Leveraging your knowledge base to provide new purpose-driven solutions.
This week an article showed up in my inbox that was first published in the Harvard Business Review back in 2010.
It looked at how firms performed in the last three global recessions. The conclusions were stark.
Nearly 20% went bankrupt. Eight out of ten of those who survived did so by making sweeping cuts to their businesses, and almost all firms required more than three years to get back to pre-recession revenues.
It was sobering to read, particularly as we think about the impact of the economic crisis we are just entering.
But 9% of the firms studied in this article managed to buck the trend. They were the resilient ones, that bounced back quickly, and in many cases, came out of the recession stronger than they went in.
So, what made these firms so resilient?
The answer is actually quite subtle.
They did cut costs to preserve cash but did so through improvements in operational efficiencies, rather than slashing the number of employees.
And they used the downturn to pivot into new markets and create additional revenue streams, while leveraging lower prices and interest rates to update plant and equipment.
By saving money through efficiencies, these firms were able to preserve their staff and knowledge base. By seeking new markets, they were able to offset falling revenues in their core market and by updating their plant and equipment at lower costs they were able to respond quickly to increased demand when the downturn ended.
Last week, I shared the 7 Urgent Questions for Food & Beverage Manufacturers Dealing With COVID-19. Since then, many of you have reached out or joined our regular Wednesday Webinars and shared how you are reacting to the deepening crisis.
Most of the larger firms I have heard from seem to be in overdrive, working flat out to keep production moving at a level that can satisfy demand, while at the same time continuing to protect their staff.
While many smaller firms are having real market access issues. I touched on this in the 7 Questions, but depending on where small and medium sized firms sit in the supply chain, and what part of the supply chain they are servicing, it seems that an increasing number are having to pivot.
But the one word I kept hearing – from food and beverage manufacturers of all sizes - was resiliency.
Back to the HBR article for a moment. We have already seen that the most resilient firms in a downturn are the ones that create more efficiency, while at the same time are deploying their staff, R&D and capital investments to pivot into new markets.
However, this doesn’t speak to the important differences in what resiliency actually means between small and large firms. And I think these differences are critical in supporting Canadian food and beverage manufacturers through COVID-19.
To larger companies, resiliency means planning. Planning for all the various scenarios that can and are happening, so that teams can pull out the appropriate strategy and execute it without having to design it first.
Larger firms tend to also have a level of societal purpose and commitments to environmental and societal outcomes. This means that when a crisis hits, they have processes in place to ensure they support all their stakeholders. It’s why we are seeing firms like Loblaw, Sobeys, Metro or Maple Leaf Foods making significant commitments and donations to Food Banks or have increased staff salaries. They have a clear commitment to a purpose and know that by taking care of their communities when times get tough, their communities will take care of them when times get better.
But for smaller or medium sized food companies, resiliency means something quite different.
In order to not just survive, but thrive, these firms need to be absolutely clear on their knowledge base - not just on the products they make but on the value they could create through what they know how to do.
It means understanding all the markets they could operate in, not just their principal market, and how to get access to them.
It means knowing how to pivot quickly.
And increasingly, regardless of where they are in the supply chain, it means having a B2C brand and infrastructure so that they can sell direct to consumers.
E-commerce for food and restaurants is up 194% in Canada when comparing sales from March 11th to March 19th as compared to the previous 19 days. In other countries, as lockdowns take hold and grocery stores fail to keep up with demand for home delivery, manufacturers are increasingly seeing the opportunities to sell their products direct to consumers.
Small and medium sized food and beverage manufacturers make up 95-97% of the food industry in Canada. They will never be able to plan for all the scenarios that will hit them and nor should they try (and while COVID-19 is unprecedented, it is also just a shot across the bow in terms of what is coming as climate and other health related risks ramp up).
Instead, they should be focusing on the power of sustainability, leveraging the tools that will help to reduce all forms of waste in operations (material inputs/finished product, energy, water, labour), engaging employees for new ideas, cutting costs and working smarter. And they should be focusing on the power of the pivot, leveraging their knowledge base and proximity to customers to provide new solutions, increasingly digitally-enabled.
But there is one more nuance here - how do you choose the right pivot?
The truth is that even with the best market knowledge, even if you are really listening to your customers, pivoting always carries an element of risk.
The most effective way to mitigate that risk is to be clear on what you stand for as a company – what your purpose is. If you know why your company exists (beyond making a profit) then you will know which pivots will serve your purpose and which won’t.
I am curious to know what percentage of the most resilient 9% of firms from the HBR article were clear on their purpose. I suspect it was all of them.
President & CEO
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