There is no doubt that COVID-19 has affected every single system on Earth. Some businesses are booming, some are floundering, and some are finding ways to adapt to the changes. All businesses know and understand that there are always risks and potential risks, but many did not have systems in place to handle this type of worldwide upheaval. Below you can find some understanding of risk and business strategies to address the challenges caused by COVID-19.
Systematic Risk, Systemic Risk, and Systemic Shock
According to Investopedia, “Systematic risk is the overall, day-to-day, ongoing risk that can be caused by a combination of factors including the economy, interest rates, geopolitical issues, corporate health, and other factors.” Systematic risk is something most companies plan for and make regular changes in preparation of possible occurrences that seem forecastable. These types of risks are “inherent to the entire market, attributable to a mix of factors economic, socio-political and market-related.”
Systemic Risk “describes an event that can spark a major collapse in a specific industry or the broader economy.” A perfect example of systemic risk is the 2008 Lehman Brothers collapse. Systemic risk is harder to quantify and harder to predict, whereas a systematic risk is more quantifiable and can be anticipated, in some cases. Systemic risks can lead to systemic changes when a systemic shock happens within a system.
With regard to systemic shocks, COVID-19 is the shock felt around the world. Every single company, every single industry, and every single worker have felt the shocks and aftershocks of this disease. Businesses need to be ready to adapt to these shocks and changes. Given the rapid alteration of everything around them, most businesses have found this to be challenging and, at times, seemingly impossible.
Business Strategies to Change and Adapt
In the matter of just weeks, many industries saw systemic and systematic risk create the perfect storm. Our world felt the systemic shock of COVID-19 and many companies and small businesses struggled as their revenues practically bottomed out. Once booming businesses attempted to mitigate financial destruction with selling off assets, redistributing employees, cutting costs, and “applying for government support.”
For a brief time, it seemed like there were few signs of life with regard to business. Slowly, but surely, a pulse emerged. Many businesses, such as Real Estate, adapted with completely virtual tours. Many professionals started using internet based document signing services such as Docusign. Large and small business began leaning on technology more than ever to stay afloat during this time.
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Proactive Business Response Strategies
Now that many companies have felt the initial blows of the systemic shock that is COVID-19, some are having a moment to think about seizing possible opportunity. According to the MIT Sloan Management Review, there are “three generic response strategies to match organizational infrastructure with emerging market trends. Significant opportunities are available to those organizations agile enough to adjust their infrastructure, their product/service portfolio, or their route to market.”
Those three strategies are as follows
Strategy 1: Same Products, Different Channel
- This strategy is when the business offers “the same (or similar) products and services through an online channel. This may occur through the digitization of physical products or, in the case of services, through a technology-mediated delivery solution.”
- Examples: Nike and their shift to online at-home workouts, yielding 35% growth in online sales. Education and online classes. Restaurants and at home meal kits.
Strategy 2: Same Strategy, Different Products
- This strategy addresses the different demands that have occurred due to COVID-19. Due to these different demands, there is an under-use of organizational infrastructure. For example, hotels and bars sit empty, factories have slowed their production, etc. Due to these shifts, many companies are taking advantage of their pre-exisiting infrastructure to offer different products or uses.
- Examples: Many companies started producing hand sanitizer, whereas others like GM, Ford, and Dyson started producing ventilators. Hotel chains have offered rooms to hospital staff and even COVID-19 patients.
Strategy 3: Same Products, Different Infrastructure
- This strategy addresses businesses that are “suddenly struggling to meet the demand for their products and services, some companies need to quickly augment their infrastructure to increase production and/or delivery capacity. Finding new infrastructure is easier said than done and often requires collaboration with external partners, but a number of organizations worldwide are taking inventive steps to bridge such gaps.”
- Examples: Amazon partnered with Lyft to help augment the hiring an additional 100,000 drivers. “In Sweden, over 1,000 laid-off Scandinavian Airlines workers were offered fast-tracking to help the country’s health care system fight the coronavirus pandemic.”
Business Strategies Flow Chart
Image Courtesy of MIT Sloane Management Review
Business Strategies For the Win
Regardless of your business, you have felt the impacts of the systemic shock that is COVID-19. Finding ways to best leverage the infrastructure or product that you already have seem like best bets when it comes to trying to adapt to the systematic and systemic changes.