We hear about various measures that the business world has been contemplating to tackle challenges emanating from the current pandemic. Businesses have suffered losses, bankruptcy, even closures. In recovering, enterprises and organisations are resorting to cost control, job cuts and other industrial actions.
Recommendations have also been made for no new investments, no advertising, no foreign travel, no training, and even no recruitment. Deploying such efforts to keep cost to income low is a general practice.
While these measures contribute to cost reductions and loss minimisation, they ignore opportunities for revenue enhancement and strategies for long-term benefits.
In an extraordinary situation such as the one we are in, enterprises would do better by envisioning novel opportunities, adapting quickly to changing customer behaviour, introducing efficient delivery channels and technology solutions, and the like to assure sustained profitability.
Economic recovery in the post pandemic world would require much more than mere cost optimisation, job cuts or avoidance of new investment expenses.
Covid-19 has affected industries- in more ways than we may have perceived. Loss of markets, changes in lifestyle, norms of social distancing and health care recommendations have altered customer behaviour and traditional business practices.
In a larger scenario, cancellation of RMG export orders, relocation of industries from a long established supply chain zone or new focus on agricultural value chain are all signs of a paradigm shift that we are gradually embarking on.
The new landscape deserves a well thought strategy than generic recommendations to move on. It requires identifying the unique characteristics of and challenges faced by individual industries, and using them to tailor solutions that encourage long term sustainability through and beyond Covid-19.
Let us look at a few scenarios. Think of a retail super shop. In normal times shoppers would visit the store, select items of their choice at times, even pick one or two more items looking attractive on display, and even indulge in a new food recipe promoted through an instant cooking demo.
All of these are irrelevant at present. The store manager now needs to implement new sale strategies such as an online order system whereby the customer behaviour of selecting items of their choice and/or buying a few extras are available.
For this the store would need new investments in building e-commerce platforms in their sales models, implementation of vigorous digital advertising campaigns, and for designing efficient delivery methods.
Another situation is that of a healthcare provider. Patients may not visit hospitals unless an emergency demands so in the current situation. Here telemedicine, even a GP practice in a small neighbourhood clinic under the hospital's brand may perhaps gain ground.
This arrangement would reduce crowding at hospitals, as well as free up specialists and facilities to provide better care to patients. Introducing this new business model however warrants investment, staff, and permissions, but if implemented, it could cater to new demands and open up a window of opportunities. A prototype of this effort is amply demonstrated in the recently introduced method of collection of samples from homes for Covid-19 tests.
Exporters, particularly in the RMG sectors, have suffered the most due to Covid-19. The industry is not likely to revert to full steam ahead until overseas market conditions improve. RMG exporters will justifiably look for cost optimisation, but must not overlook prospects a few months down the line.
In cost optimisation there are again options. Rationalising the costs of borrowing, sourcing, transportation, depreciation of fixed assets, utilities, etc. together provide substantial savings. Employees in a manufacturing facility are important assets; their replacement may be difficult and more expensive when normal business resumes.
The agricultural value chain has drawn more attention following the pandemic than at any other time in the past. The new realisation is to invest more in agro-distribution systems, marketing and mechanisation.
Processed foods are likely to draw more attention from retailers. Wet markets have been a cause of concern; refrigerated vans supplying processed fish and poultry at peoples' doorsteps could bring in a new delivery channel.
In farming, mechanisation has been emphasized since long for higher output. Agriculture, pisciculture, poultry and related sectors will grow with new investments, creating job opportunities and new revenue streams.
The financial sector has a different story. Income has dropped not only due to the impact of Covid-19, but also due to the ceiling imposed on lending rates, default loans and increasing operational expenses. The financial sector has been on a growing spree, capital expenditure is a major item in their cost lines.
Experience says rationalisation of processes achieves substantial cost savings, while automation and digitalisation of services bring increased revenue. We have banks with multiple 'full size' branches in a radius of a few kilometers, established to offer a better reach to customers.
The mode of reaching the customer has changed from brick and mortar branches to digital solution. Rationalising the branch network concurrent with switching to digital platform has ample potential for cost saving as well as revenue generation.
The hospitality industry is the biggest victim of the situation. We have to proactively come out with a solution as to how recreational packages can be sold observing social distancing norms.
Each of the industries discussed above has a unique situation either in opportunity or crisis management. Every enterprise is unique in their operation and prospects. They must assess their own position individually taking into account all alternatives.
One should think of the long term prospects too, rather than tackling a crisis with the apparently visible, easiest solution. An impulsive action devoid of strategic considerations may in the long run deprive an enterprise from enjoying the silver lining that smiles behind the thick cloud.
A straight formula of job cuts, pay cuts, and shut down would not be prudent in a survival game. The maxim that one size does not fit all is so true in current environment. A 'tailor fit' solution is required to treat every entity.
KAM Majedur Rahman, Banker and former MD, Dhaka Stock Exchange Limited.