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Act now to recover: getting your operations fit for the future

Claude Fuhrer Partner, Deals Strategy & Operations Leader, PwC Switzerland 14 January, 2021

The Covid-19 crisis has taken businesses into unexplored territory. On the one hand there’s been unprecedented uncertainty as to the further course of the pandemic and the recovery of the economy. On the other hand there have never been richer and more varied sources of capital available to businesses seeking to finance change. In this post I argue why, if your company isn’t currently struggling for survival, this is a great time to take action –an opportunity to review the lessons learned from Covid-19 and make your operations stronger, more resilient and more likely to succeed, whatever the future may bring.

In the early days of the crisis back in spring, the priority for many businesses was to conserve cash and stay afloat. The next step was to adapt to the new normal, often by seeking ways of cutting costs to make the business more crisis-proof. Logical though that is, there’s always the danger of cutting too much in the wrong places and actually weakening key parts of your business and jeopardising your chances of capitalising on the recovery when it comes. The other danger at present is the temptation to simply sit out the crisis and wait for revenues to recover before acting. That would be a major missed opportunity.

Taking momentum from the crisis

1: Make or buy?
Companies that aren’t struggling for survival now have time and money to act and change certain things to make their operations stronger. There’s a unique window of opportunity to take momentum from the crisis and implement measures that weren’t possible six months ago because the resistance was simply too great. Digital is a case in point. Who would have predicted homeworking on such a huge scale? What was out of the question less than a year ago has in many cases become the new normal. But these changes have required rapid learning. What works? What doesn’t? Do we need new ways of managing new ways of working? Over the few months of the pandemic, a growing gap has emerged between those who have mastered these challenges to take a quantum digital leap, and those who now find themselves lagging way behind.

Another case in point are supply chains, an area at the very heart of operations that is directly affected by some of the biggest lessons dealt out by the Covid-19 crisis. Many companies that have tried to maintain a global supply chain on their own have struggled. At the same time, large supply chain providers have had the agility, specialist capabilities and technology to respond quickly to the challenges of keeping goods moving to where they’re needed in the face of severe and rapidly changing restrictions.

Organisations now have the opportunity to review the lessons learned about supply chain resilience during Covid-19. In other words, they have a chance to assess what components they can manage better, more efficiently and reliably, and at lower cost themselves, and where it makes more sense to outsource. By making wise ‘make or buy’ choices at this point, taking account of the lessons learned from the pandemic, companies can lay the foundation for greater efficiency, flexibility and resilience in the longer term – not just in their supply chain, but in the rest of their operations as well.

Covid-19 may not have fundamentally changed the rules of global business, but it has certainly challenged some of the key assumptions to such an extent that entire industries are being forced to reassess basic components of their operational set-up. For example, with established trade routes proving to be so vulnerable, companies in the European pharma and medtech sectors are questioning the wisdom of producing crucial drugs and medical supplies in Asia and are already considering shifting parts of their manufacture back to Europe. In other industries too, the crisis has underscored the fact that operational choices such as these don’t just affect efficiency and margins. When push comes to shove, a company’s decisions on matters such as where and how it produces, and what it makes or buys, can be a crucial factor in in its very survival.

2: How do we deploy our capital?
Whether a company chooses to make or buy, the decision will require investment. Here too, it’s important to realise what has changed – particularly by comparison with previous crises.

The real game-changer is the availability of capital. Funds are usually tighter in a crisis. But this time round (by contrast with 2008 and 2011), huge amounts of cash are presently to be had. This has been the case for the last six or seven years, and this capital will remain available. Compared with the last recession in 2007 to 2009, the capital available for investment is not as closely linked to economic trends. While bank lending has declined as a source of funding, the rise of private debt funds, venture capital and private equity has greatly increased the amount and mix of capital available [1]. Added to this, many companies hold much more cash than they used to.

With such a mix, despite the crisis, companies now have the luxury of being able to choose what sources of capital to draw on to make the most efficient use of the available resources. It pays off to explore the possible avenues more closely. How could we restructure our debt? What are the implications for covenants in a downturn? How can we optimise our working capital? Could we be looking into alternative sources of capital?

To sum up: act now to recover and emerge even stronger

As I said at the start of this post, many companies that are not struggling for survival now have the time and money to consider investing in their supply chain and operations for greater strength and resilience in the future. At this point, the least promising option is to merely sit the crisis out and wait for revenues to recover. Wise changes made now could define the success of the entire business going forward – from both an operational and a commercial point of view.

[1] For more on this, see PwC’s recent report: "Winning through M&A in uncertain economic times”.

Contact us

Claude Fuhrer

Claude Fuhrer

Partner, Deals Strategy & Operations Leader, PwC Switzerland

Tel: +41 58 792 14 23