to customers and employees is not an easy decision for any business leader.

And yet we've seen hundreds of thousands of businesses do that across the last three weeks here in the Bay Area where I live. We're in a Shelter in Place Order and I've got three kids next door who engage in homeschooling so you know we may get interrupted with a fourth grade math question, at least in the near term, our lives have been transformed in ways we could never have imagined a few months ago.

As we put the steps in place to respond to health crisis, our focus will shift to the ongoing operations of our businesses.

Today we're going to be discussing the steps you should be taking to manage the impact of this crisis on the financial viability of your business.

Will present called various current point of view about how to assess the impact what kind of cost cutting approaches.

Most companies are like you to take and how to guide your organizations through those changes. I'm joined by two colleagues Nathan Blaine, and Alex Jakobsen

Nathan is a leader in our organizational strategy group and the leader of our cost optimization practice and Alex is a leader in our organization Strategy Group and the global leader of our m&a practice.

Before we get started, I'd like to get a sense for what kind of cost reduction activity if any is taking place of the businesses, you will represent

We have a quick poll that we'd like you to participate. It

Will bring up the poll on screen. It's a kind of check all that apply in response to the economic impact of the crisis.

One has your organization identified a list of potential cost savings measures to has your organization's undertaken any cost cutting measures.

Three. Have your organization stations taken cost cutting actions that have resulted in layoffs and forward you expect layoffs in your organization. The next three months.

Right when Ray Donna, if you will. Show me the results.

We've got a lot of people voting. All right.

Very good interested to see what you say.

Oh my goodness. So it's looking like

Yes. A lot of you have this is top of mind for a lot of you, you've got a list of cost saving measures. Some of you are starting to undertake them and I am rather happy to see that so far there's not so many layoffs, but you're, you're certainly planning some goodness this crisis is is triggering a lot of different responses will let, let me turn my panelists. Alex, let's start with you. Thanks for joining us today. How should we be thinking about this is this 2009 all over again.

Alexander Jakobson

Well, first of all,

Thanks to everyone for joining us today as the light you I have homeschooling going on with a 10 year old and an eight year old.

eight year olds a bit resistant to it and I'm sharing my home as office space with my wife, and we have someone who is a high risk category. So we're trying to lock down here. So I appreciate that the world's been turned upside down for everyone on this call. And so a big thank you to you for joining us. And thank you for the question.

It's definitely not 2009 all over again. That was the financial crisis, not a humanitarian crisis. So, businesses, the most immediate concern was the access

To capital this crisis is flying in the other direction. It started in our communities and it's flowing back into our businesses, when the financial crisis in 2009 the pandemic will challenge the fundamentals of our economy.

And the financial strength of our businesses. So this crisis and how we respond to it will be different.

EC

Then what will this be different.

AJ 

Well, for starters, the economy is not the biggest issue right now it's quickly becoming an important but CEOs are worried about the word about slowing the pandemic, first and foremost operational continuity is the next big challenge.

And after all of that they're turning to the alignment of the organization around the new economic realities.

So the playbook us to address those economic realities will be different.

When Lehman Brothers close their door in 2008. It was pretty clear that we were going to be going into a deep sustained recession.

And the complete lack of access to capital meant that we didn't have the tools to fight it.

With this crisis, we know less about what's ahead of us. So we're going to have to make some more measured responses.

And if you cut too quickly you can make the economic impact of the crisis, even worse, and if you cut too deeply you risk not being able to prepare for the rebound as the crisis passes.

One of our retail clients recently closed their doors, but promise to continue paying wages and benefits for employees as many companies in their sector have

When asked why they didn't conduct layoffs, or even unpaid absences, the head of you. Human Resources said we can't afford to have our associates looking for jobs elsewhere.

There are scarce and valuable assets for the company, they were before the crisis and they will continue to be when this when we come out of this.

And make no mistake, the pandemic will end.

The nature and timing of container of containment is highly uncertain.

The virus will be contained many of the economic forecasts, we've seen so far in Europe and the US show a steep decline in Q2 and a rebounding Q3 and Q4

EC

Alex. That's a great story about your regional client reminds me of Southwest Airlines in the US Southwest has never conducted layoffs, not after 911 not during the global financial crisis and not during the supermax grounding.

And so, not surprisingly, they don't plan to this time around, either.

You think Wall Street would punish them for that. But they didn't have all the airlines operating in the US, their stock has seen the smallest decline over the last month.

They have the strongest p e ratio ratio and their peer group and think about that. The Allen doesn't conduct last in a crisis is the one that investors like the most right now.

Southwest has demonstrated their ability not only to get through a crisis, but to come out stronger and invest as a reward them for that.

Nathan, you just heard Alex suggested nuanced response. What might that look like

Nathan Blain 

Yeah, thanks. Esther and

Thanks again to everyone for joining us today. Yeah. Alex is exactly right. This situation is much harder to read than it was in 2008

The response is going to evolve from day to day, we're not going to see the same rush to layoffs that we saw in 2008

Because back then even big businesses were boxed in they were losing money every month and they just didn't have as Alex mentioned access

To credit to cover those losses. So these circumstances are different, and we're going to see a different response. It won't be driven just by the need to conserve cash.

It'll be calibrated to the changes that we're seeing in the environment changes to the public health, environment calibrated to the changes in demand that will be experiencing.

Challenges changes and consumer behavior changes that we're seeing in the overall economy, both locally and globally.

And it will be designed to preserve as much of the operational capacity as possible the capacity to generate revenue.

The capacity to serve our customers and deliver to customers and the capacity to advance our strategic priorities to continue to lay the groundwork for future growth.

So leaders will succeed or fail, according to how well they walk this line, the line between cash preservation on one side and capacity preservation on the other side.

In order to do that. Well, in order to walk this line. Most organizations are building scenarios, they're building those scenarios around two major forces that are impacting the economics of their business. The first is the change in demand.

How far and how fast will demand disappear in their industry in sectors like airlines and hospitality. The change in demand was immediate. And it was severe

Government to close borders, they had restricted public gatherings businesses at canceled events.

It was, it was an immediate shutdown for other industries. The changes have been less consequential telecoms, for instance, some segments of the seat of consumer packaged goods.

Life Sciences, even some technology firms are seeing just modest impact and in some cases the changes or even positive

The second variable that every leader is monitoring is the length of time it will take to contain the virus and this is harder to assess

So we're going to be looking at the experiences of China and Italy, trying to understand what they went through in the phases of the experience there.

We're going to be watching for signs that governments and citizens are working to contain the virus, and we're going to be listening to public health officials as they learn more and more about how this virus is likely to behave

And I think that uncertainty is what makes this so challenging

One of our retooled retail clients told us last week that they have enough access to cash to keep employees on the payroll. For the next two months, but they're inactive planning to figure out what to do if the days stay of the doors closed for longer than that.

And there's a lot of scenario planning going on finance and rewards professionals are on the front line of that they are working around the clock.

To define these scenarios and to generate cost savings options for each of the scenarios that they've defined

They're generally for scenarios that companies are evaluating the first is the scenario where the economic of the impact this virus is small.

And the leadership team has a relatively optimistic view of containment.

These companies are going to ride out the storm. They're going to focus on their people. They're going to focus on their operations, but they're not doing too much cost cutting

Second is the scenario where the pandemics impact on demand in their business is severe, but they expect this to not last for very long. They expect the duration to be short and this is what you

But people have in mind when they talk about the V shaped recovery. A lot of businesses didn't plan for this scenario, but they found themselves there in a matter of a few short weeks and these businesses have to pair and protect

Third is the scenario in the lower right hand corner of this two by two on the screen where the impact may not be dramatic, but the longer this goes on, the more likely it is to leak into other segments of the economy until leak into their own sector.

And so they're working to get lean so that they're fit for this journey that they're they've, they've got the cost structure in place, should this extend another 18 to 24 months. And finally, the fourth scenarios. The one in the upper right.

Where this this this crisis is already having a big impact. And we expect that that pain could continue even after the virus is contained

That in some way this crisis will permanently impact that demand that that industry is facing in a way that will require some serious restructuring inside the organization.

I spoke to one of our British colleagues last week, and he works with the European manufacturer with two large plants in China. In fact, those plants are their biggest operations around the world and the government. They're required them to shut down the operations in China.

So this company still kept everybody on payroll and they they started planning, they started planning for scenarios that we've described different lengths of time different

Depths of severity last week after being closed for six weeks they reopen their plans.

Now they've come back slowly. They've come back at 30% of their production rate and they should things go well expect to ramp that up.

But they never had to do any additional cost cutting and I thought that was the interesting thing they did.

All of their planning, but they never had to deploy any of those contingency plans that they had put in place for their business.

So it hasn't been easy for this company and the crisis has taken its toll. And it certainly will, as the crisis continues, but they never had to make any lasting cuts to their reproductive capacity in China.

So, One of the things the question.

AJ

Later yes sorry such an interesting story. It's hard for us to imagine how this will unfold, we, we really need to to learn from examples of funds that are further along the journey.

We're reading a lot about you shake the shake recoveries. Many of our clients in Europe in the US, a plan for both scenarios. Nathan, can you can you talk a little bit about cost cutting measures for the companies are considering in each of these scenarios.

NB

Yeah, sure. Thanks, Alex. That's a great question.

So the list of potential cost savings measures is pretty long, and we've summarized some of those changes. You can see those here on the screen.

In the lower left, you see some of the changes that people made almost immediately. The last two weeks.

Almost every business has done the easy things, first and foremost you cancel things that just don't make sense anymore. It doesn't make sense in this environment to plan a sales kickoff. If your sales team can't come join you for that, or at least an in person sales kickoff.

Secondly, we're delaying the timing of certain activities. So maybe we can freeze hiring. Maybe we can delay an office opening. Maybe we can delay a product launch or maybe we can even push off merit increases, a few months.

And then thirdly, we're capturing some of the savings that just naturally come with revenue declines in almost every business. There are expenses that fluctuate with revenue thinks of materials expenses in manufacturing or think of sales incentives in a software firm.

You might not want to capture all of those savings, for instance, those sales incentives, you might want to plow back into some sort of compensation to keep your sales team engaged, but there are certainly some savings and variable expense that you'll want to lock in at this point.

The folks planning for or in some cases today living through the parent protect scenario that you see in the upper left hand corner of this page, they're cutting more. This is the scenario.

That that a lot of retail organizations are finding themselves in this week and next. So they're considering cuts to executive pay

They're reducing hours. They're asking employees to consider voluntary leave again. All of this is with an eye to preserve capacity to retain those employees as

As you mentioned in the story that you told Alex to retain employees who really been the, the lifeblood of their organization.

Businesses in the lower right. The get lean scenario are focusing on some of efficiency projects. So they might tackle a complex and costly process.

To find opportunities to make that process faster and cheaper and better

Or a company might optimize rewards and when companies realign their rewards investments around the programs that employees value the most

They can save at least 5% without any negative impact on employee engagement. So those are the kinds of efficiency initiative initiatives.

That a lot of companies are kicking off so that they're ready in case this goes the distance and the case. This is a very long crisis.

And finally, for those companies who are extending for planning for that extended period and who are already seeing steep revenue declines.

There are a lot of serious measures that they're considering they're planning for so undoubtedly will see declines in CapEx will see more m&a

Will see more layoffs every company in this that's planning for this scenario, the restructure scenario.

Is looking at changes that will dramatically impact the size and the shape and the future of their business and you have to go into that with real clarity about your priorities.

And a real clear plan for how you execute on the changes our experience as a outplacement provider.

has taught us that the most scarce resource during a layoff is the time needed to prepare. So those organizations are preparing now so that they're ready with counseling and coaching services and the ability to match exiting employees in one industry with needed talent and another

I think these are the headlines that are really creating a lot of panic for employees and it's probably. These are the most difficult questions that leaders will face in the coming weeks and months.

So they're they're they're watching their dashboards quickly and they're watching existing indicators. So they're looking at the key indicators that predict growth in their businesses today. These are traditional metrics.

And they're also monitoring you indicator. So they're monitoring public health data they're monitoring the newly diagnosed cases in the geographies, where they sell and operate.

They're looking at propagation rates in those geographies and, thirdly, they're paying much closer attention to economic data weekly job loss data changes in sectors that are

Where their clients live so that's become a much bigger part of dashboards and we'll need to be as they think about these scenarios.

EC

Okay, thanks. Nathan, and thanks for covering for me. I don't know if you notice my internet job for a few minutes there and

You know it's under a lot of strain here in the Bay Area. I think with so many users. Well, I think.

There's clearly a wide range of actions we could be taking and figuring out when to use them as going to be critically important.

Alex, I wanted to come back to you. This is going to be hard on employees. They're already anxious about health issues anxiety about job loss and job security is going to make that worse how delete is managed through that.

AJ

Well, as we've mentioned several times the first priority is engaging the organization in the battle against the virus.

When the CEO of Bank of America was asked whether we are entering a financial crisis, his responses to remind us. This is a healthcare crisis and humanitarian crisis saying we're in a war.

We're in a war to contain this virus.

That was the message to the nation, but it was also a message to his employees.

While the bank continues to operate it also needs to ensure that it's doing its part to prevent the spread of the Quran of ours.

EC

Yeah. That's a good reminder that leaders need to help us think about priorities in this crisis. It's really a challenging time. And I'd like to talk to you about what leaders need to be thinking about as they rise to this challenge.

But first, let's use another poll to get a sense for whether we have a battle tested team leading this change on the, on the, on the line here. So the next polling.

Questions which of these events. Is your organization experienced over the last five years, a significant reduction in workforce in terms of layoffs have more than 15%

A significant revenue decline say no more than 20% in a single quarter or really hasn't experienced any significant disruptions. So just give me a couple of minutes to just check on that poll.

Let's see what kind of experiences this team has faced.

DL

Told me about 475 up getting over 500 just one minute.

EC

All right, all right.

Ah, OK. So many of you have not faced significant disruptions of this kind of you have. Well, look, this looks like some new terrain, then

Alex what leaders do to engage their organization and not only finding the virus protecting the economic health of their farm.

There, I noticed on the Q AMP a some of the questions that we got were around how do we keep employees engaged, even if we're not cost cutting. How do we keep employees engaged during this crisis because there's so much change.

AJ

Yeah, no, I think that's important because some, some, you know, healthcare, for example, they won one mentioned in the chat. Was that they're not cost cutting. But how do we prepare employees to deal with the challenge ahead of them well frequent and transparent communication are obviously critical

Then I'd say there are three to do's for leaders as they work to keep employees engaged and focus

We hear we heard that from some of our previous webinars from our colleagues conducted last week that communication is essential. I'd say that three today's, as I said, the first is leaders need to demonstrate empathy.

And understanding of the personal experiences of employees. These are exceptional times

It is. It requires change in everybody's lives.

But more importantly, listen to what is happening in the lives of your team.

One of our colleagues last week thoughts about the listen to speak ratio.

It's worth mentioning that again leave time in your one to one meetings and conversations to hear how this is changing the lives of your people and those around them.

And those expressions of empathy can show up in your work in the community as well.

In the UK, for example, pro-democracy is providing free hot drinks and at least a 50% discount of meals to national health service employees.

I hope we see similar expressions of support for healthcare employees around the world.

Number two leaders need to constantly communicate the context of decision making.

What indicators are you looking at to make decisions. What is the rationale behind your decision. What options. Did you explore

We see this today as leaders make decisions about keeping their doors open or closed.

It will continue to be important as leaders make decisions about how to preserve the economic health of their organizations.

And finally, leaders need to figure out how to do this, virtually in large organizations. It's rare that the CEO communicates this news directly to the front lines.

So you need to equip leaders at all levels to deliver the messages using all the channels that are available to them.

Video meetings phone meetings collaboration platforms even social media all of the tools you have

For those of you who are interested in hearing more about those techniques. So I'd encourage you to visit the Korn Ferry Resource Center.

EC

Great thinking there about how to make sure you're communicating effectively.

I want to talk just quickly about a couple of actions that you should be thinking about.

The first is making sure you have the right dashboard in place, Nathan mentioned, this goes beyond traditional tools of focusing sales and supply

This is about looking at public health data real time economics and and the nuance of countries and cities, how the virus is impacting and how the government is responding and what that means.

To your customers and to your people on the second is a an action plan around different scenarios.

Engaging a group across your leadership that have real operational experience and then really finally talking to your teams to keep them engaged. So with just a couple of minutes. I want to turn to Nathan for a couple of a couple of closing thoughts, Nathan

NB

Sure. Thanks. So I appreciate it. I thought I would share a couple of weeks ago, I emailed one of my clients, who's the CEO of a mid cap company.

To see if he had any peers for his advice during this crisis and his first response was predictable.

He wrote if they haven't already. They should secure access to more credit that extends your timeline and that's good advice that's what I found most interesting was what he then went on to say, he said put humanity at the center of everything you do at the end of the day.

We have to remember what makes us human. We have to remember that we're capable of crippling fear and anxiety and we have to remember that we're capable of great hope and resilience

In an interesting way this crisis puts our shared humanity at the center of what we do the virus attacks indiscriminately. It's not bound by title or role or hierarchy.

If leaders at all levels can connect to those human qualities in an authentic way that will leave this crisis with more respect for one another, more trust more confidence and much more powerful businesses than we had before, but we should all remember to put our humanity first

And I think that's a powerful reminder for not just what we should do. But how we should do that. Esther. 

EC

Yeah, I love that as a closing thought, well, thank you so much for joining. Everybody there'll be more webinars coming up turning over to you to donate to donate to wrap up for us.

DL

If we can go to the next slide, you'll see that you can get additional information from Korn ferry website. You can even hold up your phone.

Open up your, your app on your camera and get a capture of that QR code. It'll take you straight there.

Where you can keep up to date with what we're doing in this series. Thank you to all of our speakers. There is another webinar tomorrow.

You can see that on the next slide as well. And if you haven't registered for it, you might take a look. This webinar was recorded, you will receive an email by tomorrow with links to the recording and the slides and we hope that you stay safe and be well

This webinar is now over. I'm going to end the meeting. Thank you.

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