How world events impact the economy and the ability for businesses to remain open

With the COVID-19 crisis, many businesses are learning the dangers that world events can pose on a business’s ability to operate and remain open. COVID-19 has impacted every industry (some more so than others), and still remains a threat for many.

Because China is a top source for many goods, products, and materials used by businesses around the globe, the closure and reduced production of Chinese businesses left many American companies without clear next steps. Without these manufacturing companies, businesses were left unable to provide products to customers, and could only provide a vague notice for when operations would be back running full scale.

Additionally, businesses that could not quickly shift their business model to match the need for digital or safer in-person operations also found themselves in a complicated situation. While delivery services, cleaning services, digital entertainment, home fitness, and healthcare industries all saw significant growth, industries like sit-in restaurants and bars, transportation, hotels, movie theaters, sports, travel, theme parks, gyms, and more have seen detrimental losses.

COVID-19 has changed the way people think about business and about safety, but it has also resulted in a major shift in how people think about the sustainability of their business and has pushed people to focus not only on “how can we be a profitable company?” but also “how can we ensure we remain profitable in times of disruption?”.

The answer to these questions is preparation. Businesses can prepare themselves for risks and disruptions only when done in advance. When the response is reactive, it may be too late.

Businesses can prepare themselves with:

  • a disaster recovery plan
  • business continuity planning
  • a business impact analysis
  • a risk assessment

Businesses that didn’t have these things in place were faced with the greatest risk, and this happened to be a large majority of companies rather than the minority. Without proper planning, these companies were left to respond reactively, leaving many to temporarily or even permanently close their doors.

A lack of proper planning also affects the economy. As more businesses reduce their hours, production, and staff, the greater the economic impact. Fewer open businesses and fewer products translate to fewer dollars being spent and travelling through the economy. As businesses reduce staff, this also means that fewer people have money to spend on nonessential (and even essential) purchases. This is why the stimulus payments have had an important and positive impact on consumer spending and, therefore, the economy.

One of the most important key takeaways for businesses coming out of the COVID-19 pandemic is the value of proactive planning over reactive response. The Massachusetts Institute of Technology (MIT) Sloan Management Review released a 2020 performance study that put businesses into two categories: Stormers and Mourners. The Mourners took a “wait and see” approach to base their next move on what happens next. On the other hand, the Stormers took control and started prepping for recovery well before it was clear that the pandemic would turn into the massive disruption that it has become.

As a result, the Stormers created new industries or were properly positioned to quickly shift their businesses to meet the new demands of their customers. Whereas the Mourners had to close shop.

As the pandemic continues to rage on, the need for preparation has not ended. Although vaccinations will help curb future occurrences of COVID-19, the virus currently continues to spread and affect the entire world. We are also in a period where businesses are increasingly susceptible to disruption. Many of them are trying to hold on through the storm, but the winds from more disruptions could topple them to the ground.

This is why it is key for businesses to remain vigilant and attentive to what’s happening in the world, even outside of their own country, and to continue to spot and resolve weaknesses in their own business to keep small problems from toppling their entire business. During this evaluation, companies should check for any gaps or risks in their:

  • digital and physical security
  • supply chain
  • employee training
  • financial plans
  • regulations
  • geographical location
  • ethics
  • technical products
  • business metrics/key performance indicators (KPIs)

By creating a plan to consistently monitor the business’s susceptibility and tolerance for risk, businesses will be more prepared to identify, avoid, and respond to disruptions should they occur. This will help ensure that the business is able to continue running at as close to maximum capacity and with as little damage to their operations as possible.

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