Development of Scenario Playbook · 22/04/2020 · •Define your playbook. i.e. actions you are going to take if certain external scenario is playing out •Identify signals (public

Development of Scenario

Playbook

to survive and win

against COVID-19POINT-OF-VIEW BY

AUGUST ASSOCIATES

APRIL 2020

2 APRIL 22, 2020

APPROACH FOR

DEVELOPING

COVID-19

SCENARIO

PLAYBOOK

3 APRIL 22, 2020

This document presents August's four-step approach for developing

'Scenario Playbook' to survive and win against COVID-19

APPROACH FOR DEVELOPING SCENARIO PLAYBOOK

Developing ‘COVID-19 Scenario Playbook’ helps you get prepared for alternative future outcomes

• Develop understanding of COVID-19’s health effects, macroeconomic effects and industry

effects

Understand

implications

of COVID-191

Define

possible own

actions2

• Identify your company’s possible actions for both mitigating the negative impacts and for

capturing emerging new opportunities

Evaluate

alternative

scenarios3

• Create several external scenarios and derive their likely implications on customers,

suppliers, and own operations

• Evaluate your own possible COVID-19 responses against the alternative external scenarios

to understand their strengths and weaknesses

Finalize your

scenario

playbook4

• Define your playbook. i.e. actions you are going to take if certain external scenario is playing out

• Identify signals (public health, macroeconomic, industry, customer or supplier related) that you

follow – these will enable you to trigger changes in course

4 APRIL 22, 2020

Macroeconomic effectsHealth effects Industry effects

Understanding the implications of COVID-19, both general and industry specific,

creates the foundation for developing the scenario playbook


Initial analyses of the COVID-19 implications have been prepared by August for companies to start their scenario planning

• Updated epidemiological information

of COVID-19

• Worldwide view of the pandemic

severity

• Development of the pandemic cases

• Global GDP scenarios

• Finnish GDP scenarios

• Recovery model

• Economic indicators

• General effects to demand and supply

• Overview of implications to industries

• Examples of effects to Finnish

businesses

• Industry specific deep dives

1

Note: See appendix for more detailed analyses

5 APRIL 22, 2020

Companies should identify possible own actions to mitigate the COVID-19 shock

and capture new opportunities


• Several practical methods can be used

to derive the long list of possible actions,

for example:

- Review and synthesis of changes in the

external environment

- Analysis of peer companies’ actions

and international examples

- Use of analogies from other industries

- Inside-out evaluation of the

opportunities that our assets and

capabilities enable

Approach to define possible own actions

2

Note: See appendix for more detailed example lists

Commercial

Operations

Financing

Strategy

People

Mitigate COVID-19 shock Capture new opportunities

Drive sales with pricing / campaigns

Focus on less affected products

Focus on less affected channels

Reinvent price vs. volume position

Build channels / delivery models

Develop new services (e.g. digital)

Retool for efficiency (e.g. automate)

Redesign the supply chain model

Reorganize for workforce flexibility

Downsize production capacity

Search for alternative suppliers

Recalibrate inventories

Cut costs and secure liquidity

Postpone CapEx spending

Manage customer credit risk

Renegotiate payment terms

Build flexibility to cost structure

Rethink resource allocation model

Reassess strategic priorities

Recalibrate strategy roadmap

Reassess existing M&A plan

Rethink positioning & value prop

Revamp the business logic

Execute opportunistic M&A

Secure functionality of mgmt. model

Maintain workplace community

Reallocate labor to critical tasks

Reorganize to capture opportunities

Use learnings from crisis time setup

Hire exceptional talent from market

Example of a long list of possible actions, not exhaustive

6 APRIL 22, 2020

Companies should create several external scenarios, and carefully derive their

likely implications on customers, suppliers, and own operations


Health

effects

Macro

effects

Industry

effects

Policy

responses

Thorough understanding of the possible implications of COVID-19 and

the related policy responses provides the building blocks for creating

alternative external scenarios

Shallow

VModerate

UDeep

L

…Mitigation efforts in place for a prolonged

period to suppress the epidemic…

…Prolonged recession with slow recovery after

the epidemic is resolved…

…Significant demand and supply problems;

many players fighting for survival…

…

…

…

For the potential external scenarios, companies should then carefully

derive their likely implications on customers, suppliers, and own

operations

Economic policy responses

• Monetary policy response

• Direct government subsidies

• Postponement of tax obligations

• …

Health policy responses

• Case isolation / quarantines

• Social distancing measures

• Closure of schools /

businesses

• …

3

EXAMPLES

…Customer demand down for a long period;

substitution to low cost products / channels…

…Suppliers face large challenges and distress;

major availability issues…

…Own operations face serious profitability and

overcapacity issues; cash flow problems follow…

…

…

…

7 APRIL 22, 2020

Possible COVID-19 responses can be drafted by combining suitable actions from

the long list into coherent alternatives


Commercial

Operations

Financing

Strategy

People

Long list of possible actions to mitigate the

COVID-19 shock and capture new opportunities

is the foundation for action planning

3

Capture new

opportunities

Mitigate

COVID-19

shock

Ride the

Wave

Shell

Defense

Attack

the Crisis

Pivot the

Business













Ride out the crisis with minor actions to

adjust to the reality of the crisis period

Focus all efforts to minimizing costs

and securing liquidity while freezing all

development efforts

Face the crisis head on and capitalize

on the opportunities to set your

company up for success after the crisis

Completely reinvent the business and

come out of the crisis completely anew

Possible COVID-19 responses can then be drafted by combining suitable actions from the long

list into a limited number of coherent alternatives

Possible alternatives for own actions

EXAMPLES

8 APRIL 22, 2020

Alternative COVID-19 responses must be evaluated against a range of different

external scenarios to understand their strengths and weaknesses


Given all the uncertainty associated with the COVID-19 epidemic and its implications, scenario analysis should start from charting alternative own actions

and then evaluating those against the external COVID-19 scenarios

Establish clear evaluation criteria

Define clear evaluation criteria that is aligned

with strategic objectives as well as the realities

of the business prior to the analysis

1

Detail the potential actions

Be very concrete about the potential actions to

bring everyone on the same page and to

support objective evaluation

2

Accept external uncertainty

Development of the epidemic and its implications

are inherently uncertain; seek to quantify the

uncertainty rather than assuming it away

3

Invest time and effort in analysis

Making the right choices amidst the crisis is

extremely valuable; careful analysis requires

time and effort

4

Key considerations for the analysis Shallow

V

Moderate

U

Deep

L













…

Prolonged crisis creates

significant profitability and

liquidity challenges

…

…

Significant topline challenges;

serious implications on long

term performance

…

…

Decisive actions support

survival; opportunity to set up

for future success

…

…

Good opportunity for taking

advantage of the upswing;

short term liquidity issues

…

Ride the

Wave

Shell

Defense

Attack

the

Crisis

Pivot the

Business

EXAMPLES

3

9 APRIL 22, 2020

• Collect data and insights to keep up with the continuous change in the world

• Maintain external scenarios and KPIs with the collected insight

• Evaluate if new insight should be utilized to update the defined alternative own actions

Public health

Macroeconomy

Customers / suppliers

Industry

• Select a handful of KPIs to operationalize the playbook

• Define trigger values by KPI that initiate an action or a set of actions from the predetermined own actions

• Evaluate KPIs and trigger values that should initiate a change in the response strategy (e.g. change from ‘Ride

the wave’ to ‘Attack the Crisis’)

Public health

Macroeconomy

Own business

Industry

Creating a scenario playbook for navigating through the crisis should help

companies weather the storm and capture new opportunities


Executing on a scenario playbook in the COVID-19 crisis requires continuous collection of data and signals, pre-defined KPIs and triggers for changing

course and taking action, as well as actively maintained external scenarios and contingency plans for own actions

Own actions

planned for different

contingencies

KPIs and triggers

External

scenarios

Data and signals

Ride the

Wave

Attack the

Crisis

Pivot the

Business

Highly simplified illustration of COVID-19 scenario playbook – creation of a detailed playbook should be at the heart of scenario work

4

EXAMPLES

Shell

Defense

• Maintain the external scenarios, based on input from KPIs, data and signals, to have an up-to-date situational

view on the world

• Deduct, based on the collected data and signals, the external scenario that is most probably being active

Shallow V

Moderate W

Deep L

Moderate U

TOMI ERE

Partner

Phone: +358 40 823 3848

Email: [email protected]

For further information on our team and our services visit www.august.fi

Mikko Pulkkinen

Partner

Phone: +358 40 844 2149

Email: [email protected]

Contact us to better understand what it would mean to build a Scenario Playbook for your business to survive and win against COVID-19

11 APRIL 22, 2020

APPENDIX• COVID-19 implications – Health effects

• COVID-19 implications – Macroeconomic effects

• COVID-19 implications – Industry effects

• COVID-19 implications – Deep dives to consumer, CPG companies and retailers

• Templates for defining possible own actions

12 APRIL 22, 2020

Based on the current understanding, COVID-19 is highly transmissible but less

severe compared to several other diseases

COVID-19 IMPLICATIONS – HEALTH EFFECTS

Epidemiological information of Covid-19 as of April 20, 2020

0%

0 81 972 5

0.1%

4

1%

63

10% SARS

Common cold

Spanish flu

Measles

Norovirus

Chickenpox

PolioTuberculosis

Reproductive rate (R0)Average number of individuals infected by each sick person

Smallpox

Case fa

talit

y ra

te

Ebola

Seasonal flu

Swine flu

MERS

Rotavirus

Bird flu

Covid-19

Transmissions: 1.5-3.5

Case fatality rate: ~0.7-3.4%

Reported confirmed cases

Deaths

Number of countries affected

Reproductive rate (R0)

Patients with severe disease

Case fatality rate (CFR)

Reported cases in Finland

2 355 853

164 656

206

1.5-3.5

~19%

~0.7-3.4%

3 783

Risk groups• Age above 65 years

• Serious ailments

Sources: WHO, European Centre for Disease Prevention and Control, informationisbeautiful: Covid-19

#Coronavirus DataPack, August analysis

Note

• The case fatality rate (CFR) is the

proportion of confirmed deaths from

COVID-19 compared to the total

number of people diagnosed with the

disease

• The infection fatality rate (IFR) that

aims to estimate the fatality rate in

all those with infection (detected and

all asymptomatic and undiagnosed

infections) is lower than CFR

13 APRIL 22, 2020

COVID-19 pandemic has spread to 206 countries in all continents killing over

164,000 people so far


Source: European Centre for Disease Prevention and Control

Cumulative COVID-19 cases

1 759 687

No reported cases yet

Development of

confirmed cases in

the last 14 days

America

Confirmed cases: 899 051

Total deaths: 47 369

Europe

Confirmed cases: 1 046 854


Asia



Oceania


Total deaths: 89

Africa


Total deaths: 1 120

Situation as of April 20, 2020

14 APRIL 22, 2020

Confirmed cases have continued to grow outside Asia – the situation in China

seems to have stabilized


Sources: European Centre for Disease Prevention and Control, August analysis

5.1

.2020

27.2

.2020

3.2

.2020

4.1

.2020

31.1

2.2

019

26.1

.2020

3.1

.2020

29.2

.2020

14.3

.2020

17.1

.2020

1.1

.2020

2.1

.2020

6.4

.2020

8.2

.2020

7.1

.2020

21.1

.2020

6.1

.2020

17.4

.2020

23.2

.2020

31.1

.2020

8.1

.2020

4.2

.2020

14.2

.2020

9.1

.2020

10.1

.2020

16.2

.2020

11.1

.2020

2.3

.2020

12.1

.2020

13.1

.2020

19.2

.2020

14.1

.2020

25.1

.2020

20.1

.2020

15.1

.2020

24.1

.2020

16.1

.2020

5.2

.2020

18.1

.2020

2.2

.2020

28.1

.2020

19.1

.2020

25.3

.2020

18.2

.2020

22.1

.2020

30.1

.2020

23.1

.2020

27.1

.2020

29.1

.2020

1.2

.2020

6.2

.2020

7.2

.2020

9.2

.2020

10.2

.2020

11.2

.2020

12.2

.2020

15.2

.2020

12.3

.2020

25.2

.2020

13.2

.2020

17.2

.2020

1.3

.2020

20.2

.2020

21.2

.2020

22.2

.2020

24.2

.2020

26.2

.2020

5.4

.2020

27.3

.2020

28.2

.2020

3.3

.2020

4.3

.2020

5.3

.2020

6.3

.2020

7.3

.2020

8.3

.2020

13.4

.2020

9.3

.2020

10.3

.2020

11.3

.2020

13.3

.2020

15.3

.2020

16.3

.2020

17.3

.2020

2.4

.2020

19.3

.2020

20.3

.2020

21.3

.2020

22.3

.2020

23.3

.2020

24.3

.2020

26.3

.2020

28.3

.2020

29.3

.2020

30.3

.2020

31.3

.2020

1.4

.2020

3.4

.2020

18.3

.2020

7.4

.2020

8.4

.2020

9.4

.2020

10.4

.2020

11.4

.2020

12.4

.2020

15.4

.2020

19.4

.2020

18.4

.2020

14.4

.2020

2,3

56

16.4

.2020

20.4

.2020

4.4

.2020

South Korea

France

Nordics

Switzerland

China

Iran

UK

Germany

Other EU

Italy

Spain

Other

USA

Cumulative confirmed cases of COVID-19 as of April 20, 2020 (‘000)

Case development

during past 7 days:

1 %

8 %

22 %

12 %

1 %

15 %

35 %

13 %

23 %

12 %

16 %

49 %

30 %

15 APRIL 22, 2020






16 APRIL 22, 2020

Impact of covid-19 outbreak on GDP globally in 2020

Sources: International Monetary Fund: World Economic Outlook, Fitch Ratings: Global Economic Outlook including

Crisis Update: 2 April 2020

IMF and Fitch Ratings expect COVID-19 to lower global GDP by 4-6 percentage

point compared to pre-crisis forecasts leading to 2-3% GDP contraction in 2020

COVID-19 IMPLICATIONS – MACROECONOMIC EFFECTS

Fitch Ratings

published

2nd of April

IMF

published

6th of April

World Euro Area United States China Advanced economies Developing economies

3.3%

-3.0%

2020

-6.3 p.p.

GDP | World Economic Outlook, April 2020GDP | World Economic Outlook, January 2020

World Euro Area United States China

-7.5%

1.3%

2020

-8.8 p.p.

2020

2.0%

-5.9%

-7.9 p.p.

2020

6.0%1.2%

-4.8 p.p.

2020

1.6%

-6.1%

-7.7 p.p.

2020

4.4%

-1.0%

-5.4 p.p.

Developed economies Emerging economies

2.5% 1.3%-1.9%

2020

-4.4 p.p.

-4.2%-0.4%

2020

1.0%-3.3%

2020

3.7%1.6%

2020

-3.4%

2020

NN0.7%

2020

NN

GDP | Global Economic Outlook, December 2019 GDP | Global Economic Outlook, March 2020 GDP | Global Economic Outlook, April 2020

17 APRIL 22, 2020Sources: Ministry of Finance, Bank of Finland

Recent forecasts expect 5-13% drop in GDP in Finland for 2020 – research

institutes have downgraded their outlook as the pandemic has intensified


Ministry of Finance

published

16th of April

Bank of Finland

published

7th of April

Optimistic scenario: Suppressing the coronavirus

• Tight restrictions are imposed for 8 weeks from March onwards corresponding to the period of

tight restrictions experienced in Hubei province of China in the beginning of 2020

• GDP will contract 11% in Q2 due to rapid loss of production output (27% weekly) and will begin

to recover in the following quarters returning to pre-covid growth trajectory

• Finnish GDP will grow at 7% and 1% rate in 2021 and 2022

Pessimistic scenario: Slowing down the spread of coronavirus

• Less strict restrictions (compared to optimistic scenario) are imposed until the end of September

resulting in loss of weekly production output of 18%

• GDP will contract 15% in Q2 due to long-lasting loss of production output and will begin to

recover slowly from the deep recession only in Q4

• Finnish GDP will grow at 4% and 3% rate in 2021 and 2022

1.0%

-5.5%

-6.5 p.p. Optimistic scenario – current base case forecast

• Restrictions are imposed for 3 months and the economy will recover fairly rapidly during H2/2020

- Exports and imports will contract by -6.2% and -3.7% respectively in 2020

- Private consumption will decline by 4.0%. The decline will be partially offset by 4.9% increase

in public sector leading to -1.3% decline in overall consumption

- Investments will decline by -7.1%, driven by decline in private investments (-10.0%)

• Finnish GDP will grow at 1.3% rate both in 2021 and 2022

Pessimistic scenario

• Restrictions will last for six months

• The GDP contraction will be at its deepest in Q2 and Q3, followed by a rapid recovery at the end

of the year. Due to the depth of the contraction, pre-crisis levels will not be achieved during 2021

• Finnish GDP will grow at -0.2% and 1.5% rate in 2021 and 2022

Finland: Optimistic Finland: Pessimistic

-12.0%

1.0%

-13.0 p.p.

Assumptions

0.9%

-5.0%

-5.9 p.p.

-13.0%

0.9%

-13.9 p.p.

Pre-Covid-19 GDP forecast 2020 (12/2019) GDP forecast 2020 (4/2020)

18 APRIL 22, 2020

Manufacturing, construction, professional services and arts, entertainment and

recreation sectors are expected to impact Finnish GDP contraction the most


1) Water supply: sewerage, waste management and remediation activities

Source: Bank of Finland

IndustryValue added,

share 2018

Employed,

share 2018

Suppressing the virus –

GDP impact 2020: -5%

Slowing down the virus –

GDP impact 2020: -13%

Manufacturing 17 % 13 %

Real estate activities 13 % 1 %

Professional, scientific, technical, administrative & support service activities 9 % 13 %

Construction 7 % 8 %

Information & communication 6 % 4 %

Public administration & defense; compulsory social security 6 % 6 %

Transportation & storage 5 % 6 %

Education 5 % 6 %

Human health activities 5 % 7 %

Wholesale trade, except of motor vehicles & motorcycles 4 % 3 %

Residential care activities & social work activities without accommodation 4 % 9 %

Agriculture, forestry & fishing 3 % 3 %

Electricity, gas, steam, air conditioning supply & water supply1 3 % 1 %

Retail trade, except of motor vehicles & motorcycles 3 % 6 %

Financial & insurance activities 3 % 2 %

Arts, entertainment, recreation & other service activities 3 % 5 %

Wholesale, retail trade & repair of motor vehicles and motorcycles 2 % 2 %

Accommodation & food service activities 2 % 3 %

Mining and quarrying 0 % 0 %

-15%

-40%

-75%

-50%

-15%

-40%

-30%

0%

0%

10%

-40%

-50%

5%

-15%

-30%

-15%

-95%

-50%

-30%

-26%

-32%

-10%

0%

-19%

10%

0%

-10%

5%

-26%

-32%

-10%

-19%

-26%

-10%

-62%

-32%

-49%

-19%

Weekly loss of production due to restrictions Industries with most impact on total value add due to loss of production

19 APRIL 22, 2020

Recovery path

Sources: HBR, “What Coronavirus Could Mean for the Global Economy”, March 3, 2020, August analysis

U-shaped path seems the most plausible scenario for economic recovery – some

output will be lost due to COVID-19 outbreak


L-shaped scenario

• L-shaped recovery (i.e. COVID-19 causing

a significant structural damage in the

economy’s supply side) seems unlikely

U-shaped scenario

• U-shaped recovery (i.e. there is some

permanent loss of output even though the

initial growth path is resumed) seems likely

scenario due to geographically wide spread

of COVID-19 outbreak

• In Finland, e.g. Danske Bank expects U-

shaped recovery. Even more severe

scenario seen possible but not likely

V-shaped scenario

Q2 Q9Q3Q1 Q4

GD

P g

row

th %

Q5 Q6 Q7 Q8 Q10

Q2 Q3 Q9 Q10

GD

P g

row

th %

Q1 Q4 Q5 Q6 Q7 Q8

Q1

GD

P g

row

th %

Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10

Q5

GD

P le

vel

Q1 Q2 Q3 Q4 Q6 Q7 Q8 Q9 Q10

• V-shaped recovery (i.e. annual growth rates

fully absorb the shock) seems currently

optimistic but the scenario was seen likely

especially in the beginning of the pandemic

• Prior pandemics were all V-shaped shocks:

e.g. SARS (2002), the “Hong Kong” flu

(1968), “Asian” flu (1958) and Spanish flu

(1918)

Q5 Q8

GD

P le

vel

Q3Q1 Q2 Q4 Q6 Q7 Q9 Q10

GD

P le

vel

Q4Q1 Q2 Q5Q3 Q6 Q7 Q8 Q9 Q10

Illustration of economic shock on GDP level and growth-% Comments

20 APRIL 22, 2020






21 APRIL 22, 2020

EXAMPLES OF IMMEDIATE DEMAND AND SUPPLY SHOCKS CAUSED BY COVID-19

Sources: HBR: What Coronavirus Could Mean for the Global Economy 03/2020, OECD Interim Economic

Assessment Coronavirus: The world economy at risk 03/2020, August analysis

COVID-19 pandemic has hit the global economy and businesses hard by reducing

demand and supply of products and services

COVID-19 IMPLICATIONS – INDUSTRY EFFECTS

Demand

Supply

• Quarantines, travel bans, restrictions and rules on social distancing enforced due to COVID-19

are impacting especially service sectors such as travel, tourism, and businesses where consumption

is largely social (e.g. restaurants and entertainment) but also businesses where service delivery

requires human-to-human interaction (e.g. dentistry and non-essential healthcare)

• Direct hit to confidence and finances. COVID-19 appears to hit households’ and businesses’

confidence, and with the increasing number of furloughs, lay-offs and falling revenue, also finances.

This will delay and cut down non-critical and discretionary spending, but also postpone investments

and purchases of durable goods.

• Factory closures. COVID-19 has shut down production facilities causing unavailability or delay of

supply of many consumer goods and semi-finished goods.

• Cutback in service provisioning. Many service providers such as airlines and restaurants are

cutting down their services or even closing the business for the time being.

• Supply chain disruptions. Global trade has slowed down, and supply chains disrupted as countries

are closing their borders and logistics capacity reduced (e.g. airlines and container flows).

• Disturbances in availability of labor due to quarantines, border closures and people falling ill

22 APRIL 22, 2020

INITIAL VIEW ON SHORT-TERM EXPOSURE TO COVID-19 IMPACT PER SECTOR

Sources: Moody's Investors Service, August analysis

Industries tied to travel and discretionary spending have greatest immediate

negative impact of COVID-19; some sectors also likely to benefit from the crisis


NEGATIVE

IMPACT OF

COVID-19

MODERATE EXPOSURE

• Apparel

• Automotive manufacturers

• Automotive suppliers

• Consumer durables

• Lodging / leisure & tourism

• Passenger airlines

• Retail (non-food)

• Global shipping

• Sports and gambling

• Services companies

• Beverages

• Chemicals

• Manufacturing

• Media

• Metals and mining

• Oil & Gas / oilfield services

• Property developers

• Protein & agriculture

• Steel producers

• Technology hardware

• Construction / materials

• Defense

• Equipment and transportation

• Rental

• Packaging

• Pharmaceuticals

• Real estate, REITS

• Food / food retail

• Waste management

Sectors potentially benefitting

• Internet service companies

• E-commerce

• Telecom and technology

service providers

• Gaming

23 APRIL 22, 2020

Sectors reliant on global trade and free movement of people are highly exposed to

COVID-19, whereas telecoms, internet services and e-commerce likely to benefit


Sources: Moody's Investors Service, August analysis

Lodging and leisure, passenger

airlines as well as non-food

retail and automotive industry

highly exposed to COVID-19

Telecoms, internet services

and e-commerce likely to

benefit from COVID-19

• Most sectors of the economy are hit either directly or indirectly by COVID-19, through demand

decline or supply side challenges

• Lodging & leisure (including cruise lines and restaurants), passenger airlines and shipping are

generally reliant on global trade and the free movement of people, and are currently taking the

biggest hit from COVID-19

• Non-food retail and automotive manufacturers are also highly exposed because of their reliance on

international supply chains – many of which are being disrupted; their outlook is likely to worsen as

people postpone non-essential purchases for the time being

• Telecoms and internet service companies are likely to benefit from COVID-19, as people spend

more time at home and work remotely

• E-commerce should benefit from increased demand due to closure of physical stores, but is likely

to be exposed to supply chain disruptions and may struggle to meet the increasing demand

24 APRIL 22, 2020

COVID-19 impacts are likely to speed up on-going trends with long-term

implications for the “new normal”


Sources: Various reports, e.g. EY: Beyond COVID19, BCG: Sensing and shaping the post -COVID era, Bain: Covid-19:

Macroeconomic Update, BOND Capital: Our New World , McKinsey: COVID-19 facts and insights, August analysis

Trends Typical implications for companies

• Need to actively assess relative attractivity of markets, e.g.

potential biases emerging in competitive landscape

• Need to re-evaluate thoroughly potential risks related to

supply and operational setup

• Imperative to build resilience (i.e. deliberate inefficiencies) in

operations and supply chain to mitigate the risks, e.g. through

- Decentralization, localization, in-sourcing and on-shoring of

supply chain and operations

- Adoption of new technologies such as 3D printing

Backing up

from

globalization

and market

economy

COVID-19 impacts speeding up the trends

• Governmental policies restricting movement of goods and people

• Unpredictability of global trade and co-operation likely to increase

as global tensions rise due to increasing protectionist behavior

• Increasing state ownership resulting from bailouts of failing

companies

• Need to replace of human-to-human interaction and

employees with digital tools and automation

• Urgency to slim down cost structure to reflect new (lower)

level of business activity

• Need to increase adoption of WFH tools and introduce all new

processes

Digitalization

and

automation of

work and

processes

• Prioritization of employee health and safety by minimizing human-

to-human exposure

• Downfall of revenues and bleak economic outlook

• Working from home (WFH) increased dramatically

• Lowered productivity of employees due to social distancing,

quarantines and closure of schools and kindergartens

• Need to develop offering to serve differentiated needs of

customersPolarization of

consumer

purchasing

behavior

• Increase in income polarization due to poor economic conditions

and growing unemployment

• Increased importance of health, wellbeing, safety and hygiene but

also increased importance of low-cost options

• Digital services and channels essential in ensuring continuity

of business, business models requiring physical interaction

need to be reinvented in the digital space

Digitalization

of consumer

consumption

• A large share of population forced to stay at home to stop the

spread of the virus, forced to turn to digital services and channels

Building

resilience in

business and

operations

• Resiliency of global operations and supply chains called into

question as vulnerabilities revealed through restricted availability

of goods, services and labor

25 APRIL 22, 2020






26 APRIL 22, 2020SOURCE: NIELSEN, AUGUST’S POINTS OF VIEW

Consumers worldwide are expected to go through six phases of COVID-19 crisis

and change their behaviors accordingly

COVID-19 IMPLICATIONS – DEEP DIVES TO CONSUMER, CPG COMPANIES AND RETAILERS

NIELSEN’S KEY CONSUMER BEHAVIOR THRESHOLDS

Interest rises in products that support overall

maintenance of heath and wellnessProactive health-

minded buying

Reactive health

management

Pantry preparation

Quarantined living

preparation

Restricted living

Living a new

normal

1

2

3

4

6

5

Prioritize products essential to virus containment,

heath and public safety, e.g. safe masks

Pantry stockpiling of shelf-stable foods and a broader

assortment of heath-safety products; spike in-store

visits, growing basket sizes

Increased online shopping, a decline in-store visits,

rising out-of-stocks, strains on the supply chain

Severely restricted shopping trips, online fulfillment is

limited, price concerns rise as limited stock availability

impacts pricing in some cases

People return to daily routines (work, school, etc.) but

operate with a renewed cautiousness about heath.

Permanent shifts in supply chain, the use of e-

commerce and hygiene practices

EXAMPLES OF IMPLICATIONS TO FINLAND’S CURRENT SITUATION

Finland’s

current

situation

Consumers

• Online shopping and home delivery for food and grocery products will

increase – contactless or automated deliveries are appreciated,

especially for the elderly

• Home cooking would be more prevalent, now that eating out is

restricted; hence ready or quick-to-prepare meals are appreciated,

especially in families with children

• Non-perishable goods might gain its popularity

• Sales of products for furnishing home offices, as well as exercise

equipment will increase

Companies and industries

• Grocery retailers have to make sure on-shelf availability

• Grocery retailers are also forced to boost their ecommerce

capabilities

• COVID-19 has threatened to shut down production facilities causing

unavailability or delay in supply of many consumer goods and semi-

finished goods

• Restaurants’ operation is limited to take-away sales – other delivery

channels might emerge, e.g. via grocery stores

27 APRIL 22, 2020

EXAMPLES OF LONG TERM COVID-19 LEGACIES RELATED TO CONSUMER BEHAVIOR

Source: Mintel, Forbes, Skift, August’s points of view

Some of the COVID-19 legacies in consumer behavior are expected to become the

new normal after the crisis


What people are

buying?

How people are

buying?

How people are

consuming?

• Online shopping will be boosted to a new high, especially for grocery products

• Demand for home delivery, contactless pick-up and delivery will increase - these services are expected to be more

automated and less to no contacts with human beings (e.g. Drone delivery)

• Shop streaming, which is already popular in Asia, is expected to rise as consumers long for online shopping environment

with socializing opportunities

• Streaming services will gain popularity, not only in for live events, concerts, movies but also in learning, or exercising

• Virtual experience economy will be also on the rise thanks to immersive technologies (e.g. VR, AR), from games, esports,

virtual try-on of various merchandise, to learning – virtual status is claimed by play an increasingly important role in

people’s lives as real-life status

• People might be drawn towards ”eating at home”, against the trend ”eating out” before the crisis, demanding more

convenience and joyful experience out of traditional cooking

• Health and wellness will strongly drive consumption, boosting sales of products & services related to this trend

• Consumer will be more conscious about hygiene practices and purchase more hygiene products more often

• Consumer are more interested in the origin of goods (e.g. where the ingredients come from, where the products are

made) for health and hygiene reasons

• The shift towards local, fresh, organic and good quality products, especially food, might strengthen after the crisis

28 APRIL 22, 2020

EXAMPLES OF INNOVATIONS CATERING TO THE NEW NORMAL AFTER COVID-19

Source: Company websites

Innovations in contactless shopping and automated delivery will support

consumers in the ”new normal” after COVID-19


• Amazon will license its ”Just

walk out” shopping

technology for retailers that

are interested

• Amazon already launched

Amazon Go, a cashierless

shop concept in 2016

”Just walk out” shopping

• Companies worldwide are

increasing investing in

drone delivery

• Examples can be found

not only from logistics (e.g.

Amazon, UPS) but also

food and grocery (e.g.

Domino’s Pizza, Walmart)

Drone delivery

• Taobao, a Chinese online shopping

site, would launch a show for

farmers to host their own live

streams to sell their products

• JD corporate provide JD live

streaming platform to sell alcohol

products, creating online clubs and

bars experience

Shop streaming

• JD corporate developed

vending machines to sell

7Fresh produces

• Powered by AI, JD optimizes

the network of “Mobile Fresh

Basket” nearest to its

customers for safe and

convenience contactless

shopping

AI vendor machine of fresh produce

• Warby Parker is among the

pioneers in creating virtual

try-on experiences before

purchases for eye-glasses

• This technology has been

experimented in other

categories such as clothes,

make-up

Virtual try-on

• The usage of contactless

payment solutions (e.g.

digital wallet, mobile

payment, NFC cards) has

accelerated in daily

transactions

• The trend is expected to

continue considering

increasing hygiene

awareness

Contactless payment

for clothes

for make-up

for eye-glasses

29 APRIL 22, 2020






30 APRIL 22, 2020

Action planning builds on generating a long list of possible actions to mitigate the

COVID-19 shock…

TEMPLATES FOR DEFINING POSSIBLE OWN ACTIONS

Operations Financing StrategyPeople Commercial

Mit

igate

CO

VID

-19 s

ho

ck

• Protect your employees

• Secure functionality of

management model (e.g.

communication between

functions)

• Organize training to be able

to work in the new setup

(e.g. remote work)

• Reallocate employees

flexibly to different activities

(e.g. critical tasks)

• Evaluate need for

(temporary) layoffs and

execute, if needed

• Create new routines to

maintain workplace

community (e.g. daily remote

coffee break)

• Communicate with

employees frequently and

with right specificity to create

clarity and security for them

• Demonstrate purpose to

build morale

• Aggressively manage short-

term topline (marketing

spend allocations, customer

retention activities, sales

force focus and incentives,

…)

• Rethink your product mix

(e.g. offer lower price

versions of existing

products)

• Rethink pricing options (e.g.

offer results-based or

subscription pricing)

• Drive sales with campaigns

• Focus on less affected

products

• Focus on less affected

channels

• Create realistic view on end

customer demand

• Adjust production capacity,

as needed

• Analyze current suppliers

and procurement practices

• Search for temporary

alternative suppliers e.g. for

critical components

• Recalibrate inventories by

monitoring production and

sourcing

• Identify quick wins in cost

cutting through financial

analysis

• Re-evaluate CapEx

spending and postpone, as

possible / needed

• Monitor and secure liquidity

(including AP/AR

management)

• Define scenarios and

perform stress tests on key

financials (CF, P&L, BS)

• Manage customer credit risk

(e.g. segment customers by

risk, offer credit only to

strategic or credit-worthy

customers)

• Secure access to financing

(e.g. lines of credit, issuance

of bonds, equity financing)

• Reassess strategic priorities

• Recalibrate strategy

roadmap

• Reassess existing M&A plan

• Consider divesting non-core

businesses

EXAMPLES, NON-EXHAUSTIVE

31 APRIL 22, 2020

... as well as capture new opportunities, related to different areas of the company

TEMPLATES FOR DEFINING POSSIBLE OWN ACTIONS

Ca

ptu

re n

ew

op

po

rtu

nit

ies

• Reorganize to capture

identified commercial

opportunities

• Leverage learnings from

crisis time setup in normal

times (e.g. benefits of remote

work)

• Hire exceptional talent from

the market

• Spot new consumption

habits being formed

• Rapidly innovate around new

customer needs

• Develop new services (e.g.

digital)

• Shift your sales channel mix

(e.g. strengthen online

capability)

• Build new channels / delivery

models (e.g. eCommerce

and home delivery)

• Reinvent price vs. volume

position (e.g. due to radical

channel shift)

• Retool for efficiency (e.g.

automate)

• Redesign the supply chain

model to drive end-to-end

resilience of supply chain

• Re-examine the economics

of offshoring / reshoring

• Renegotiate payment terms

• Build flexibility to cost

structure (e.g. contract

terms, outsourcing)

• Rethink resource allocation

model

• Ensure customer default risk

is reflected in pricing and

financial modelling

• Evaluate opportunities in re-

financing to reduce cost of

capital

• Introduce new financing

solutions for customers

• Rethink positioning & value

proposition

• Revamp the business logic

• Execute opportunistic M&A

• Identify and address

emerging markets with

growth potential

• Leverage learnings from

scenario-based approach in

strategy development

Operations Financing StrategyPeople Commercial

EXAMPLES, NON-EXHAUSTIVE

Development of Scenario Playbook · 22/04/2020 · •Define your playbook. i.e. actions you are going to take if certain external scenario is playing out •Identify signals (public

Documents