Business Resilience: Tools for preparing to reopen businesses
COVID-19 and the resulting lockdowns have challenged long-held business assumptions and rules of operation. We don’t know how long this pandemic will...
Business resilience:
Tools for preparing to reopen businesses
Reimagine
business resilience in
the COVID-19 world
COVID-19 and the resulting lockdowns have challenged long-held business assumptions and rules of operation. We don’t know how long this pandemic will affect global economies, and even once lockdowns are lifted there is no going back to business as usual. Organisations must re-operationalise processes and change their business models to reflect a new world with different ways of doing business.
We have three tools to help your organisation build resilience as you plan the transition from working under lockdown to a post-COVID-19 reality:
• The CGMA Horizon Scanner (See page 8)
• The CIMA Strategic Scorecard
• The CGMA Business Model Framework
Before examining these tools for
re-operationalising your organisation, identify a team of people to focus on the journey ahead. This team should bring together individuals from key departments and divisions of your organisation.
Has the coronavirus outbreak changed your own business/operating model?
The CGMA
Horizon Scanner
<small>A multifaceted scenario planning tool
Businesses often fail to address risks that were long known but never tackled. Operating plans and budgets are usually set for the next year, but the risks associated with the pandemic might impact organisations for the next three to five. To build resilience, you need to consider potential future scenarios and what actions should be taken today to safeguard the business’ future.
The pandemic has fundamentally changed organisational relationships. Customers’ concerns about COVID-19 have changed their lives and their behaviour. Regulators are demanding changes to the way organisations do business. Investors need reassurance that organisations are managing their cashflows and long-term plans. Competitors are responding unexpectedly, using new technologies in different ways.
For longer-term business resilience, the CGMA Horizon Scanner recommends building out scenarios, with a time dimension that is integrated across eight groups:
Suppliers — How will you re-start your supply chain and ensure supply chain resilience in a global trading environment that will continue to be disrupted?
Regulators — Are you alert to government-led initiatives to kick-start the economy? How will cash flow and cash resilience affect your organisation when banking facilities are strained?
Customers — How will changing societal norms and a traffic light approach to reviving economies impact customer interaction with your organisation?
Competitors — How are competitors adapting and re-purposing their businesses into new operating models?
Processes — How will you reorientate your business in a socially distanced operating environment?
Technology — How can technology provide secure new ways of working and help you find efficiencies that you wouldn’t have considered before COVID-19?
Stakeholders — How are you being judged for your pandemic response? Are you being evaluated for the way you treat your employees, suppliers and customers?
Environment — How does operating in a global, interconnected environment change when in some countries there is the risk of a return to nationalism?
Once medium- to long-term scenarios are debated and agreed upon, they can be examined for their effects on business resilience. They can be built into your organisation’s strategies and business models to help navigate from lockdown to a resilient, post-COVID-19 organisation.
The CIMA
Strategic Scorecard
<small>A simple, yet dynamic means of
improving business strategy
The CIMA Strategic Scorecard was developed to help boards of directors successfully oversee the strategy. It’s a
tool to ensure that proper consideration is given to the performance and strategy dimension of enterprise governance. The scorecard provides the board with a simple but effective process for focussing on the key strategic issues and — most importantly — asking the right questions. This empowers the board to work constructively with management to promote the future success of the organisation.
The CIMA Strategic Scorecard has four quadrants:
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Strategic position — The external environment or ecosystem
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Strategic options — The future strategic "bets"
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Strategic implementation — Review of current projects
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Strategic risks — Review of organisational risk processes and identification of key risks
The scorecard can be especially useful for illuminating the impact of COVID-19 on an organisation’s strategic directions. It can help:
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Define the key aspects of the environment in which an organisation is operating to ensure that the board is aware of changing competitor issues, economic factors and other disruptions brought on by COVID-19.
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Identify key options that could have a material impact on the strategic direction of the organisation moving from a lockdown state into a
post-pandemic world. It also helps the board determine which options should be developed further.
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Chart significant steps or milestones in relation to the chosen strategic plans. This helps re-operationalise in the new environment and track performance.
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Highlight the strategic risks surrounding an organisation emerging from lockdown and moves these into manageable opportunities or mitigation plans.
We have quickly investigated and researched the usefulness of the CIMA Strategic Scorecard in the COVID-19 business environment. In late April, as the pandemic crisis deepened, members were invited to demonstrate the value they could contribute to an SME case study in a survey. The survey included the following
COVID-19-focused questions:
1.How would you go about assessing a fictional company’s immediate situation?
2.What risks and opportunities should be addressed over the next few weeks?
3.What options or strategies do you think the business owner should consider for the recovery?
4.What are the main strategic risks which you think the business owner will need to address?
Members who took the survey were not alerted to the fact that the questions had been derived from the CIMA Strategic Scorecard.
The case study presented to the survey participants is outlined below, and readers of this research paper should note that the responses presented here refer to this case study in many of their responses.
Jo Evans Interiors Ltd. — SME Case Study
Jo Evans (55) is the owner-manager of a small business that assembles and fits bespoke furnishings for boutique hotels and prestigious homes for wealthy clients. She employs five skilled craftspeople in a studio near Cheltenham. For many years, her main supplier has been an Italian artisan cooperative. Jo is well-regarded by some leading interior decorators who recommend and commission furnishings. Her work has been featured in glossy magazines.
The business is incorporated as a limited company and it rents a small unit on an industrial estate. Jo owns the premises through her pension, and there is a loan of £150k against it. Until recently, this was an established, successful business. Turnover was ordinarily over £500k per annum. But last year was difficult because of uncertainty regarding Brexit. The business took a small loss. It currently has an overdraft with an agreed limit of £25k. The order book had looked reasonably good for 2020, but in the current climate business has evaporated. Paying this month’s wages will take the overdraft close to its limit.
Strategic position — It focuses on information for the board rather than decision points. It looks at external information that will inform the organisation’s decisions and includes the marketplace, competitors, the regulatory environment and so on.
In the present context, there is a need for an immediate strategic response, an interim response and a long-term response for the recovery or ‘new normal’.
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The immediate situation is the unprecedented pandemic. For a lucky few, their services are suddenly in great demand. This has been especially true for major digital businesses such as Netflix and Amazon. For many businesses, especially any in the offline retail and leisure sectors, this presents a cash flow crisis because revenue from sales has come to a sudden halt.
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For the duration of the pandemic and especially over a lockdown or subsequent social distancing period, businesses might continue to trade, pivot to a survival mode or, in effect, hibernate.
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The strategic situation may be an inflection point in the inevitable transformation towards a digital economy.
In terms of strategic position, we have extracted the following practice statements from the survey responses, providing a COVID-19 lens on how these companies review and manage their strategic position:
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Check the latest financial statements (including assets and liabilities). If unavailable, try to update ASAP. Check for any obvious financial issues (e.g., overtrading.) Discuss with Jo how the current situation will affect sales, staff and supply chain.
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Identify key customers, key suppliers and financial liabilities/commitments. List out all expenses and identify discretionary expenses, options to delay/defer expenses Check options to re-negotiate overdraft/loan terms and conditions.
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Forecasts are crucial to determine whether current resources will meet future requirements of the business.
Strategic options — They focus future development, which has greatest potential for creating or destroying stakeholder value. These are the big "strategic bets" and normally only three or four would be under consideration at any one time.
An example of strategic option choices would be Amazon. Twenty-five years after they first began to trade as an online bookstore, the pandemic presents an opportunity or "burning platform" for businesses to pivot to a more online and digitally enabled business model. As for strategic options in our scenario, here’s what survey respondents suggested:
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Review potential sources of income through limited sales, collection of debtors, government assistance and potential to defer outgoings.
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In terms of the case study, Jo should assess options to either survive or thrive:
.....1. Review the current customer base and your suppliers and assess
..........their likely recovery period.
.....2. Assessing new revenue lines.
.....3. Checking the business’s financial strength/cash flow to continue her business.
.... 1. Consider diversifying revenue streams.
.....2. Expand existing business, organically or inorganically.
Strategic implementation — Reviews approved projects that are being scoped out or implemented. It can form a link with the balanced scorecard in monitoring the progress of these projects. The reporting of whether a post-completion audit has or will be carried out would also be covered here.
In the context of COVID-19, businesses should review current projects and consider which to drop, which to stall and which to prioritise. Our survey respondents made the following points regarding strategic implementation in our scenario:
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For all the strategies to do a feasibility study to see if there are the resources and ability to deliver it.
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If a project is feasible, create a business plan with financials to enable resourcing from external sources.
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Perhaps re-purpose an existing asset to enable financial feasibility.
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Set clear milestones against which to measure success, which can include targets for securing new client/revenue and targets for breaking even.
Strategic risks — This focusses on whether the organisation has appropriate policies and processes in place and has identified key strategic risks.
Most businesses weren’t prepared for a pandemic. The next challenge is to not be similarly unprepared for the recovery. The return to a more normal business environment might be
V-shaped, U-shaped or L-shaped. A sharp economic shock followed by a quick recovery would be V-shaped. A U-shape would mean a longer period of slow trading before a recovery. An L-shape would mean a need to adjust for a long period of lower economic activity.
This makes planning very difficult, as whatever form the recovery takes will present different risks. This means that businesses must plan for different scenarios.
In terms of strategic risks, our survey responses again show on how organisations are approaching business in the COVID-19 landscape:
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Risks and lost business due to COVID-19 — Some clients failing
to pay their invoices, resulting in liquidity problems.
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Establish risks and opportunities for each potential strategy as
part of an options appraisal.
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Can the business be pivoted?
....1. Staff safety and retention through the downturn
....2. Cash flows to settle liabilities
....3. Supply chain disruption (as furniture is supplied from Italy)
....1. Use government stimulus packages to manage cash flows, retain staff and . . ... .......ensure funding until revenues pick up.
....2. Identify new suppliers.
....3. Identify opportunities to diversify revenues (e.g., provide interior design advice or use ........social media channels to promote expertise.)
....4. Negotiate better terms with bank.
....5. Prepare zero-based budgets for expenses.
The CGMA Business Model Framework
<small>A lens to view the greater organisational picture
An organisation’s business model explains how value is generated, delivered and preserved. It’s a system of inputs, business activities, outputs and outcomes that bring together different sub-units of the organisation to:
For longer-term business resilience, the CGMA Horizon Scanner recommends building out scenarios, with a time dimension that is integrated across eight groups:
The CGMA Business Model Framework is a powerful tool for understanding the end-to-end view of an organisation and its interactions within an ecosystem. Reviewing your business model and organisational value touchpoints holistically help you avoid making decisions that focus on pandemic cost-cutting in the short-term but could potentially lead to future corporate failure. Future-focused questions around your business model require considerations beyond the short-term’s financials. They must seek to establish how your organisation’s brand, reputation, long-term success and customer loyalty will be affected as you emerge into the post-COVID-19 business world.
Define — For whom and with whom do we create value?
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Does our purpose remain relevant post-lockdown or should the pandemic change it?
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How has the pandemic changed the needs and priorities of our stakeholders? Which stakeholders should we focus on?
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How resilient is our value proposition post-COVID-19?
Create — How do we create the products, services and experiences that meet customer needs?
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Does the value we create resonate with our customers in a socially distanced reality?
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What are the medium- and long-term risks from post-lockdown measures or changing stakeholder behaviour?
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How has the pandemic and subsequent government interventions affected our suppliers?
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How will resources be procured in the new reality? For example, does a local home sourcing resilience approach make more sense than a just-in-time global efficiency one?
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Could we adapt our products or services to those that customers desire more?
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Could we simplify operations
post-lockdown?
Deliver — How do we match and deliver our products and services to the right customers at the right time, place and price?
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Do the pandemic and lockdown measures affect our methods of delivery?
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Is the pandemic changing to whom we deliver value? Does this affect how we can build a healthy long-term relationship with the customer?
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How will the pandemic affect the cost of delivering value to customers? Will there wider economic effects be coming out of lockdown that change margins and pricing?
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How can technology help change the way we deliver value post-COVID-19?
Capture — How do we share the benefits of value creation to incentivise key stakeholders to continue to partner with us?
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For whom do we capture value?
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Has the pandemic affected the way we capture value?
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What will we do with any residual value generated given the economic instability and need to balance risk and resilience?
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How will we share surplus value amongst our stakeholders in the new reality? Organisations are being judged by how they treat their customers, suppliers and customers.
Putting the
tools to work
Armed with the information and scenarios these three tools provide, you can steward organisations through both the short- and long-term ramifications of the pandemic.
Through re-budgeting, re-forecasting and
re-orientating, finance professionals can help any business build resilience and improve operations. By using these tools in tandem, you can help organisations generate and preserve value — not just in reaction to the current crisis, but in preparation for whatever comes next.
That’s what makes a business resilient.
Do you believe you are doing enough to help your organisation out of the pandemic?
- Yes
- Just about
- I’m not sure what to do.
- Definitely not
Do you understand your business model well enough to help your organisation out of the pandemic?
- Yes
- I do, but I don’t get involved.
- I’m trying to learn but I need support.
- I don’t understand my business model.
How many business recovery scenarios has your finance team created?
What controls will you need to transform in view of what you have learned from the crisis? Select all that apply.
- Sales order to cash.
- Cash, bank, treasury management.
- Delegations of authorities.
- Record to report.
- Payroll and expenses management.
Chartered Global Management Accountant® (CGMA®)
CGMA is the most widely held management accounting designation in the world. It distinguishes more than 137,000 accounting and finance professionals who have advanced proficiency in finance, operations, strategy and management. In the United States, the vast majority also are CPAs. The CGMA designation is underpinned by extensive global research to maintain the highest relevance with employers and develop competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements. They must commit to lifelong education and adhere to a stringent code of ethical conduct. Businesses, governments and not-for-profits around the world trust CGMAs to guide critical decisions that drive strong performance.
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Association of International Certified Professional Accountants
The Association of International Certified Professional Accountants® (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs® (AICPA®) and the Chartered Institute of Management Accountants® (CIMA®) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally.
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Report authors:
Dr. Martin Farrar
Associate Technical Director
Research and Development—Management Accounting
Association of International Certified Professional Accountants
David Hackett
Technical Manager —Management Accounting
Association of International Certified Professional Accountants
Dr. Ian Selby
Vice President — Global Research and Development —Management Accounting, Association of International Certified Professional Accountants
Peter Simons, BBS, MBA, FCMA, CGMA
Associate Technical Director of Research —Management Accounting, Association of International Certified Professional Accountants
For information about obtaining permission to use this material other than for personal use, please email mary.walter@aicpa-cima.com. All other rights are hereby expressly reserved. The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. Although the information provided is believed to be correct as of the publication date, be advised that this is a developing area. The Association, AICPA and CIMA cannot accept responsibility for the consequences of its use for other purposes or other contexts.
The information and any opinions expressed in this material do not represent official pronouncements of or on behalf of the AICPA, CIMA or the Association of International Certified Professional Accountants. This material is offered with the understanding that it does not constitute legal, accounting or other professional services or advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
The information contained herein is provided to assist the reader in developing a general understanding of the topics discussed but no attempt has been made to cover the subjects or issues exhaustively. While every attempt to verify the timeliness and accuracy of the information herein as of the date of issuance has been made, no guarantee is or can be given regarding the applicability of the information found within to any given set of facts and circumstances.
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cimaglobal.com
May 2020
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