Prepare for further volatility and risk
As companies and wider society come out of lockdown measures, there will be no room for complacency about the upturn. Until a vaccine is developed, which isn’t likely until 2021, there could be continued restrictions and the possibility of a second wave of infection outbreak. There is also a real risk of the virus mutating.
Companies will therefore need to build a high degree of flexibility and continued resiliency into their short- and medium-term strategising. They will need to be ready to adjust operations up and down and not assume that recovery will be a continuous and linear process. Human resource models that provide 60:40 flexibility around a 60 percent permanent core are likely to gain ground. Consideration should be given to which aspects of the strict separation, hygiene, control and business resilience measures adopted at the height of the crisis need to be maintained and stepped up or down as needed.
Focus on security of supply
Security of supply, a familiar theme in the energy and resources sector, has much wider relevance in a world living with COVID-19. As the crisis unfolded, companies had to move quickly to secure supply chains and manage component inventory. As the outbreak begins to be contained and economic activity revives, many will be re-evaluating their supply chain resilience.
In production sectors such as chemicals and metals, we anticipate a strong sentiment in favour of more localised and shorter supply chains. The risk/return ratio of global supply chains, with their traditional labour arbitrage and other factor cost advantages, are likely to have shifted when viewed through a COVID-19 lens. For example, we may see the sourcing of many precursors and starting materials being relocated closer to the final stages of production and end-user markets.
Plan for a new sense of vulnerability
COVID-19 has reminded the world of its vulnerability and heightened the awareness of the public and wider society to global risks. This in turn could have an impact on discussions about other threats such as climate change. Across the board, companies will want to examine their approach to risk with a fresh eye and consider what measures are needed to derisk their business models.
As a minimum, companies should use their pandemic experience to inform wide-ranging reviews of their business continuity and crisis management strategies. Some companies will need to go further and implement structural measures to reduce risk. In the oil and gas sector, for example, high cost producers that have been left exposed by the collapse in the oil price may need to turn to collaborative partnerships or consolidation as way of bringing costs down.