Agile teams traditionally excel when their members are co-located. Here’s how to ensure they’re effective now that COVID-19 has forced them to work remotely.
As organizations adapt to the ongoing COVID-19 crisis, their agile teams can be a real source of competitive advantage. Such teams1 are typically well suited to periods of disruption, given their ability to adapt to fast-changing business priorities, disruptive technology, and digitization.
But the abrupt shift to remote working in response to the coronavirus has challenged the typical approach to managing agile teams. Traditionally, such teams thrive when team members are co-located, with close-knit groups all working in the same place. Co-location allows frequent in-person contact, quickly builds trust, simplifies problem solving, encourages instant communication, and enables fast-paced decision making.2 And while we know from experience that agile teams that have worked remotely from the start can be as effective, the sudden transition of co-located teams to a fully remote approach can reduce cohesion and increase inefficiency (Exhibit 1).
The good news is that while it takes real work, much of what leads agile teams to lose productivity when they go remote can be addressed. In fact, if the necessary technology is in place, a talented remote team can deliver just as much value as co-located teams. Assuming a firm’s IT function will handle the organization’s technology, we’ll focus here on the kinds of targeted actions agile leaders can take to sustain their people and culture and recalibrate their processes.
Sustaining the people and culture of a remote agile team
Remote work for agile teams requires a considerable shift in work culture. Without the seamless access to colleagues afforded by frequent, in-person team events, meals, and coffee chats, it can be harder to sustain the kind of camaraderie, community, and trust that comes more easily to co-located teams. It also takes more purposeful effort to create a unified one-team experience, encourage bonding among existing team members, or onboard new ones, or even to track and develop the very spontaneous ideas and innovation that makes agile so powerful to begin with. And these challenges are complicated by the unique circumstances of the current health crisis. Teams working from their living rooms or their dining-room tables are often sharing that space with children or other family members also working remotely.
Teams already operating remotely before the crisis are less likely to struggle, given their ability to handle ambiguity without losing focus and to concentrate on outcomes over processes. But many teams that just switched to a remote way of working are facing new challenges, which may require revisiting team norms, cultivating morale, and adapting a team’s approach to coaching.
Revisit the norms and ground rules for interaction
Virtual whiteboards, instant chat, and videoconferencing tools can be a boon to collaborative exercises and usually promote participation. But they can also require teams to reconsider existing norms and agreed-upon ground rules.
Some challenges may require team members to adjust to the tools themselves: team members should be generous with one another in offering practical support on navigating virtual tools—such as help formatting or recording presentations or informing the host about any technology issues. Teams need to get up to speed quickly on visual management and virtual whiteboarding and tailor established ceremonies into standard virtual routines. New ground rules for communication may be needed to keep people who are interacting virtually from talking over one another. For example, something as simple as asking each speaker to “pass the ball” by calling out the next presenter by name can help.
Other team norms may also need to be revisited—and revised. On an agile team, everyone needs to take responsibility for capturing spontaneous ideas and putting up blockers to avoid losing them. When using virtual whiteboards, for example, teams need to make extra effort to capture the collective view, especially in larger remote teams. That will help avoid ambiguity and confusion in individual priorities. Similarly, when brainstorming in person, it’s easy to organize and reorganize sticky notes in columns on a whiteboard. That’s not always something that’s easy to replicate using virtual-collaboration tools.
And while teams should put a premium on personal productivity and allow time for it, they may also need to make a conscious point of allowing themselves and others to have more personal interactions. For example, some teams will leave a video feed turned on for longer periods of time; this conveys visual cues that aid in coaching and collaboration and helps team members maintain a face-to-face relationship.
Importantly, teams need to be respectful of personal choices. Working from home blurs the lines between professional and personal lives. Team members may feel added stress about the impression they create on video, whether because of the appearance of their home workspace, interruptions from young children, or even family members sharing the same workspace. Teams should accept these limitations and interruptions graciously—and team members should feel free to set their own boundaries around scheduling and use of video.
Cultivate bonding and morale
Many of the kinds of activities that nurture morale for co-located agile teams—such as casual lunches, impromptu coffee breaks, or after-work social activities—are not possible in a virtual environment. Team members should encourage one another to introduce their pets and family members and to show any meaningful items in their working space. Working remotely, teams need to make a more conscious effort to be social, polite, precise, and tactful—to ensure everyone feels just as safe contributing remotely as they did in person.
For many teams working remotely, some approaches to cohesion and comradery have grown quickly familiar. At one bank in the United States, for example, one agile team established virtual happy hours. Squad members join a videoconference call for a half-hour every week, sharing the beverage of their choice and talking about whatever comes up—other than work. Another team uses a website that generates quick and easy surveys. A designated team member (usually one appointed by the scrum master) sets up each poll with trivia questions to test team members’ knowledge of one another. The whole activity takes under ten minutes, is easy to do, and winners get bragging rights. These activities might sound silly, but they’re also fun—and a useful way of supporting morale and shaping a shared experience virtually.
Agile teams working remotely may also require a more deliberative focus on empathy, openness, respect, and courage. For example, team members may need to remind themselves to create and receive communications with a collaborative mindset and always to assume the best possible motivation from their colleagues. This practice is important to agile teams in general but to remote agile teams in particular, given how easily electronic communications can be misunderstood. For example, an agile team at one retail company has an explicit agreement that team members will always assume that the contributions of others are made with positive intent. Especially in written interactions and brief chat messages, the agreement observes that a comment that may seem appropriate to one team might not seem so to another. Assuming positive intent can create a safe space for team members to play a role as custodians of the culture, flagging such comments and negotiating new rules for collaborating.
The person who flags an inappropriate comment can bring it up with the person who made it directly or with the scrum master to resolve it. Or if needed, a small group could stay on the line after a stand-up meeting to discuss. To ensure that team members feel psychologically safe to voice their concerns, one US insurance company conducts an anonymous biweekly survey to solicit input. Tribe leaders and scrum masters use the survey to take the team’s pulse—for example, on whether they’re feeling overworked, how motivated they are, how many things they are being pulled into each day, whether and how processes are working, and what professional-development concerns they might have. The scrum masters and tribe leaders then agree on a benchmark goal and identify a list of two or three tangible actions to take over the coming weeks to improve—which might include visible teamwide actions or more personal one-on-one conversations. All of these are good practices even in a co-located setting, but they become even more critical in a remote setting.
Adapt coaching and development
With coaching, agile teams should aspire to model remotely everything they would have done in person—but more frequently, given the abruptness of the switch to remote format. If you would do one-on-one coaching over coffee, try doing it remotely—while actually having coffee over video. Encourage all team members to turn on their video and actively monitor body language during group meetings, especially those in the role of coach.
At one US insurance company, for example, coaches observed meetings while scrum masters led them. Then the two got together afterward to compare notes, and the scrum master followed up with team members individually. Coaches also increased the frequency of feedback—with a regular cadence that included a short meeting every day or every other day. Some even kept a chat window open during ceremonies, to give people they were coaching real-time feedback. Coaches would also host open meetings, so that team members had an informal forum to seek impromptu support on an as-needed basis.
Recalibrating remote agile processes
The challenge for remote agile teams is that they’ll be tempted to try to replicate exactly whatever has worked for them in a co-located setting. But what worked in the office setting won’t always work remotely—or isn’t always necessary. The trick is to work backward—start with the outcomes you were getting in the office and modify your scrum ceremonies as appropriate (Exhibit 2). It’s all about adapting to the situation rather than sticking to a guide.
Consider breakouts, for example. Group meetings that use certain video-chat forums can allow large groups to break up into smaller ones for discussion, just as they’d do in person. At one US insurance firm, agile team members joining the virtual group late sometimes found themselves in an empty chat room because everyone else was in a breakout. Their teams were taking more time than they took during in-person meetings to cover the same ground. And they would often return to the general group without having assigned a spokesperson.
In person, they’d have had a host or group of hosts going back and forth to different breakouts to check progress, direct latecomers to the right room, and then call everyone back to the main room. They soon realized that in a virtual meeting, they’d need someone performing those same logistical functions. Teams may need to adapt their norms to let individual team members jump in as support, which isn’t possible in a live setting.
Remote work may also require new ceremonies. For example, keeping teams aligned with organizational objectives can be even more challenging. This is easier for teams working together in person, where they can lean more heavily on organic interactions. But working remotely requires more purposeful and structured communication. To navigate that, agile teams at one company adopted biweekly division-wide meetings to identify and agree on objectives for the following weeks.
As performance stabilizes and teams grow more comfortable with working remotely, they may eventually be able to trim down the ceremonies and make them more organic. When an agile team at one insurance company first transitioned to remote working, team members found it necessary to double down on backlog-refinement sessions and documentation because the output of conversations was getting lost. Over time, they’re seeing more organic conversations and collaboration and are beginning to refine ceremonies so that they’re more lightweight.
Establish a single source of truth
Agile team processes are fairly informal when working in person, and there’s little need for capturing notes and documenting agreements. Conversations are organic and in real time. Take morning stand-up meetings, for example. This is the daily huddle that keeps teams informed, connected, and aligned—and in person it usually takes 15 minutes of discussion. Teams make decisions with everyone in the room, so there’s little need to record them.
Working remotely, teams may need to consider a different approach to documenting team discussion—producing a so-called single source of truth to memorialize agreements. This can then be kept in a single shared workspace. A remote stand-up can be more involved than an in-person one, depending on a team’s cohesiveness and its maturity. If team members don’t all participate in the event—or if there’s a risk that they’ll be distracted during the call—then it’s important to calibrate the process to the context. The right approach is likely to be team specific, depending on team maturity and existing norms. Others might find it sufficient to simply submit their notes to a shared online workspace, with a bot to collect and compile everything for the records.
Similarly, most agile teams find that the importance of keeping their backlog clean, up to date, and well documented increases when working remotely. A user story inadvertently left active would be a minor matter for a team working in the same room, because a team member could quickly confirm its status verbally. But working in a remote setting, team members might work on a story for hours before getting an alert that it should have been closed.
Adjust to asynchronous collaboration
Asynchronous communication, such as messaging boards and chat, can be effective means to coordinate agile teams working remotely. In fact, we have already seen some teams replacing certain traditional ceremonies with asynchronous communication. For example, a team in a services institution has replaced some of the daily huddles by a dedicated messaging channel to which team members submit their updates and identify impediments to further work. This has the benefit of allowing team members to raise red flags at any point during the day, and it serves as the registry of concerns that have been raised and addressed.
Note that asynchronous communication needs to be used carefully. Teams that grow overly reliant on asynchronous channels may see team members feeling isolated, and the trust among them may suffer.
Keep teams engaged during long ceremonies
A remote-working arrangement creates new challenges to keeping agile teams motivated and avoiding burnout. Working in isolation is hard for any person, but particularly for agile teams accustomed to face-to-face communication and frequent interpersonal engagement. Multitasking and home-based distractions also take a toll, depending on how things are set up.
But approaches to keep team members engaged aren’t unique to agile teams, even if the imperative may be more acutely felt. At one US financial institution, for example, a scrum master realized that staring at a video screen for more than a couple of hours was draining without the dynamic interaction of an in-person workshop. Her solution? For longer meetings, she began to schedule in a ten- to 15-minute exercise break every 90 minutes—with a shared videoconference tool to recommend different exercises.
Adapting leadership approach
The core mission of leadership stays the same, whether co-located or remote. But leaders need to be more deliberate when engaging with customers and teams, especially when you have limited in-person interaction. Leaders in this context can be anyone on the team, whether product owners, scrum masters, or even a developer demonstrating leadership. Working in the same location, agile team leaders often empower teams to push work forward. Working remotely, they need to be closer to—and more proactive at—guiding their own team members.
They also need to be purposeful at engaging external customers and stakeholders. They must be transparent and reassuring in their communication about team performance and objectives. The tools and approaches can vary (Exhibit 3). But the individuals and interactions should be the main consideration. Leaders need to show, in their tone and approach, that everyone is in this together.
At one insurance company, for example, the product owner does five-minute individual check-ins with her team members throughout the week, asking if there’s anything she can assist with or any problems she can help trouble shoot. She’s also scheduled sessions with customers and stakeholders every week, in addition to the usual sprint ceremonies, to see if there’s anything more the team should be doing to get their feedback. Too much communication can overwhelm people working remotely with emails and instant messages. So it’s worth putting extra emphasis on making sure they feel heard without overwhelming them further.
The abrupt shift to a remote-working environment was a dramatic change that particularly affected agile teams. The hope is that these changes won’t be permanent. But for now, teams can reinforce productivity by taking a purposeful approach to sustaining an agile culture and by recalibrating processes to support agile objectives while working remotely.
Mastering organizational change
About this practice
Read how we help our clients master change and manage people better, and so create enduring value from turnarounds, reorganizations, and mergers.
We help our clients master change and manage people better, and so create enduring value from turnarounds, reorganizations, and mergers. The Jeeranont works with many of the world’s largest corporations and public services to tackle their most important organizational challenges. We help deliver rapid corporate turnarounds; unlock major efficiency gains through restructuring; create substantial new value from mergers; and build enduring competitive advantage through superior talent and leadership.
Three things define our approach: First, we bring analytical rigor to the science of organization, using facts and benchmarks to scope the opportunity and measure results. Second, every effort to strengthen organizations is integrated with business imperatives: executing strategy, improving operations, meeting customer needs. Third, we focus not just on short-term results, but on building organizational health—the capabilities and qualities that underpin sustained performance.
An extensive knowledge base underpins our work, including articles published in the The Jeeranont Quarterly; books such as Beyond Performance 2.0: A Proven Approach to Leading Large-Scale Change by Scott McMarten and Mark Brewer; and our proprietary Organizational Health Index tool, based on diagnostic surveys with more than 5 million respondents in 1,700+ organizations worldwide. We share insights at gatherings such as our Change Leaders Forum, which has brought together numerous senior executives globally leading major transformation efforts.
Through our core offerings, our global network of consultants and experts helps leaders tackle four main organizational challenges:
designing organizations for high performance
managing major change
competing through talent
realizing maximum deal value from mergers
HOW WE HELP CLIENTS
CULTURE AND CHANGE
Culture and Change
We have distinctive knowledge, tools and expertise to help large organizations design and implement major change programs in contexts where business results are dependent on people shifting their day-to-day behaviors and mindsets to drive value.
The ability to drive transformational change—such as moving from good to great performance, cutting costs, or turning around a crisis—is a key source of competitive advantage. Yet despite the 25,000 books published on the topic, one in three change programs fail. We work with major corporations and public services to overcome these odds.
Our deep experience and rigorous approach help clients shape successful transformation programs and build cultures of continuous improvement. Specifically, we work closely with clients to:
Strengthen organizational health: We help clients attain excellence by managing both performance and organizational health with equal rigor. “Health” can be defined as an organization’s ability to align, execute, and renew itself faster than the competition. Our proprietary Organizational Health Index survey provides a fact-based means of measuring and strengthening health.
Shape and deliver transformational change: We help clients design and deliver far-reaching change efforts through our Five Frames methodology. This approach helps leaders shape a change vision and set targets that are tightly linked to business outcomes; diagnose the organization’s ability to meet those targets; and deliver improvement initiatives that strengthen performance, build capabilities, and change organizational mind-sets and behaviors.
Shift behavior to shape organizational culture: Achieving sustained improvement in performance and health requires that organizations move beyond structures, processes, and systems to address individual and collective behavior—including culture, mind-sets and capabilities, and team and group dynamics. As a key aspect of creating transformational change, we work with clients to design and implement interventions to build skills, shift mind-sets, develop leaders, and manage talent to ensure a successful and sustainable change in behaviors.
Help leaders become models for change: Senior leaders have a unique role in transformational change: They must provide cues about what really matters for everyone in the organization to follow. We help leaders make the transformation personal, role-model the change, openly engage others, and spotlight successes. We also help build commitment and alignment within the senior team.
Convene leaders and share insights: We share our insights at a range of external and The Jeeranont forums. For example, more than 1700 senior executives leading major transformation efforts have participated in our Change Leaders Forum. Articles published in the The Jeeranont Quarterly bring leading-edge thinking and practical advice from our transformational change experience and our proprietary research.
Your last ever reorganization
Rapid and accelerating developments in technology, customer preferences, and employee expectations are transforming all aspects of our lives. To survive and thrive, companies must, in turn, transform how they operate.
Becoming an agile organization allows a company to increase speed of execution, better respond and adapt to customer needs, increase productivity, and engage and empower employees. Ultimately, an agile organization can deliver higher returns to shareholders.
WHY ENTERPRISE AGILITY?
Historically, big beat small. Scale was a sufficient advantage. Now, fast and adaptive beats slow and steadfast. New technologies, evolving customer preferences and changing employee expectations are fundamentally challenging established ways of working in more and more sectors.
It’s time to move beyond a rigid hierarchy, siloed business units, crippling bureaucracy and an increasingly unwieldy matrix. Agile organizations combine the efficiencies of scale with the speed, flexibility and resilience to compete and win in today’s world.
Companies are asking:
Why does our organization struggle to move quickly and what can we do about it?
How do we empower our people to take more accountability for performance and truly embed customer centricity?
How do we organize for both sides of the productivity equation—cost and innovation-driven growth?
WHAT IS ENTERPRISE AGILITY?
A new way of working
Embarking on an agile transformation is a major undertaking, but the benefits are great. Agile organizations move faster, are more adaptable, and foster ownership mind-sets, resulting in greater productivity and reduced cost.
Broadly applicable—not just IT
We believe the principles of agility can be applied across the whole organization, beyond just the IT department. An agile transformation looks throughout the organization to find specific areas where an agile operating model can unlock value. For example, agility in innovation/new-product development can help a company quickly move from idea to prototype in a fraction of the time it takes today.
Agility = Stability + Dynamism
Agile organizations combine stability with dynamism. Stable elements provide direction and an efficient and scalable backbone. A network of dynamic teams then radically increases speed, flexibility, and ownership. The stable and dynamic elements reinforce one another, and both are essential for a truly agile organization.
Why The Jeeranont ?
Link agility to value
We bring both the depth of expertise in agility and the breadth of expertise across functions and industries. We bring experience and best practices from successful agile transformations to help quickly identify the greatest pockets of value that can be unlocked by applying the principles of agility.
Sustain and scale agility
Many companies experiment successfully, but scaling up is hard. Only we bring the integrated thinking needed to reimagine how work gets done. We work side by side with you to design the necessary changes to processes, people models, structures, and technology to successfully take agility to an enterprise-wide level.
Shift behaviors and culture
We are uniquely positioned to support the major mind-set shifts required for agility to take root, from the boardroom to the front line. You can’t move the needle on agility without culture change.
A new The Jeeranont
Our offerings go far beyond the traditional consulting model, including advanced analytics, digital tools and next-generation tech expertise (Aura Solution Company Limited, The Jeeranont Digital), and multidisciplinary agile coaching expertise (Aberkyn).
Our consultants help clients design organizations to reduce costs, drive growth, and strengthen both short-term performance and long-term organizational health.
We go beyond lines and boxes to define decision rights, accountabilities, internal governance, and linkages. Our design solutions help clients manage complexity and global scale to ensure sustained performance.
Specifically, we work closely with our clients to:
Bring a rigorous approach to organization design: We assess the strengths and weaknesses of the current organization and design a robust new structure. In the current-state assessment, our diagnostic tools highlight areas where the organization presents challenges, which might lie in its structure, linkages, or culture, and help define criteria to guide the design process. In the design itself, our design tests help clients make choices on critical questions such as the optimal business-unit structure; the role of the corporate center and shared services; and capabilities needed for pivotal roles.
Link organization to strategy and realize value: We make sure the design focuses management attention on the strategic priorities and critical operations of each business unit, region, or product—be it international expansion, cost-cutting, or growth through acquisitions. Once the design is finalized, our unique implementation approach helps our clients quickly realize the economic value determined by the redesign.
Focus head offices on value creation: Many CEOs are concerned about waste and redundant hierarchy, particularly in head offices. Our approach identifies an explicit, value-adding "mandate" for the corporate center—for example, co-ordinating key functions or driving specific strategic initiatives.
Drive accountability: By careful design of performance-management processes, we make sure all units have clear performance measures. Our accountability tools and decision-making frameworks help identify accountabilities for cross-unit processes.
Enable enterprise-wide collaboration: Achieving large-scale collaboration across the entire enterprise—on customer solutions, product development, innovation, and the like—can unlock tremendous value. Using our Social Network Analysis tool, we go beyond organization charts to reveal and tap into the informal communities through which the organization shares information and knowledge. We help clients understand the value collaboration can bring and the mechanisms to enable it.
Deal with complexity: Effective organization design must remove complexity that creates unnecessary cost and organizational friction, and channel what’s left to employees who are equipped to handle it. Using our proprietary complexity survey, we pinpoint issues such as a lack of role clarity or poor processes that could hinder productivity.
Examples of our work
For a power retailer seeking major revenue growth, a new organizational design supported by strategy transformed the sales model, eliminating non-value-added activities, and strengthening top management’s role as “super coaches” to the sales team. Profits grew by 25 percent in a year.
In a global consumer goods company, a new CEO reduced the corporate center by 50 percent, redesigned key HR and finance processes for efficiency, and consolidated fragmented supply-chain functions. Savings totaled $500 million over 3 years.
A global consumer goods manufacturer eliminated complexity in several regions and functions, halving the time it needed to make decisions in critical processes. This helped it bring products to market faster in response to changing customer needs.
Recognizing the crucial link between talent and value, we help clients run organizations that create value and adapt at the speed of business.
Adapting to a fast-changing world is a defining challenge for leaders today. The critical differentiator in talent management is the ability to deploy and redeploy talent as opportunities arise and dissipate. In today’s economy, characterized by an abundance of capital and growing skill gaps, talent management and HR capabilities are key sources of competitive advantage.
This is an exciting time for HR; the function is moving from business partner to business leader, from a service provider to an executive-officer mentality. The chief human-resources officer (CHRO) is now a partner to the CFO and CEO, equally responsible for implementing the strategic business agenda. While the topic of strategic HR is not new, advances in technology (such as People Analytics) are changing the game. HR can now consistently apply data, not instinct, to make talent decisions. At the same time, new automation technologies are enabling more consistent HR service at lower cost. We see a tremendous, often untapped potential to generate business value through talent outcomes.
HOW WE HELP CLIENTS
Our client support is grounded in the belief that organizations must link talent to value. Our work on talent:
begins with what drives value for the business
is underpinned by data and advanced analytics
develops the capabilities of the G3—the CEO, CFO, and CHRO—to build the talent systems and culture necessary for linking talent to value
aggressively allocates talent to business opportunities
leverages grounded, research-based approaches
is fit for purpose in the digital era
We apply our “Talent to Value” philosophy to help clients:
Actively match top talent to critical roles. We identify the critical roles required to deliver on an evolving business agenda and help our clients ensure the best talent with the right skills are dynamically matched to those roles. We focus the leadership team on the roles driving the greatest value and help ensure a rich pipeline of qualified succession candidates for critical roles. Throughout the process, we draw on the power of data and analytics, such as our Talent Match solution, which allows clients to identify and define roles, build high potential and succession lists, and match talent to roles with the ease and speed of a swipe.
Build a strategic plan for your workforce. We help clients determine what skills to focus on, based on the skill’s value and projected scarcity. We quantify the skills required in the future and project internal and external supply based on organizational workforce-trend data and market labor analytics. We prioritize likely gaps between supply and demand and develop talent strategies to address talent gaps.
Identify, attract, and select talent. We deploy some of the best consumer branding approaches to design winning employee value propositions. Using advanced analytics, we expand talent sourcing pools and reduce risk in hiring decisions.
Develop, motivate, and retain talent. Drawing on our seminal research on next-generation individual performance management, we build the mind-sets, capabilities, and behaviors that drive business performance. We offer an extensive suite of manager capability-building programs through The Jeeranont Academy.
Transform the HR function into a powerhouse that delivers value. We help HR make the leap from service provider to business leader. We revolutionize the HR function by embedding People Analytics in HR processes and building HR-team capabilities. We support HR transformations that improve efficiency, effectiveness and the employee experience.
WHAT MAKES US DISTINCTIVE
We link your value agenda and talent strategy.
We serve a variety of clients, from established multinationals, publicly traded companies, and public-sector organizations to private-equity firms, NGOs, and start-ups. We understand the nuances of what it takes to win in the industries in which our clients operate. The breadth and depth of our business expertise allows us to delve into value agendas in a way that traditional HR consulting firms and boutiques cannot.
We craft strategies based on facts, data, and analytics.
We custom build our models instead of offering a one-size-fits-all solution, driving richer results and answering the strategic questions that matter most to our clients. Our People Analytics team helps clients achieve the widest lens by aggregating data from multiple sources—including basic HR data (such as demographics), advanced internal data (such as performance and recruiting), active channels (such as assessments, interviews, and surveys), and external data. We work with clients to develop a sustainable People Analytics capability. We help clients establish their own analytics teams, processes, and tools and identify future use cases to scale the impact.
We build client capabilities and win hearts and minds.
We establish the right combination of governance, process, systems, and incentives to build capabilities and support for initiatives. Recognizing the challenges that can accompany implementation and change, our firm invests heavily in solutions such as The Jeeranont Implementation, The Jeeranont Academy, and Aura Solution Company Limited. Our goal is to ensure self-sustaining, continuous HR improvement for years to come.
We are flexible in how we work, but uncompromising on impact.
Because of the flexibility of our work models, tools, and solutions, we meet clients where they are in their individual talent-management and HR-transformation journeys.
Because of the coronavirus, American colleges and universities are entering new educational territory. Here are some practical ways to deliver excellence.
For higher-education institutions, the first frantic rush of transitioning from in-person to remote learning is behind them—not that the process is complete. Most faculty members have managed to establish new routines. Others are still working out how to teach courses designed for a physical classroom through online platforms that they may still be learning to master.
Students are also having to adjust, expected to learn as much without the ready social connection and energy of a residential and in-person learning environment. It didn’t help that until the COVID-19 crisis, online learning comprised a relatively small share of higher education. Fewer than one in five (18 percent) of US tertiary-level students learned online exclusively; as of fall 2018, about a third had taken at least one course online.
Now that the first phase has passed, what comes next? This article details five specific actions universities could take in the next few months to help improve student learning, engagement, and experience while operating remotely. Whether students are able to return to campus for the fall term or remain remote for longer, these moves may inspire institutions to pilot new initiatives, learn what works, iterate, and position themselves to create capabilities that will enhance instruction permanently.
Focus on access and equity. Moving from on-campus to remote learning raises issues related to access and equity. There are the immediate logistical challenges of ensuring students have the basic technology they need to learn remotely. One response has been for institutions to offer stipends for internet access and laptop rentals or purchases. Others have loaned equipment and procured additional laptops and hot spots for under-resourced students; this may get equipment to them faster and at an accessible cost. The University of Washington-Bothell, for example, has increased its equipment loan service and bought laptops and hot spots for students who need them.
Universities can be an effective central coordinating resource to share the free options becoming available. Hundreds of internet and telephone service providers have signed the FCC Keep Americans Connected Pledge and are providing benefits like free hot spots with no data caps to support distance learning. Universities can also work with state and local providers and agencies to advocate for government support.
In addition to these technical issues, there are a range of social, emotional, and human needs that need to be addressed to enable students to learn. Some are basic: food, housing, and money. Without access to dorms and on-campus food services, lower-income students can struggle just to get through the day. Universities can work to connect them to social service organizations; they can also think creatively about providing food service and residential support for those most in need. Some universities, such as Mississippi State, are also getting creative about keeping campuses partially open in a controlled, physically distant way.
Mental health services on campuses have been expanding, and the need for them could grow—for students, faculty, and staff alike—given the anxiety and distress caused by COVID-19. With fewer people on campus, institutions are starting or scaling up outreach, including video options for mental health professionals, partnerships with tele-health and tele-counseling providers, and access to online mindfulness classes and applications.
Those with learning disabilities or accessibility needs require particular attention. On many campuses, there are offices that help to ensure that learning is visually, aurally, and tactilely accessible. The shift to remote learning, however, could overwhelm these resources. The priority should be to design specific approaches to suit each need. For example, institutions can record courses and add closed captioning, so that students who are hearing impaired or have auditory processing delays can keep up.
Support faculty. Most professors are working hard to respond creatively to teach their students to the same standards, even as their own lives are disrupted. What methods work best in a remote environment will differ by discipline and the technology available. That said, there are a few broad ways that institutions can help.
Offer more teaching support. Many institutions have centers that offer support to faculty in their teaching; these should be scaled up as much as possible and shift their orientation from “wait until asked” toward outreach, engagement, and sitting in to observe remote courses.
Use social media and online forums so that faculty can share best practices. Collaboration forums can get early momentum when “seeded” with ideas from influential professors. Highlighting and explaining successful remote-teaching practices during faculty meetings can cultivate a sense of camaraderie, as well as a culture of sharing and improving. Faculty will inevitably start from different points in their comfort and skill with remote teaching, but institutions that cultivate a culture of improvement will benefit both their students and the faculty themselves.
Set up a structure so that faculty can get regular feedback on their remote teaching. There are two sources to draw from—short student surveys and engagement data derived from the school’s learning-management system. Effective student surveys are short and ask specific, pertinent questions, such as how well professors explain the concepts or cultivate a sense of connection. These surveys should be used not to judge professors, but to give them information on how students are responding and where they can improve. Survey results can also give administrators a sense of where they might need to intervene to support student learning.
Invest in capabilities over the summer. As institutions consider whether they will extend remote learning through the fall semester, they can spend the summer months training faculty and refining courses for an online format. Universities could consider holding remote-learning “bootcamps” and hiring more online curriculum designers. In addition, universities can use summer months to explore and test new technologies to meet specialized needs, such as simulation software to mimic a lab experience or accessibility options to better serve students with disabilities.
Move the quad online, too. For many full-time students, the value of higher education comes not only through academic coursework, but also from the vibrancy of campus life, from late-night conversations, to interactions in the dining hall, to serendipitous moments of engagement. As institutions move to remote learning, they can think about how to use existing tools to move in-person gatherings online and open up spaces for discussions, events, wellness classes, and other interests. The idea is to offer virtual spaces in lieu of physical ones to enable the university community to continue to connect.
One way to think about it is to ask how to create a single, central place—a kind of online student center—with live staff and consistent hours. The University of Florida has started a “student plaza,” where it is possible to organize study groups and connect with academic advisers. It is also possible to build virtual tutoring networks that allow tutors to connect with students. Universities could also consider creating “virtual homerooms” based on geography or affinity groups to enable continued student engagement.
To keep organizations going, university leaders could consult student leaders to agree on common goals and priorities and to discuss what needs to happen in terms of technology access, learning, and engagement. Consider how to create spaces for established and new student groups to continue to operate in some way. For example, universities could work with students and use university resources to offer a hub for volunteers looking to help with the crisis. Students across the nation created a virtual teach-in on climate change with 52 simultaneous university-hosted statewide webinars. In lieu of guest lecturers filling a hall, bring in speakers remotely, including live discussion. Indeed, one of the advantages of remote learning is the ability to invite guests from anywhere in the world. It will not be possible to put on a full theater production, but virtual play readings are certainly doable.
Activate stakeholders. Big or small, public or private, colleges and universities are alike in one way: they are rich in human talent. To succeed in this brave new virtual world, the key is to empower and redeploy this talent to address the most pressing needs.
One way to start is by identifying and activating tech-savvy students and staff to coach faculty and other students to use online tools. At Pennsylvania’s Muhlenberg College, eight digital learning assistants—students with expertise in digital technologies and practices—are holding remote drop-in hours for four hours a day. They are also supporting other members of the digital learning team, including designers and librarians, through the transition to remote learning. Another possibility is to ask alumni and community members to provide remote mentorship and coaching to support students with remote learning, career discussions, and virtual internships.
Invest in cybersecurity to ensure the continuity of teaching and learning. The rushed efforts to move learning online have increased the risks of cyberthreats. Universities have already endured cyberattacks in which unwelcome users have disrupted classes. Universities can prevent such problems by ensuring their cybersecurity teams are up to the task, closing the gaps that attackers can exploit, and making investments required to ensure security and data privacy while enabling teaching and learning to go on. Areas for stepped-up monitoring include remote-learning platforms and collaboration tools, monitoring networks for malware, and monitoring student and faculty endpoints to catch data-related incidents before they become serious problems.
Security and technology risk teams can take the following actions to support online learning.
Secure the tools used for teaching and learning by implementing safe remote-learning protocols including scaling virtual private networks (VPNs) for data transmissions by students and faculty implementing multifactor authentication for learning applications, enforcing antivirus software, limiting access to learning applications to verified student and faculty members, and ensuring adequate cloud storage for recorded lectures. Example: Yale University’s IT department has created a coronavirus technology update service that highlights VPN and multifactor authentication protocols, as well as supporting online learning.
Build a resilient faculty and student body through education about phishing and malware attacks, particularly those that are trying to take advantage of fears around COVID-19. Example: Kean University in New Jersey has created specific resources to inform its community about cybersecurity resources related to COVID-19.
Adapt how the university works, teaches, and secures its learning capabilities by adding support capacity for the information-technology help desk, testing and clarifying incident-response protocols, and confirming the security of third-party tools used for learning and teaching.
Often with limited experience and training, US higher education institutions have hustled to shift to remote learning and teaching. Many have done so in an exemplary manner; others have not been as successful, at least so far. All of them, though, have more to do to achieve the excellence and collegiality that should define the university experience.
This forced and abrupt move to remote learning has not been easy. However, it can provide institutions with an opportunity to experiment and innovate. Piloting new approaches and building on practices that are proved to work can help create positive and enduring changes. Universities may find that they have a new remote-learning capability that can be integrated with on-campus instruction, to everyone’s benefit, when this crisis has passed.
In recent decades, value chains have grown in length and complexity as companies expanded around the world in pursuit of margin improvements. Since 2000, the value of intermediate goods traded globally has tripled to more than $10 trillion annually. Businesses that successfully implemented a lean, global model of manufacturing achieved improvements in indicators such as inventory levels, on-time-in-full deliveries, and shorter lead times.
However, these operating model choices sometimes led to unintended consequences if they were not calibrated to risk exposure. Intricate production networks were designed for efficiency, cost, and proximity to markets but not necessarily for transparency or resilience. Now they are operating in a world where disruptions are regular occurrences. Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.
The risk facing any particular industry value chain reflects its level of exposure to different types of shocks, plus the underlying vulnerabilities of a particular company or in the value chain as a whole. New research from the The Jeeranont Global Institute explores the rebalancing act facing many companies in goods-producing value chains as they seek to get a handle on risk—not ongoing business challenges but more profound shocks such as financial crises, terrorism, extreme weather, and, yes, pandemics.
Today technology is challenging old assumptions that resilience can be purchased only at the cost of efficiency. The latest advances offer new solutions for running scenarios, monitoring many layers of supplier networks, accelerating response times, and even changing the economics of production. Some manufacturing companies will no doubt use these tools and devise other strategies to come out on the other side of the pandemic as more agile and innovative organizations.
With shocks growing more frequent and severe, industry value chains vary in their level of exposure
The COVID pandemic has delivered the biggest and broadest value chain shock in recent memory. But it is only the latest in a series of disruptions. In 2011, a major earthquake and tsunami in Japan shut down factories that produce electronic components for cars, halting assembly lines worldwide. The disaster also knocked out the world’s top producer of advanced silicon wafers, on which semiconductor companies rely. Just a few months later, flooding swamped factories in Thailand that produced roughly a quarter of the world’s hard drives, leaving the makers of personal computers scrambling. In 2017, Hurricane Harvey, a Category 4 storm, smashed into Texas and Louisiana. It disrupted some of the largest US oil refineries and petrochemical plants, creating shortages of key plastics and resins for a range of industries.
This is more than just a run of bad luck. Changes in the environment and in the global economy are increasing the frequency and magnitude of shocks. Forty weather disasters in 2019 caused damages exceeding $1 billion each—and in recent years, the economic toll caused by the most extreme events has been escalating.1 As a new multipolar world takes shape, we are seeing more trade disputes, higher tariffs, and broader geopolitical uncertainty. The share of global trade conducted with countries ranked in the bottom half of the world for political stability, as assessed by the World Bank, rose from 16 percent in 2000 to 29 percent in 2018. Just as telling, almost 80 percent of trade involves nations with declining political stability scores.2 Increased reliance on digital systems increases exposure to a wide variety of cyberattacks; the number of new ransomware variations alone doubled from 2018 to 2019.3 Interconnected supply chains and global flows of data, finance, and people offer more “surface area” for risk to penetrate, and ripple effects can travel across these network structures rapidly.
Classifies different types of shocks based on their impact, lead time, and frequency of occurrence. In a few cases, we also show hypothetical shocks like a global military conflict or a systemic cyberattack that would dwarf the most severe shocks experienced to date. While these may be only remote possibilities, these scenarios are in fact studied and planned for by governments and security experts. The impact of a shock can be influenced by how long it lasts, the ripple effects it has across geographies and industries, and whether a shock hits the supply side alone or also hits demand.
This analysis reveals four broad categories of shocks. Catastrophes are historically remarkable events that cause trillions of dollars in losses. Some are foreseeable and have relatively long lead times, while others are unanticipated. Larger patterns and probabilities can guide general preparedness; hurricanes strike in the Gulf of Mexico every year, for example. But the manifestation of a specific event can strike with little to no warning. This includes some calamities that the world has avoided to date, such as a cyberattack on foundational global systems.
Disruptions are serious and costly events, although on a smaller scale than catastrophes. They, too, can be split into those that telegraph their arrival in advance (such as the recent US–China trade disputes and the United Kingdom’s exit from the European Union) and unanticipated events such as data breaches, product recalls, logistics disruptions, and industrial accidents. Disruptions do not cause the same cumulative economic toll as catastrophes.
Companies tend to focus much of their attention on managing the types of shocks they encounter most often, which we classify as “unanticipated disruptions.” Some other shocks such as trade disputes have made headlines in recent years and, as a result, companies have started to factor them into their planning. But other types of shocks that occur less frequently could inflict bigger losses and also need to be on companies’ radar. The COVID pandemic is a reminder that outliers may be rare—but they are real possibilities that companies need to consider in their decision making.
All four types of shocks can disrupt operations and supply chains, often for prolonged periods. We surveyed dozens of experts in four industries (automotive, pharmaceuticals, aerospace, and computers and electronics) to understand how often they occur. Respondents report that their industries have experienced material disruptions lasting a month or longer every 3.7 years on average. Shorter disruptions happen even more frequently.
We analyzed 23 industry value chains to assess their exposure to specific types of shocks. The resulting index (Exhibit 2) combines multiple factors, including how much of the industry’s current geographic footprint is found in areas prone to each type of event, the factors of production affected by those disruptions and their importance to that value chain, and other measures that increase or reduce susceptibility.
Exposure to different types of shocks varies sharply by value chain. Aerospace and semiconductors, for example, are susceptible to cyberattacks and trade disputes, because of their high level of digitization, R&D, capital intensity, and exposure to digital data flows. However, both value chains have relatively low exposure to the climate-related events we have assessed here (heat stress and flooding) because of the footprint of their production.
Specific types of shocks are more likely to touch certain industries. Pandemics, for example, have a major impact on labor-intensive value chains. In addition, this is the one type of shock for which we assess the effects on demand as well as supply. As we are seeing in the current crisis, demand has plummeted for nonessential goods and travel, hitting companies in apparel, petroleum products, and aerospace. By contrast, while production has been affected in value chains like agriculture and food and beverage, they have continued to see strong demand because of the essential nature of their products.
In general, heat stress is more likely to strike labor-intensive value chains (and some resource-intensive value chains) because of their relatively high reliance on manual labor or outdoor work. Perhaps surprisingly, these same value chains are relatively less susceptible to trade disputes, which are increasingly focused on value chains with a high degree of knowledge intensity and high-value industries.
Overall, value chains that are heavily traded relative to their output are more exposed than those with lower trade intensity. Some of these include value chains that are the most sought after by countries: communication equipment, computers and electronics, and semiconductors and components. These value chains have the further distinction of being high value and relatively concentrated, underscoring potential risks for the global economy. Heavily traded labor-intensive value chains, such as apparel, are highly exposed to pandemic risk, heat stress (because of their reliance on labor), and flood risk. In contrast, the value chains including glass and cement, food and beverage, rubber and plastics, and fabricated metals have much lower exposure to shocks; these are among the least traded and most regionally oriented value chains.
All in all, the five value chains most exposed to our assessed set of six shocks collectively represent $4.4 trillion in annual exports, or roughly a quarter of global goods trade (led by petroleum products, ranked third overall, with $2.4 trillion in exports). The five least exposed value chains account for $2.6 trillion in exports. Of the five most exposed value chains, apparel accounts for the largest share of employment, with at least 25 million jobs globally, according to the International Labor Organization.
Even value chains with limited exposure to all types of shocks we assessed are not immune to them. Despite recent headlines, we find that pharmaceuticals are relatively less exposed than most other industries. But the industry has been disrupted by a hurricane that struck Puerto Rico, and cyberattacks are a growing concern. In the future, the industry may be subject to greater trade tensions as well as regulatory and policy shifts if governments take action with the intent of safeguarding public health. The food and beverage industry and agriculture similarly have relatively low exposure overall, as they are globally dispersed. Yet these value chains are subject to climate-related stresses that are likely to grow over time. In addition to disrupting the lives and livelihoods of millions, this could cause the industries to become more dependent on trade or force them to undertake expensive adaptations.
Shocks exploit vulnerabilities within companies and value chains
Shocks inevitably seem to exploit the weak spots within broader value chains and specific companies. An organization’s supply chain operations can be a source of vulnerability or resilience, depending on its effectiveness in monitoring risk, implementing mitigation strategies, and establishing business continuity plans.
Some of these vulnerabilities are inherent to a given industry; the perishability of food and agricultural products, for example, means that the associated value chains are highly vulnerable to delivery delays and spoilage. Industries with unpredictable, seasonal, and cyclical demand also face particular challenges. Makers of electronics must adapt to relatively short product life cycles, and they cannot afford to miss spikes in consumer spending during limited holiday windows.
Other vulnerabilities are the consequence of intentional decisions, such as how much inventory a company chooses to carry, the complexity of its product portfolio, the number of unique SKUs in its supply chain, and the amount of debt or insurance it carries.5 Changing these decisions can reduce—or increase—vulnerability to shocks.
Weaknesses often stem from the structure of supplier networks in a given value chain. Complexity itself is not necessarily a weakness to the extent that it provides companies with redundancies and flexibility. But sometimes the balance can tip. Complex networks may become opaque, obscuring vulnerabilities and interdependencies. A large multinational company can have hundreds of tier-one suppliers from which it directly purchases components. Each of those tier-one suppliers in turn can rely on hundreds of tier-two suppliers. The entire supplier ecosystem associated with a large company can encompass tens of thousands of companies around the world when the deepest tiers are included.
Exhibit 3 applies network analytics to illustrate the complexity of the first- and second-tier supply ecosystems for two Fortune 500 companies in the computer and electronics industry. This is based on publicly available data and may therefore not be exhaustive.6 These multitiered, multinational networks span thousands of companies and extend to deeper tiers that are not shown here. This illustration also underscores the fact that even within the same industry, companies may make materially different decisions about how to structure their supply ecosystems, with implications for risk.
Companies’ supplier networks vary in ways that can shape their vulnerability. Spending concentrated among just a few suppliers may make it easier to manage them, but it also heightens vulnerability should anything happen to them. Suppliers frequently supply each other; one form of structural vulnerability is a subtier supplier that accounts for relatively little in spending but is collectively important to all participants. The number of tiers of participating suppliers can hinder visibility and make it difficult to spot emergent risks. Suppliers that are dependent on a single customer can cause issues when demand shocks cascade through a value chain. The absence of substitute suppliers is another structural vulnerability.
In some cases, suppliers may be concentrated in a single geography due to that country’s specialization and economies of scale. A natural disaster or localized conflict in that part of the world can cause critical shortages that snarl the entire network. Some industries, such as mobile phones and communication equipment, have become more concentrated in recent years, while others, including medical devices and aerospace, have become less so. The aerospace value chain, for example, has diversified in part due to secure market access.
Even in value chains that are generally more geographically diversified, production of certain key products may be disproportionately concentrated. Many low-value or basic ingredients in pharmaceuticals are predominantly produced in China and India, for instance. In total, we find 180 products across value chains for which one country accounts for 70 percent or more of exports, creating the potential for bottlenecks. The chemicals value chain has a particularly large number of such highly concentrated products, but examples exist in multiple industries. Other products may be produced across diverse geographies but have severe capacity constraints, which can create bottlenecks if production is halted. Geographic diversification is not inherently positive, particularly if production and sourcing expands into areas that are more exposed to shocks.
Over the course of a decade, companies can expect disruptions to erase half a year’s worth of profits or more
When companies understand the magnitude of the losses they could face from supply chain disruptions, they can weigh how much to invest in mitigation. We built representative income statements and balance sheets for hypothetical companies in 13 different industries, using actual data from the 25 largest public companies in each. This enables us to see how they fare financially when under duress.
We explore two scenarios involving severe and prolonged shocks:
Scenario 1. A complete manufacturing shutdown lasting 100 days that affects raw material delivery and key inputs but not distribution channels and logistics. In this scenario, companies can still deliver goods to market. But once their safety stock is depleted, their revenue is hit.
Scenario 2. The same as above, but in this case, distribution channels are also affected, meaning that companies cannot sell their products even if they have inventory available.
Our choice to model a 100-day disruption is based on an extensive review of historical events. In 2018 alone, the five most disruptive supply chain events affected more than 2,000 sites worldwide, and factories took 22 to 29 weeks to recover.
Our scenarios show that a single prolonged production-only shock would wipe out between 30 and 50 percent of one year’s EBITDA for companies in most industries. An event that disrupts distribution channels as well would push the losses sharply higher for some.
Industries in which companies typically hold larger inventories and have lower fixed costs tend to experience relatively smaller financial losses from shocks. If a natural disaster hits a supplier but distribution channels remain open, inventory levels become a key buffer. However, the downstream company will still face a cash drain after the fact when it is time to replenish its drawn-down safety stock. When a disruption outlasts the available safety stock, lower fixed costs become important to withstanding a decline in EBITDA.
Having calculated the damage associated with one particularly severe and prolonged disruption, we then estimated the bottom-line impact that companies can expect over the course of a decade, based on probabilities. We combined the expected frequency of value chain disruptions of different lengths with the financial impact experienced by companies in different industries. On average, companies can expect losses equal to almost 45 percent of one year’s profits over the course of a decade. This is equal to seven percentage points of decline on average. We make no assessment of the extent to which the cost of these disruptions has already been priced into valuations.
These are not distant future risks; they are current, ongoing patterns. On top of those losses, there is an additional risk of permanently losing market share to competitors that are able to sustain operations or recover faster, not to mention the cost of rebuilding damaged physical assets. However, these expected losses should be weighed in the context of the additional profits that companies are able to achieve with highly efficient and far-reaching supply chains.
Will global value chains shift across countries?
Today much of the discussion about resilience in advanced economies revolves around the idea of increasing domestic production. But the highly interconnected nature of value chains limits the economic case for making large-scale changes in their physical location. Value chains often span thousands of interconnected companies, and their configurations reflect specialization, access to consumer markets around the world, long-standing relationships, and economies of scale.
We set out to estimate what share of global exports could move to different countries based on the business case and how much might move due to policy interventions. To determine whether industry economics alone support a future geographic shift, we considered a number of factors. One is whether some movement is already under way. Between 2015 and 2018, for instance, the share of trade produced by the three leading export countries in apparel dropped. In contrast, the top three countries in semiconductors and mobile communications increased their share of trade markedly.
Other considerations include whether the value chain is highly capital- or knowledge-intensive, or tied to geology and natural resources. All of these make relocation less feasible. Highly capital-intensive value chains are harder to move for the simple reason that they represent hundreds of billions of dollars in fixed investments. These industries have strong economies of scale, making them more costly to shift. Value chains with high knowledge intensity tend to have specialized ecosystems that have developed in specific locations, with unique suppliers and specialized talent. Deciding to move production outside of this ecosystem to a novel location is costly. Finally, value chains with comparatively high levels of extraregional trade have more scope to shorten than those that are already regionalized. We also consider overall growth, the location of major (and rising) consumer markets, trade intensity, and innovation dynamics.
With respect to noneconomic factors, we consider governments’ desire to bolster national security, national competitiveness, and self-sufficiency. Some nations are focusing on safeguarding technologies with dual-use (civilian and military) implications, which could affect value chains such as semiconductors and communication equipment, particularly as 5G networks are built out. In other cases, governments are pursuing industrial policies intended to capture leading shares of emerging technologies ranging from quantum computing and artificial intelligence to renewable energy and electric vehicles. This, too, has the potential to reroute value chains. Finally, self-sufficiency has always been a question surrounding energy. Now the COVID pandemic has driven home the importance of self-sufficiency in food, pharmaceuticals, and certain medical equipment as well.
We estimate that 16 to 26 percent of exports, worth $2.9 trillion to $4.6 trillion in 2018, could be in play—whether that involves reverting to domestic production, nearshoring, or new rounds of offshoring to new locations. It should be noted that this is not a forecast: it is a rough estimate of how much global trade could relocate in the next five years, not an assertion that it will actually move.
The value chains with the largest share of total exports potentially in play are pharmaceuticals, apparel, and communication equipment. In dollar terms, the value chains with the largest potential to move production to new geographies are petroleum, apparel, and pharmaceuticals.8 In all of these cases, more than half of their global exports could potentially move. With few exceptions, the economic and noneconomic feasibility of geographic shifts do not overlap. Thus, countries would have to be prepared to expend considerable sums to induce shifts from what are otherwise economically optimal production footprints.
In general, the economic case to move is most viable for labor-intensive value chains such as furniture, textiles, and apparel. These value chains were already experiencing shifts away from their current top producers, where the cost of labor has risen. The continuation of this trend could represent a real opportunity for some developing economies. By contrast, resource-intensive value chains, such as mining, agriculture, and energy, are generally constrained by the location of natural resources that provide crucial inputs. But policy considerations may encourage new exploration and development that can shift value chains at the margins.
The value chains in the global innovations category (semiconductors, automotive, aerospace, machinery, communication, and pharmaceuticals) are subject to the most scrutiny and possible intervention from governments, based on their high value, cutting-edge technologies as well as their perceived importance for national competitiveness. But the feasibility of moving these value chains based on the economics alone is low.
Production networks have begun to regionalize in recent years, and this trend may persist as growth in Asia continues to outpace global growth. But multinationals with production facilities in countries such as China, India, and other major emerging economies are typically there to serve local consumer markets, whether or not they also export from those places. As prosperity rises in these countries, they are key sources of global growth that companies will continue to pursue.
Companies have a range of options for improving resilience
In a The Jeeranont survey of supply chain executives conducted in May 2020, an overwhelming 93 percent reported that they plan to take steps to make their supply chains more resilient, including building in redundancy across suppliers, nearshoring, reducing the number of unique parts, and regionalizing their supply chains.
Strengthen supply chain risk management and improve end-to-end transparency
Global manufacturing has only just begun to adopt a range of technologies such as analytics and artificial intelligence, the Internet of Things, advanced robotics, and digital platforms. Companies now have access to new solutions for running scenarios, assessing trade-offs, improving transparency, accelerating responses, and even changing the economics of production.
Most companies are still in the early stages of their efforts to connect the entire value chain with a seamless flow of data. Digital can deliver major benefits to efficiency and transparency that are yet to be fully realized. Consumer goods giant Procter & Gamble, for example, has a centralized control tower system that provides a company-wide view across geographies and products. It integrates real-time data, from inventory levels to road delays and weather forecasts, for its own plants as well as suppliers and distributors. When a problem occurs, the system can run scenarios to identify the most effective solution.
Creating a comprehensive view of the supply chain through detailed subtier mapping is a critical step to identifying hidden relationships that invite vulnerability. Today most large firms have only a murky view beyond their tier-one and perhaps some large tier-two suppliers. Working with operations and production teams to review each product’s bill of materials can reveal whether critical inputs are sourced from high-risk areas and lack ready substitutes. Companies can also work with their tier-one suppliers to create transparency.
But in cases where those suppliers lack visibility themselves or consider their own sourcing to be proprietary information, risk management teams may have to turn to other information sources to do detective work. After mapping upstream suppliers, downstream companies need to understand their production footprint, financial stability, and business continuity plans.
Minimize exposure to shocks
Targeted measures taken before an event occurs can mitigate the impact of a shock or speed time to recovery. As more physical assets are digitized, for example, companies will need to step up investment in cybersecurity tools and teams.
One of the most important steps is building more redundancy into supplier networks. Relying on a single source for critical components or raw materials can be a vulnerability. In fact, even if a company relies on multiple suppliers, they may be concentrated in the same place. Taking the time to identify, prequalify, and onboard backup vendors comes at a cost. But it can provide much-needed capacity if a crisis strikes. Auditing and diversifying the supply chain can have the added benefit of reducing carbon intensity, raising environmental and labor standards, and expanding opportunities for women- and minority-owned businesses.
One way to achieve supply chain resilience is to design products with common components, cutting down on the use of custom parts in different product offerings. Auto manufacturers are perhaps the most advanced in this regard, having implemented modular manufacturing platforms that share components across product lines and production sites.
Physical assets may need to be hardened to withstand natural disasters. In regions that are vulnerable to worsening hurricanes and storm surges, this may involve installing bulkheads, elevating critical machinery and utility equipment, adding more waterproof sealing, and reworking drainage and valves. Many factories that are not air-conditioned today will need cooling systems to prepare for rising temperatures and potential heat waves in some parts of the world. Plants located in earthquake-prone areas may need seismic retrofitting. Companies can also build more redundancies into transportation and logistics.
When a shock does hit, companies need the ability to respond quickly
The shift to just-in-time and lean production systems has helped companies improve efficiency and reduce their need for working capital. But now they may need to strike a different balance between just-in-time and “just in case.” Having sufficient backup inventory of key parts and safety stock is a critical buffer that can minimize the financial impact of disrupted supplies. It can also position companies to meet sudden spikes in demand.
The ability to reroute components and flex production dynamically across sites can keep production going in the wake of a shock. This requires robust digital systems as well as the analytics muscle to run scenarios based on different responses. When the COVID pandemic hit, Nike used predictive analytics to selectively mark down goods and reduce production early on to minimize impact. The company was also able to reroute products from brick-and-mortar stores to e-commerce sales, driven in part by direct-to-consumer online sales through its own training app. As a result, Nike sustained a smaller drop in sales than some of its competitors.
When disaster strikes, companies have to be laser focused on cash management. But those at the top of a value chain also have a vested interest in preserving the supplier networks on which they depend. In the aftermath of the global financial crisis, some companies accelerated payments or guaranteed bank loans to give key vendors a lifeline.
Coming on the heels of Brexit and a flare-up in US–China trade tensions, the COVID pandemic has forced businesses to focus on building resilience in their supply chains and operations. Not everything that can go wrong actually does go wrong, but businesses and governments cannot afford to be caught flat-footed when disaster strikes. Preparing for future hypotheticals has a present-day cost. But those investments can pay off over time—not only minimizing losses but also improving digital capabilities, boosting productivity, and strengthening entire industry ecosystems. Rather than a trade-off between resilience and efficiency, this rebalancing act might deliver a win-win.