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While it would be foolish to believe that the tolling of midnight on December 31st ushered in a return to predictability, there is reason to believe that over the course of 2021, we will begin to transition back towards our pre-pandemic ways of life. Approaching this transition without a clear vision for how your business can, and should, adapt is a recipe for disaster. While the traditional planning processes might be ill-suited to such uncertainty, taking a “contingencies” approach built around scenario planning is just what 2021 calls for. A new approach might be intimidating, or even feel fruitless, but it may also be the most important strategic exercise you ever complete for your business!
Historically, planning processes have generally been fairly methodical. Budget planning, for example, generally starts with the previous year’s run rate, then considers new opportunities, and determines which expenses have to be increased to meet them. That sentence slightly oversimplifies the process but is fairly close to the mark for most businesses in most years. Using a 2020 run rate as a baseline for 2021, however, is unlikely to garner a great deal of confidence in your average CFO. For many small businesses, the 2020 run rate includes a 13 week or longer shutdown followed by a slow recovery while others have a rate that reflects some level of shutdown with a V recovery that dramatically inflated revenues for several months.
Enter the wonderful concept of scenario planning. While it may be obvious for many businesses that 2020’s actual data is largely useless as a baseline for 2021 planning, assuming that 2021 will return to business as usual may be equally unhelpful. Business leaders now face the challenge of trying to determine which will have a bigger impact on their business: the “headed back towards normal” benefits of a vaccine, the “back to lockdown” consequences of a continued increase in infections, or something in-between? While each of these scenarios may be daunting, the good news is that once the scenarios have been defined and durations for each have been assumed, plans for the business response under each circumstance can then be considered. By planning for actions that can address each of the most likely scenarios, businesses can position themselves for resilience or, better still, success in 2021.
Having a plan is, of course, only the first step. One area that is particularly likely to test a business’ plans is the labor pool. For many businesses, labor is one of the largest expense items on their P&L and the uncertainty of employee availability driven by increasing incidences of COVID exposure further complicates this aspect of 2021 planning. Adding to illness rates the likely new government shutdowns, the looming economic contractions, and the broader psychological impact of the pandemic experience can make it hard for businesses to find the stability necessary for confident staffing planning.
But with every challenge there is opportunity and businesses are adjusting to allow for inconsistencies in their labor pools, incorporating this variable into their scenario planning-based goal definition process. Creativity is truly the key to success in non-standard times. Those leaders that previously held firm to the belief that a work from home solution would never succeed are re-thinking that principle. Many are now focusing their energy on how to make work from home an effective new norm, for example by identifying and installing time tracking and control software, rather than continuing to fight the trend. Many brick and mortar businesses have explored modified forms of service delivery. While no one can know what the new-normal business environment will be in 2021, we have learned that our businesses can adapt, even in the harshest situations.
Consider a financial services organization with a labor pool of transaction processors. When the first shutdown was announced in March 2020, the leadership team hustled to create a work-from-home environment on a moment’s notice. It may have been a blessing in disguise that their business slowed during that period as the lull allowed them to adjust to the foreign, at home work environment. Thirteen weeks later, when they returned to the office, the management team hoped to never offer the WFH option again.
But the fall increase in COVID cases forced those same leaders to be grateful for the resilient strategy and techniques they had developed earlier in 2020 because when the second shut down they had hoped to avoid happened anyway, they were ready. When employees began to test positive, many had no symptoms and were eager to continue work. Despite these desires, allowing the employees back into the office was clearly out of the question. Fortunately, the new phone system routes to employee computers, the business takes advantage of online group collaboration tools, and they have new measures to evaluate employee performance. Those employees who wished to continue working were able to do so without coming back into the office. While this business was designed to operate in a single location, necessity and evolution has allowed them to succeed in a volatile environment. Now they offer a hybrid work option as standard, which has significantly simplified the planning process for this business in 2021.
Despite the fact that all short term indications support renaming 2021 Q1 to 2020 Q5, the new year provides an opportunity to consider what worked in the uncertainty of 2020, what will likely work again as 2021 stabilizes, and what should be left behind entirely. Even businesses that struggled through 2020 are likely to have identified some positive opportunities in the past months. As we continue to experience the challenges of a second surge of COVID, these same businesses may find it difficult to see past the downside but successful 2021 planning requires putting on the rose colored glasses for at least a few minutes. If a business has made it to 2021, they did something right in 2020. Success in a 2021 that continues to look like 2020 will mean at least one set of scenario plans that lean into the triumphs of 2020, regardless of how few and far between they may feel.
Last, and most importantly, leaders who have created scenario-based plans must also prepare to recognize the transition points where their strategies must shift to remain successful. No one can be sure when the pandemic will slow and life will resemble something akin to what we have historically experienced. No one can be sure which industries will boom and which will bust, or how long such cycles may last, as 2021 progresses. The planning process always includes a bit of guesswork but for 2021, a successful planning process will likely include quarterly alternatives, each with bad, moderate, and good scenarios, and results will need to be evaluated monthly. When we look back upon 2021, the final assessment will likely reveal that businesses ended up drawing a bit from each category of plans they created at one point or another. With the options handy, we can flex, adapt, and prosper as the world changes. Without these options, we could find ourselves stumbling blindly through yet another year, unable to do more than hope that we will stumble across success. Do you have your scenarios ready?