As businesses review their strategy following the pandemic and consider which lines of business are still viable, we've provided some guidance on what to consider:
How has your business strategy changed as a result of COVID-19?
In discussing how strategy has been affected by COVID, boards could consider questions like:
- Has the emphasis changed, perhaps from growth to cash conservation?
- Are changes to products and services temporary or permanent? Are they a reaction to government guidelines or has a strategic decision been taken to change the direction of travel?
It is worth considering whether business lines would remain viable if management accounting assumptions (for example, about consumption of inputs) and allocations of overheads (revenue per sqm, for example) were revised. A business unit that is cash generative but loss making due to the imposition of high central overheads could be worth saving. Similarly, if a line of business is not viable, overheads will need to be reallocated to viable business lines which could in turn make them non-viable.
Could these lines of business be viable again?
- Although one or more lines of business may not be viable today, could they be viable again in the future?
- How much cash are you willing and able to invest in supporting these businesses?
Might it be prudent to exit the market? For example closing a retail outlet, bearing in mind a penalty might arise for terminating the lease early.
What changes would be required to make business lines viable again?
Key aspects to consider include:
- Business model – eg supermarkets and other retailers moving to click and collect
- Markets – is it possible and attractive to shift from a ‘business to business’ model to ‘business to consumer’?
- Process change and automation – can you improve process efficiency and hence lower costs, perhaps by increasing automation?
- Scale – would increased scale generate sufficient cash and profits? Could a joint venture spread costs and increase revenue?
- Business lifecycle – if a product or service is nearing the end of its life is it worth supporting?
- Time – will the lifting of government restrictions and a return to ‘normal’ market conditions happen within your ability to support them?
Business lines which appear non-viable on a financial basis might work to support other aspects of your organisation. There may be skills and capabilities in these lines of business that could be redeployed elsewhere. For example, moving project managers from ‘non-viable business 1’ to ‘viable business A’ for a period could help accelerate change in ‘viable business A’ while reducing the costs of sustaining ‘non-viable business 1’.
What new external opportunities are there for the business?
Depending on the strength of the business’ reserves and risk appetite of the board and shareholders, entering new markets and acquiring competitors could provide new opportunities to improve the competitive position of the organisation.