The human and economic impacts of COVID-19 … What should business leaders do now, to support people and society, whilst also sustaining their businesses?
March 26, 2020
It’s a difficult time. All around us, the news updates on television screens and social media are relentless as COVID-19 multiplies across our cities, nations and continents. The human tragedy, concern for our loved ones, frustration at politicians, admiration for health workers, disbelief at those still socialising, adaptation to new routines under quarantine or lockdown, affects us all. As a society there is a huge concern for each other, whilst as business leaders we know we have to keep our businesses going too.
In years to come we will look back, sociologists and economists, at the way in which we behaved, and the positive and negative impacts it had. Questions will rage about the causes and effects. From the impact of climate change and urbanisation that likely sparked the leap of the virus from animal to human, the global connectedness of travellers that accelerated the contagion’s spread, to the panic buying of some, and the total lack of social responsibility of others.
Of course, Bill Gates was right when in his 2015 TED Talk, he argued that the biggest threat to humanity was not economic or conflict, but a global pandemic for which we were woefully unprepared.
Business impact, and accelerated innovation
The impact on every business has obviously been significant. The travel and hospitality industry was perhaps the first and most dramatically affected. As travel bookings were cancelled, airline share prices plunged (United -57%) as did hotels (Marriott -48%) and booking engines (Expedia 53%). Worst were the cruise lines, with the sight of quarantined ships around the world (Carnival -68%).
In the medical world, scientists are racing to find a vaccine. As they seek to accelerate their research and development, human trials have already started on possible solutions, but it is still 12-18 months away. Incredible, considering previous vaccines took 20 years. Other anti-viral drugs may help patients to recover faster, like Avigan developed by Fujifilm, the former maker of camera film, in 2014. 3M is racing to manufacture millions of new hospital ventilators, whilst Dyson has used its air purifier technology to develop CoVent, a new ventilator in just 10 days, and is now racing to produce 20,000 of their new design.
And other companies have jumped in with support. LVMH quickly converted production of perfumes to hand sanitiser, although it didn’t come with a Louis Vuitton label. Maverick beer brand Brewdog meanwhile developed its own branded santitizer, Brewgel. Both companies gave all stocks free to people in most need. At the same time, Foxxcon transformed its iPhone production into making hi-tech face masks, and Spanish fashion business Inditex shifted to producing protective clothing for health workers.
Andy Grove, the former CEO of Intel, once said “Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them.”
So how do commentators see the business impacts around the world?
Consumer impact, a seismic shift online
BCG analysis of consumer behaviours shows an interesting comparison between Seattle (where COVID-19 first struck in the USA) and the national average. It shows huge drop in transportation and fitness as people stayed at home, but significant increases in groceries, both online and physical, pharmacy and entertainment.
Home delivery services may be a significant “beneficiaries” of our behaviour changes, both during the crisis, and beyond it too
- Domino’s Pizza is urgently seeking to hire about 10,000 workers, from pizza chefs to delivery drivers, in response to a surge in home deliveries, all done without public contact.
- CVS said it needs at least 50,000 more instore staff, home-delivery drivers, distribution centre employees and customer service professionals.
- Amazon is seeking 100,000 more delivers and has introduced a 24 hour rapid recruitment process, supported by AI-based application analysis and rapid online training.
- Instacart, one of the fastest growing grocery delivery companies is seeking to recruit 300,000 new staff, pickers and packers, plus deliverers, to meet the demand of shoppers in isolation at home.
Indeed this shift online is likely to be the most significant business legacy of COVID-19. The shift to home shopping and food deliveries is one example, but even more significant for millions of students is the shift to online education as schools and universities seek to move teaching and assessments online, and in healthcare where much faster and safer advice and diagnostics can be delivered by smartphone consultations and online AI-enhanced analytics.
Economic Impact, dramatic falls on stock markets
Stock markets around the world have seen substantial declines, with most indexes down by 25-35%. USA and European markets were relatively late to appreciate the severity of the coronavirus. Some stocks actually increased in value throughout early February even as the virus was spreading far beyond China, showing how many in the west acted in denial or underestimated the virus impact:
The consequences for many companies will be quickly felt. Particularly for those where their entire revenue streams is abruptly halted, like airlines and car manufacturers, realtors and restaurants, but also for small businesses and gig workers, and those who depend on them. For so many of these companies, margins are slim, and there is no ability to keep paying salaries. Some companies however are doing what they can
- Netflix recently announced that it has set up a $100 million relief fund for cast and crew members, including third parties, working on studio productions that have been halted by the coronavirus outbreak.
- Starbucks has reopened over 95% of stores in China, including sites in Wuhan and the Hubei province, whilst in USA it has committed to paying all staff for at least 30 days whilst stores are closed
- Governments too are recognised their role to support society – Sweden for example is paying 90% of salaries and deferring tax payments for up to a year at a cost of €27.5bn to the country’s treasury, equivalent to 6% of GDP.
Whilst China received initial criticism for not stopping the initial outbreak of the virus in its tracks, back in January in Wuhan, its subsequent actions seem to have been effective in slowly the spread to the point where business is starting to get back to normal. China’s action included extreme quarantine for anyone with symptoms, tracked through citizens needing to update their daily temperature readings through a government app. Also noticeable was the massive change in air pollution, as the grey smog across industrialised China dissipated for 6 weeks. Now, however, the roads of Beijing are clogged again, and China’s economy is recovering as shown by BCG data:
Action plans for business leaders
McKinsey has brought together a useful checklist of what business leaders should be doing right now. Based on analysis of what companies are effectively doing they propose 5 focus areas, with 18 workstreams of action:
However every business needs to tread a fine line, between putting people first and profits second. Last week a Wall Street Journal editorial suggested that we may soon face a dilemma, a terrible choice to either severely damage our livelihoods through extended lockdowns, or to sacrifice the lives of thousands, if not millions, to a fast-spreading virus. If businesses are hugely damaged and many jobs are lost, this could have a great human impact than death. I don’t think that’s a reasonable choice.
McKinsey, instead, have focused on safeguarding lives and livelihoods.
Economic forecasts suggest a 1-3 year downturn
The most positive forecast by McKinsey is that China will undergo a sharp but brief slowdown and relatively quickly rebound to pre-crisis levels of activity. While GDP is expected to drop sharply in Q2 2020, some signs of normal life are returning in Beijing, Shanghai, and most major cities outside Hubei. In this scenario, China’s annual GDP growth for 2020 would end up roughly flat, wiping out the growth of 6 percent we expected just three months ago. Nevertheless, by 2021, China’s economy would be on the way to regaining its pre-crisis trajectory, if not adversely affected by developments in the rest of the world.
In this scenario, the virus in Europe and the United States would be controlled effectively with between two to three months of economic shutdown. Monetary and fiscal policy would mitigate some of the economic damage with some delays in transmission, so that a strong rebound could begin after the virus was contained at the end of Q2 2020.
In a more pessimistic scenario, China would recover more slowly and would perhaps need to clamp down on regional resurgences of the virus. It would also be hurt by falling exports to the rest of the world. Its economy could face a potentially unprecedented contraction.
The US and Europe could also face more dire outcomes in this scenario. They could fail to contain the virus within one quarter and be forced to implement some form of physical distancing and quarantines throughout the summer. This could end up producing a decline in GDP at an annualized pace of 35 to 40 percent in Q2, with major economies in Europe registering similar performance. Economic policy would fail to prevent a huge spike in unemployment and business closures, creating a far slower recovery even after the virus is contained. In this darker scenario, it could take more than two years before GDP recovers to its pre-virus level, placing both Europe and the United States.
57% of companies were founded in a downturn
A study by the Kauffman Foundation found more than half of the companies on the Fortune 500 list – 57% to be precise – were launched during a recession or bear market.
That means it’s likely that right now, amidst apparent economic chaos, some of tomorrow’s best companies are just getting their start. All of these companies started during the midst of recessions, seizing the opportunity of changing attitudes and behaviours, as other battled to survive:
- Disney … Walt Disney Productions launched their first animated cartoons in the depth of the 1929 Great Depression, bringing a smile to people in tough times
- Burger King … started as Insta-Burger in California, using a new machine called an Insta-broiler to cook meat faster and cheaper as post-war America struggled in 1953
- Microsoft … Bill Gates and Steve Wozniak launched their first software in the downturn of 1975 as companies sought efficiency through collaboration and speed.
- CNN … Ted Turner launched the world’s first 24 hour news channel in 1980 as USA plunged into a double-dip recession, and people had an urgent hunger for fast news.
- Apple … In 2001 Steve Jobs launched the iPod amidst the debris of the dotcom bubble bursting all around, reviving the fortunes of Apple which started in 1975’s downturn.
These companies typically jumped on moments of change, as moments to start anew. Not with the same old businesses as before, but with new concepts and new business models. Where it offered something at a much cheaper price, or faster and easier, or a latent opportunity just waiting for some airtime.
Finding your North Star to survive and thrive
As business turns to the challenge of survival and renewal, beyond the current economic shocks, to get through what is likely to be a significant global downturn, probably a recession. There are big challenges, but also opportunities:
- Survive – cut all non-essential costs, and preserve cash – better to close temporarily than to limp along at full cost, look after your people as best you can, and do what you can for communities and society in relevant ways.
- Focus – reprioritise, even reimagine your business, right now – what to stop, where to accelerate, how to change – and at the same time be productive yourself – new ideas, new skills, new projects – and stay positive.
- Thrive – Finding new opportunities to innovate and grow – right now, for example, we are seeing a huge surge in people switching to digital services, e-Education when schools are closed, e-Health when we need urgent care.
Being set adrift in a stormy sea means that all the strategies and plans you did have are thrown away. Instead you need something to keep guiding you. Something to give you direction, and maybe a little hope. Something to frame what you could do, not just what you did do. Purpose is your North Star:
- Purpose – finding your bigger idea is more important than ever right now – like sailors in stormy seas, we need a rough direction to head in, but this is your choice – not just what you do now, but your bigger ambition, passion and goals.
- Concepts – once you have a purposeful direction, what is the value you bring – how do you make the world better in some way – start to create strategic concepts, big ideas beyond today’s business, ways you could make a mark on the world.
- Actions – aligning your actions to the purpose and concepts – some of it might be doing what you do now, simpler or faster or cheaper; some of it will be doing new things, adjacent and aligned to your current activities, but guided by purpose.
With a clear sense of purpose, even the stormiest seas can seem less bewildering – or days locked in your home, might seem like a unique opportunity to pause and think about where you are going in life and work. With a clear sense of purpose, you can steer your way through and out of today’s chaos, to find a better tomorrow. But start now!