The world has changed. The novel coronavirus (2019-nCoV) has seen to that. Safeguarding and stabilising operations, liquidity, people, supply chains and markets has been the overwhelming first priority. Now, companies must start thinking strategically about how they will adapt as the pandemic and markets evolve.
As well as affecting countless lives, COVID-19 has unleashed a devastating blow to the global economy, disrupting supply chains while choking off demand. Electricity demand is down significantly in many territories and the market for transport fuel has shrunk dramatically as planes are grounded and movement restricted.
Even for those who feel able to predict the passing of the storm, counting on a quick return to business as usual is not a viable strategy. The shock of the pandemic on previous assumptions and future behaviour can’t be ignored even if there is a sharp V-shaped recovery. A slower U-shaped recovery or a longer L-shaped recession will have even more profound implications. Whatever the path forward, the world will be different and companies need to plan for a new normal.
For companies in all parts of the energy, utilities and resources sectors, it will be vital to combine effective scenario-planning with an examination of how different developments could affect their business in the short, medium and long term. Whatever the scenario, we see a number of issues that will shape strategic thinking.
Prepare for further volatility and risk
As companies and wider society come out of lockdown measures, there will be no room for complacency about the upturn. Until a vaccine is developed, which isn’t likely until 2021, there could be continued restrictions and the possibility of a second wave of infection outbreak. There is also a real risk of the virus mutating.
Companies will therefore need to build a high degree of flexibility and continued resiliency into their short- and medium-term strategising. They will need to be ready to adjust operations up and down and not assume that recovery will be a continuous and linear process. Human resource models that provide 60:40 flexibility around a 60 percent permanent core are likely to gain ground. Consideration should be given to which aspects of the strict separation, hygiene, control and business resilience measures adopted at the height of the crisis need to be maintained and stepped up or down as needed.
Focus on security of supply
Security of supply, a familiar theme in the energy and resources sector, has much wider relevance in a world living with COVID-19. As the crisis unfolded, companies had to move quickly to secure supply chains and manage component inventory. As the outbreak begins to be contained and economic activity revives, many will be re-evaluating their supply chain resilience.
In production sectors such as chemicals and metals, we anticipate a strong sentiment in favour of more localised and shorter supply chains. The risk/return ratio of global supply chains, with their traditional labour arbitrage and other factor cost advantages, are likely to have shifted when viewed through a COVID-19 lens. For example, we may see the sourcing of many precursors and starting materials being relocated closer to the final stages of production and end-user markets.
Plan for a new sense of vulnerability
COVID-19 has reminded the world of its vulnerability and heightened the awareness of the public and wider society to global risks. This in turn could have an impact on discussions about other threats such as climate change. Across the board, companies will want to examine their approach to risk with a fresh eye and consider what measures are needed to derisk their business models.
As a minimum, companies should use their pandemic experience to inform wide-ranging reviews of their business continuity and crisis management strategies. Some companies will need to go further and implement structural measures to reduce risk. In the oil and gas sector, for example, high cost producers that have been left exposed by the collapse in the oil price may need to turn to collaborative partnerships or consolidation as way of bringing costs down.
Accelerate new ways of working, automation and digitalisation
The experience of COVID-19 will almost certainly accelerate momentum towards new ways of working, automation and digitalisation. Companies that are further along the curve in digitising their operations have already benefited from greater built-in resiliency during the crisis, reducing dependence on human resources. Greater investments in these areas will equip companies to maintain better business continuity in their supply chains, operations and customer management, reducing the load on their workforces.
Technological transformation will also have been given a boost by the experience of virtualisation and new ways of working by staff during the pandemic lockdown. It is likely to accelerate the move to a more mobile workforce, able to work virtually and at distance. Companies will want to consider what worked well during the crisis and look at the opportunities for future workforce productivity and flexibility.
Consider the implications of behaviour change
In the past supply and demand curves tracked each other. COVID-19 has forced a divergence with demand forced downward. What will demand look like as the world emerges from COVID-19 restrictions? What will be the impact of behaviour change? Will people not completely return to previous habits? It is not hard to imagine, for example, that companies will rethink their approach to business travel and workforce mobility with consequent impacts on demand for transportation fuel.
On a wider level, policy-makers and the public will reflect on the impact of lockdowns on reduced traffic, pollution and CO2 emissions. In many regions, they will have seen how renewable sources of electricity were able to supply 100 percent of demand. In others, it might be clear that the economics of individual power plants may no longer be viable. Will these experiences give added momentum to moves to deliver energy transformation? Or might a global recession push climate change and sustainability down the list of concerns?
Source: PwC’s Global Crisis Centre, Today’s Issues, PwC Global 2020