How finance leaders can adapt to the new normal

This has been a tough year. Challenging. Nerve-racking. Exhausting. And it seems there’s more to come.

U.S. health officials have acknowledged that a vaccine for COVID-19 may not be widely available until well into the second quarter of next year, possibly the third. Following the lead of several Silicon Valley companies, Deutsche Bank has informed employees they can continue working from home until at least mid-2021.

Finance leaders need to be prepared for the long haul, keeping their companies profitable while looking after their teams. But how do you do that when you’re trying to navigate without a map? Perhaps more important, how do you keep doing what it takes as long as it takes?

First and foremost, put on your own oxygen mask first

Several studies have shown how the human brain is focused on minimizing danger and maximizing reward – the ‘approach-avoid’ or ‘fight or flight’ response. When we sense a threat our reptilian brain takes over to assess the stimuli and initiate an appropriate response. While all effort and blood flow is being redirected towards the threat response, our ability to engage in rational problem-solving is curtailed. When a lion was hunting you down, you didn’t have time to start analyzing the best route; you simply ran!

Because the brain seeks certainty, it values autonomy—a sense of being in control of circumstances and our destiny. The loss of control, and increase in uncertainty, can stop us in our tracks – right at the very time we need our problem-solving brain to kick into swift action.

I see a lot of great finance leaders in ‘paralysis’ mode right at the very moment they need to engage their brain’s fullest capacity for rational decision-making. Take a moment to recognize when stress may be impeding your business logic, and allow yourself some time to pause to reset your cortisol. It will benefit your business in the longer term.

Beware of cognitive inertia

Our brains love ‘business as usual.’ Preserving the status quo enables us to retrieve information, interpret situations and take decisive action with minimal effort. However, habits can also create blind spots and become a source of ‘cognitive inertia.’ The term refers to the tendency for our beliefs to endure once formed, and for us to become attached to our decisions, perspectives or plans. We rely on familiar assumptions and are reluctant to revise them, even when the evidence supporting them no longer exists. Finance leaders are no exception!

This is the time to question the underlying assumptions on which your business model is built: are they still relevant? Your commitment to seeing through your annual operating plan, or sticking to your usual marketing channels, simply because ‘It’s always done this way’ could cost you over time.

Spend time observing how your business model is behaving throughout the lockdown. Have your customers’ behaviors changed? Has demand for your product or service changed? What are your competitors doing? Be open to reassessing your underlying beliefs about the future. You may need to adjust course more than once as the new normal unfolds.

Arm yourself with data

Always start at the top. What trends are you seeing in consumer demand, customer behaviors, and industry shifts that directly impact your top line? (Be sure to focus on the right KPIs.)

Analyze your customer base for clues. Which are likely to have been negatively impacted by the lockdown and the resulting economic fallout? Perhaps a cohort of your customer base is thriving, like Zoom or Amazon, while others may be suffering, like airlines. What does that mean for your business? What can you offer them? What do they need?

Second, realign your operating expenses to right-size your business model. This requires a bit of thinking about causal relationships within your data. How well do you understand what levers to pull in your business to create maximum impact on the bottom line?

Here are some possible quick wins:

  • Travel: Are you benefitting from the reduction in travel costs (some global companies are saving hundreds of thousands in 2020 alone from the lack of travel). Could you preserve some percentage of these savings over the longer term?
  • Workload leveling: By now, business leaders have already made some tough short-term decisions that impact the workforce. Right-sizing your workforce amid growing uncertainty about the economic outlook is one of the toughest decisions you will make throughout this recession. While hiring freezes and natural attrition may be necessary in the short run, a longer-term study can provide deeper insight into potential efficiencies of a distributed workforce model.
  • Working capital – understanding changes in cash-flow patterns, and what they mean for your business, can help you release excess cash within your working capital. A robust cashflow forecasting model can release excess cash tied up in receivables or stock, and prevent any risks from materializing within your supply chain.

Think long term

It’s tempting to respond to a quickly changing environment with a short term ‘patch’ while awaiting the return to business as usual. But business as usual isn’t coming back any time soon. Whether you are considering price reductions, or providing added-value services to existing customers at no cost, or ‘simply’ extending credit terms as an olive branch of solidarity, consider how sustainable they would be if you had to extend them over a longer term.

Focus on people

First and foremost, companies must prioritize the health and safety of their workforce throughout the pandemic. Everyone has had their lives disrupted. Everyone has been forced to adapt. In many places, families are facing another several months with their children in remote learning. Good leaders will acknowledge the cognitive toll these disruptions are taking, and build better structures for their newly distributed workforce. Organizations must also provide employees with the tools and support they need to perform their jobs productively amid rapidly evolving directives. Communication that is timely, transparent and two-way is critical to helping employees stay informed and engaged.

Test your assumptions

After that, finance leaders must build strong, flexible, and responsive financial models to keep their forecasts up to date. Instead of scenarios for best case, most likely case, and worst case, businesses need to model likely case, worst case and catastrophic case scenarios, with action plans assigned to each.

To succeed, you’ll need to embrace uncertainty. But that doesn’t mean you have to be unprepared. Channel your survival anxiety to fuel your unlearning. Question the assumptions in your business model. Prepare multiple scenarios and have a Plan B, C and D to hand, and you’ll be well equipped to face anything these times can throw at you.

Joanne Griffin is founder and CEO at AdaptIQ, a boutique consulting firm helping companies, and their employees, thrive in a world where change is the new constant, and Co-founder at IrelandTogether, a non-profit business support network, committed to finding innovative solutions to the unfolding economic uncertainty impacting Irish businesses.

 


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