Dr. Martin Mwanje Lwanga
After the 2008 financial meltdown that left among others institutions once conceived as “too big to fail” like Lehman Brothers, then the fourth largest US investment bank, crushed, everyone agreed that something had been missing in the operations of modern business management. How could the entire US financial industry be caught so unawares that the government had to come up with $ 700 billion through the Troubled Asset Relief Program to bail it out before it completely capsized.
The outcome of of that was the passing of the 2010 Frank – Dodd Act. It directs that all financial institutions must periodically go through “stress test” to prove they can survive another crisis. Further, they must have “living wills” detailing how they can be closed without a tax payers’ bailout.
Elsewhere like here in Uganda financial institutions are expected to have a risk department, whose function is to continually asses the risks in the environment and update the Board. Most Boards as part of Corporate governance have a risk committee that follows the mitigation measures in place should a crisis likely to affect the business occur.
Now COVID -19 is a risk of a kind of such scale that only few institutions could have anticipated. But those institutions that were in the habit of risk assessment and planning interventions will come out far ahead. The winners of COVID-19 are largely those that had already plans in place in face of such an overwhelming global crisis.
Take for instance those institutions that through the boom time, where the US stock market for example reached record high, have been building up a cash reserve to pass them through lean times. They will have plenty of survival ammunition. On the other hand if a particular company or nation was heavily indebted without a good stock of cash reserves held somewhere then this crisis is going to be a withering experience.
Inflation is bound to rise as with supply networks having been shut down during the lockdown high demand will drive up prices. Securing credit is going to be far more expensive now and also the buyers will be mostly cash strapped anyway. Those with a cash reserve will therefore definitely float more easily.
For us in the private higher education space this is going to be a catch 20. If we increase tuition fees to pay our suppliers our clientele is already struggling. Yet to continue to provide a critical service of training and releasing manpower one needs cash to sustain the operation. Without government assistance as we saw in the bailout of US firms, our survival as is most of the private sector, is definitely going to be tested.
Adaptability is going to be another key important to flourish through post COVID-19 times. Here those once over bloated companies with outsized payroll and exorbitant fleets may not linger. It is the leaner ones that will do best since they won’t have much fat clogging the wheels.
The airline industry is one industry whose future is bleak. Air travel will still be needed but the winners will be those already with lean business models in place. Talking of that many African airlines that were already struggling are still stuck in an old inefficient business model. For instance on many routes one must still enjoy a sumptuous three course meal served with drinks. Surprisingly on a recent trip in the US where I flew several times on South Western Airlines I was amazed how the only meal I could expect was coffee or water. Otherwise I had to buy pretty anything else.
This low cost South West Airlines mode of operation is a clear winner. Our oversized government which has got used to living on high with its fleet of SUVs, backed with patrol jeeps, officers flying business class, an imbalanced irrational pay structure, a huge appetite for debt, will definitively need to borrow some lessons from how efficient companies prosper even in lean times.
The ability to embrace new technology and fit them into the company business model is also going to be a key. Just this week I was delighted to notice that Jesa Farm Dairy who supply milk and a host of dairy products have already started home deliveries through online shopping. They are using a new igneous Boda truck that can navigate our challenging roads.
The thing here to the credit of Jesa Farm Dairy is her ability to quickly innovate and adapt which is certainly going to give her the edge. On the other hand where the company structure is already paralyzed with non-value adding layers of bureaucracy enfeebling quick decision making then such may not compete easily against leaner companies in the post COVID-19 era.
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