Coronavirus: Existential measures in practice

How can some of our 8 recommendations for action to safeguard livelihoods be implemented in manufacturing companies in specific terms? Dr. Stefan Frings, partner at enomyc, talks about this in our current podcast episode:

How can companies create liquidity that secures their existence now? What new market opportunities can even arise from interrupted supply chains? Why is communication in the Corona crisis one of the "rapid actions" and how does a task force function now at best?

Dr. Frings, you have many years of experience in restructuring and value enhancement, in managing company-wide programs for strategic realignment and efficiency improvement. How has your consulting focus shifted as a result of the Corona crisis?

The focus in the consulting projects has shifted significantly. The most important tasks in the projects at the moment are, on the one hand, to support the customers in maintaining operational readiness and, above all, in ensuring liquidity.

But what we must not forget in these times of crisis - and this may be too early for many - is that even in a crisis, we should not lose sight of the time after the crisis. After all, adjusting long-term strategies and continuing restructuring processes are very important in order to be prepared when the crisis hopefully ends in a few weeks.

You're already talking about the time factor. What role does it play in the current situation?

The time factor plays a particularly important role at the moment. On the one hand, it is the speed with which companies have been hit by the crisis - and this is really new to such an extent and previously unknown in our latitudes. On the other hand, it is also the need to be able to adapt quickly to changing circumstances. Something completely new is happening, which you have to adapt to and prioritize accordingly.

It's always about preparing to be able to ramp up again quickly and appropriately once the worst is over. Because one thing is always clear: The fastest will be able to realize advantages again in the end. Many products - as our consulting practice shows time and again - are nowadays interchangeable. And if the incumbent supplier can't deliver, then you go to the competition. That's something you should always keep in mind.

Is there one measure that entrepreneurs should definitely tackle now?

No. And that's the complicated and complex thing to realize right now. There are several key challenges and, I think, a triad of important components: One is doing everything we can to keep operations going. The second - and all-important - is to ensure liquidity. Even in good times, we always say "cash is king." This is especially true during a crisis. The third component concerns communication with stakeholders. By this I mean communication with employees, with financiers, with customers, but also with suppliers and - what is now particularly important - also communication with the authorities.

The very first step in our action plan is the task force. What does a task force like this look like? You are advising several companies. Have task forces been convened there? Who is on them and what do they talk about?

Here I can report directly from practice: The speed with which this crisis has reached the companies also requires very fast action in the organization. In principle, what is needed here is a crisis team, a "task force" in the company. We have formed task forces in the companies that meet daily for a jour fixe. Sometimes several times a day - even on weekends, if necessary. Those who can't be there physically can dial in by phone.

In a task force, all essential areas and decision-makers are integrated in order to be able to act simply and quickly. That is the decisive factor: that the measures and decisions discussed and then taken are communicated and implemented without delay. Such a task force includes the management, as well as sales, purchasing, supply chain representatives, controlling - and, above all, HR and IT. IT is a real key competence - even more so in the current special situation. It may also make sense to involve the works council in the task force.

Depending on the decision situation, representatives of the authorities can also be invited. Our experience has been that a company physician was also present, who provided additional information or reported on the overall situation. This improves the quality of the subsequent decisions.

It is important that a communication infrastructure is created. This can be achieved by simple means: technically, for example, via a telephone spider camera. Most companies have one in the conference room. For a teleconference, all participants can be given dial-in numbers. In essence, a standard agenda quickly emerges, so that you can get to the point quickly and efficiently. Each area reports on the relevant topics and then a joint decision is made on what needs to be done.

We list "communication" in our recommendations for action directly under "Rapid Actions" for good reason. What about internal communication: How do the managing directors and other stakeholders communicate with the workforce, which is facing a completely new situation?

Leadership is essential, especially in times of crisis. Employees have uncertainties and fears, but some are also overworked because many simply have a lot to do. This can be countered with good, targeted communication. What is new about the Corona situation, and what makes it even more difficult, is that direct communication is only possible to a limited extent because of the risk of infection. You can't just gather employees together and send the messages you'd like to send. Direct communication is only possible in smaller groups. Management therefore communicates via e-mails or even notices.

Here it is immensely important to use the appropriate mediators for the messages - I am thinking here of the respective department management. They must adhere to certain communication guidelines. In this way, companies can ensure that the minimum standard for internal communication is adhered to and that the messages they want to convey are also conveyed appropriately.

Did such communication guidelines already exist in the companies you advise, or was it completely new?

That was new. To establish a guideline it's worth consulting the communications guidelines of large companies. They are very professional in this respect, and their communication guidelines can also be easily transferred to medium-sized companies.

In addition to communication, rapid actions also include keeping the risk of infection in the company as low as possible. How can you achieve this and keep production running at the same time? What experiences have you had?

Such a situation as we have at the moment is new for everyone. There is no blueprint here. I cannot imagine that any company has ever gone through this before. But here, too, tried-and-tested methods are taking effect: When the engineer defines processes, he usually does an FMEA - a failure mode and effects analysis. In other words, they practically check in advance what could go wrong when designing a process or a product. It is precisely this logical approach that can now be used as a guide. In other words, you ask the specific question of how you can minimize opportunities for infections. A whole lot of good ideas come straight away!

For example: When you do shift changes, you want to make sure you have overlapping shifts so that employees communicate accordingly and make a handoff. These handovers are now eliminated because companies want to prevent employees from coming into contact with each other.

Let's take the recording of working times: At shift changes, there are always crowds of people in front of the devices. The clear message here is that working hours are recorded alone and at a minimum distance. Many companies offer changing rooms and shower rooms - these may not be used at present. The canteens are also closed. There are recreation rooms, in which it is possible to consume food that has been brought from outside. Another example is the infection source "elevators". The use of these is prohibited. We also ask the staff to stop using the railings in stairways.

In larger companies, entire building sections are strictly separated. Employees from different parts of the building can no longer visit each other, but instead talk to each other on the phone. Disinfectants are provided everywhere: Anyone entering the building first disinfects their hands. In larger companies, there are strict access controls, clear signage and prohibitions: If you suffer from symptoms, you must not enter the premises under any circumstances.

We also involve experts in an advisory capacity - for example, company physicians who examine the measures from a medical perspective regarding the risk of infection.

Many companies have reacted and sent a large part of the workforce into the home office. How prepared were the companies you advise for this situation?

Home office is - especially in the midmarket – a begrudgingly used tool. In this regard, some companies are lagging far behind. The infrastructure has not yet been set up, and too few employees have laptops. Laptops have become really scarce in the meantime. We had to purchase them quickly, upgrade them at high speed and equip the employees with them. Keyword infection risk: We also had to ensure minimal contact when issuing the computers. In addition, desktop PCs were upgraded accordingly for home office applications. Other tools were added too: video technology, for example, Zoom or Microsoft Teams, so that people can also work together remotely. All of this, in combination with conference calls and focused work in the home office, is new for many companies and must be learned from scratch. IT must also not be overloaded accordingly. As you can imagine: If everyone who works in the home office accesses SAP at once, it will collapse immediately. To ensure stability, we have made shift plans so that individual departments take turns working in SAP.

Surely it's not easy to suddenly work in a home office if you're not used to it. It's easy - as you also said - to lose focus. Are there any company guidelines for this - also for dealing with new software such as Zoom?

Yes, we have also responded to this by setting up appropriate hotlines that the workforce can contact if questions arise.

Another recommendation for action from our guide is "Ensure transparency". What does that mean exactly? What has been done in the companies you advise to increase transparency?

Here, too, there is no blueprint. You must analyze a situation and develop crisis scenarios in each individual case. The volatility of the current situation changes the framework conditions almost hourly. Thinking in scenarios simply makes it easier here: In this way, you can make a situation manageable in its complexity and see the bandwidths. This also makes you feel more comfortable than if you have to commit to just one single outcome.

What would be such a worst-case scenario?

Sales slumps and production declines, for example. That's why we should first and foremost ask ourselves: What sales do we think we can achieve in the coming weeks and months? What does that mean for production? Maybe you make assumptions where sales plummet by 70 or 80 percent in the next month. Most importantly, you have to have a financial model that you can use to work through these different scenarios. Only if you have such a model will you be able to develop crisis scenarios in a reasonable amount of time. Of course, a worst-case scenario should also reflect a certain reality. It makes no sense to develop a scenario in which you set everything to zero and everything comes to a standstill.

Should we also run a mitigated case?

Yes, it should be a scenario that assumes a mitigated crisis, where one should neither be too optimistic nor too pessimistic. A guiding question is: How will the company be hit if the crisis is milder? By constantly questioning assumptions, one quickly arrives at a result. Once a financial model has been created, this leads to the income statement, then to cash flow planning, which can finally be transferred to liquidity planning.

Keyword "liquidity". What can be done actively to secure liquidity in the company? And how can you create new liquidity in the current situation?

On the one hand, there is what is now being discussed in the press and what most companies are actually doing: a furlough scheme. Then the tax offices allow tax deferrals, so you can reduce the liquidity burden in the very short term. You can also talk to suppliers about extending payment terms. Finally, you reach the point where you have to tap into new forms of financing. The key words here are: preparing applications for KfW, loans or state guarantees.

In our guide to securing one's livelihood, point 4 deals with "securing the business". That, too, is certainly a polyphony of several components. Which ones are included in order to secure the business?

On the one hand, you should avoid the risk of key people dropping out. It is better if they do not work overlappingly at the moment. It is better if one group works in the home office and the other in the company, so that they have no personal contact at all. That way, you can work with a "double bottom" in any case. Then there's securing the supply chain: Of course, it's no use if the supplier can still produce in Italy, but there are no more transport options. It's also a question of staying in contact with customers. Good communication is the key here:

Does the customer need goods? Does he still want the ordered goods? When does he need them? Is there still a possibility to cross borders? Transport capacities must be secured accordingly. On the sales side, the options for action are limited. Nevertheless, you should always stay in contact with your customers. Can they still accept the goods? Is it still possible to ship?

Here's what I've learned: In difficult situations - be it on the supplier side, be it on the customer side - this old principle applies: "Industry helps industry". You can count on that, even in a crisis. And you should actively demand it.

Now there are bound to be cancellations, delays and so on. Doesn't this - if you think quite optimistically - also result in new market opportunities?

If we look at supply chains from abroad, they are of course extremely vulnerable. But here, too, there are creative solutions. Even if there is no more transport capacity: If you need really urgent and critical goods to keep production going, you can pick them up with your own truck sometimes. You can't do that from everywhere. But sometimes it just works. And of course - a consultant may not like to see that, but: Someone who only sources in the region of course at an advantage.

What you can also do is agree longer payment terms with the supplier and in return they continue to deliver safety stock. This has the advantage for both that production is maintained and the supply chains continue to run.

However, I also see how the crisis can lead to a small boom - for example, when companies have competitors in Italy or Spain, or even in China: These supply chains are more or less dead. But on the construction sites, for example, work is still being done and the goods are needed. That's when people remember the small local SMEs that can still deliver. This is a great opportunity: companies suddenly win back customers, who they can of course retain even after the crisis. Think about what kind of sales effort it normally takes to win back customers who have been lost - in good times.

Let's move on to financiers. Right now, you play a special role for companies. What exactly does that look like? What form does cooperation or communication take there?

For companies that now need capital quickly, financiers are one of the most important stakeholders. Since a state of emergency currently prevails at banking houses, trade credit insurers and factoring institutions, targeted, proactive, efficient communication with professional, comprehensible - ideally self-explanatory – documentation is required. Now it also becomes apparent who has worked on a good and trusting relationship in the past.

External consultants can provide support in communication with financiers and especially in the preparation of documentation that is important for new financing. The required documents can be created and prepared in the shortest possible time. As a rule, financiers also expect a quick evaluation by neutral third parties here.

Many companies plan their year, do their financial planning, business planning and more. Now we have this new situation. What does the current situation mean for the business plan and how do companies manage to deal with the volatility of the situation?

Basically, we say: Good controlling is also characterized by a high degree of planning fidelity. Even if it is extremely difficult: You have to think in terms of scenarios and find your way back to a new planning logic as quickly as possible. At some point, it will be clear in which direction things are going. That's where truth and clarity are the issue. Here, everyone must now ask themselves whether they have done their homework. If you have created the necessary transparency on the figures side, you are also in a position to draw up a new plan that can reflect the situation.

The main thing here is to make appropriate use of all the information you have in the company or even in the company's environment. In other words, maintaining or improving communication with all stakeholders. Everything you have in terms of information about the supply chain and the market must be incorporated into this planning - ideally in an iterative process, basically like in any annual planning that happens in companies from the fall onwards. The results are then transferred to the figures page.

What role does flexibility also play? You said that the situation sometimes changes by the hour.

Flexibility plays an important role. You must adapt all your instruments in such a way that you can also map new developments quickly. That is essential.

Now, the current crisis cannot necessarily be compared with the financial crisis of 2008/2009. Do we nevertheless have empirical values from that time that we can apply now?

I believe that during the financial crisis, we learned to shut down quickly and courageously. That worked quickly. In the current crisis, that's exactly what has worked excellently and quickly in most cases. Politicians were quickly able to provide the appropriate instruments, for example through quick solutions such as short-time work. Speed is an essential competence.

The second learning from the financial crisis - even if you don't want to hear it now - is the ramp-up after the crisis. This was sometimes very bumpy over the years. But many companies have worked on their S&OP process in the aftermath - on dovetailing sales and operations planning. Good companies can respond flexibly to market changes by being able to quickly scale back their supply chains and ramp them up again accordingly.

What are the requirements for this?

Fast, smooth communication as well as a planning process that is also mapped by an appropriate IT infrastructure. And, of course, planning discipline - which brings us back to the budget adherence I just mentioned. These are points that should already be kept in mind.

What about good relations?

They always help. And that is also the keyword that should be taken up at this point: Even in a crisis, a certain degree of business ethics should prevail. In other words, a supplier that I'm not paying now won't be at the start of the ramp-up either. In the future, he will supply his material to the competition. The quote from Helmut Schmidt comes to mind here: "Character shows itself in times of crisis". That is still valid today.

Thank you very much for the interview, Dr. Frings.