The onset of the pandemic health crisis is now an ongoing factor in social, economic and our personal lives. Expectations for the crisis having a short-term impact were prevalent in the spring. As executive expectations give way to a grimmer reality, Gartner’s Q2 2020 IT spending forecast anticipates declines in U.S. GDP and in global world-wide IT spending until well into 2021, a longer recovery than initially anticipated.
It is time to plan according for the coming year.
Executives wanted a “V” shaped recovery anticipating the ability to ‘bounce back’ from the crisis. They prepared for dramatic short-term downturns based on public health restrictions. They anticipated a corresponding upturn when infection curve flattened, allowing the economy reopened. This is happening to a degree in China and parts of Europe but not enough to make a “V”. With no clear expectations for the future, planning takes on a new level of complexity and new opportunities for innovation.
Pivot Forward provides a way of thinking and acting in a crisis environment. The framework divides the crisis into four phases of economic activity shown in the figure below. The phase that your company is in depends on the state of customer demand and the overall market. For most companies in the U.S. they face a 2021 based on transitioning from Phase 2 where customers are actively cutting spending into Phase 3 representing the early recovery of customer and economic activity. Phase 4 representing broad recovery is possible in some industries, but unlikely for the economy as a whole in 2021.
The pivot forward framework provides a way of thinking about the actions and plans organisations need to take in the coming year. Details can be found in the following publicly available Gartner research 4 Phases for Technology and Service Providers to Lead in the COVID-19 Environment.
BOUNCING FORWARD IN UNCERTAINTY
Leaders must move from a ‘bounce back’ scenario to one based on ‘bouncing forward’. Forward in recognition that the crisis and our responses to it change the assumptions, rules and response in the future. Uncertainty is one indicator of the degree to which the rules have changed. According to JP Morgan, 86 of the companies in the S&P 500 have suspended earnings guidance.
Suspending guidance is a temporary strategy, leaders need to plan for the coming year. Executives need new planning approaches. The crisis disrupts traditional planning approaches – in the sense that they are less effective or predictive. Plans for 2021 need to address three areas in new ways:
- Basing revenue plans on customer success rather than product push
- Mobilising and operating the organisation in new ways, and
- Addressing environmental, systemic and future challenges
REVENUE BASED ON CUSTOMER SUCCESS
Plans start with expectations for top line review. Normally sales leaders and planners estimate next year’s revenue budgets based on past revenues with adjustments for general economic conditions, pricing and competition. This approach relies on existing customers as the principle source of revenue. A Gartner 2019 survey indicated technology general managers expected a substantial majority of their revenue from existing customers buying existing products. This has certainly proven to be the case in the current crisis.
Combing sales pipelines and evaluating markets remain valid planning tools. A bounce forward plan requires looking at revenue plans from the customer rather than your company’s perspective. The goal is to understand the customer’s health and their capacity to consume your products or services. Augment traditional revenue planning with answers to the following questions:
- How healthy are my existing customers, financially, strategically, organisationally? What is the state of your customers’ customers? They need their own revenues to afford your products.
- What do customers need to be more successful in a tough environment? Think through their barriers to growth and margin. Where are your customers incurring unnecessary costs, providing inadequate customer service or missing revenue opportunities? These form the core of their future needs. Who else shares these needs beyond our existing customers? This helps identify potential adjacent use cases for growth.
- What is your role in customer success? Use your understanding of their needs to determine your value to customers.
- Will they have the will and the means to engage, purchase and realise value from our solutions? How well are we positioned to deliver on their success? How clear is the connection between customer need and solution abilities? What is customers’ ability to get value from our solutions?
The health crisis impacts every industry and geography. It impacts some more than others. The responses to the questions above rely on focusing on your significant customers and industries. Understanding individual customer and overall industry ability to purchase and willingness to pay is the focus for 2021 planning.
MOBILIsING AND OPERATING THE ORGANISATION IN NEW WAYS
Refining revenue forecasts based on customer success determines the top line resources available for 2021 operations. Expectations to bounce back in 2020 led leaders to conserve cash, cut costs and delay projects and investments.
For 2021, leaders should plan for focused investments and changes to reorient the company to new ways of working. These investments go beyond industrialising remote working and potentially temporary improvements in productivity and cost.
- How will we connect with and engage customers via remote and self-service channels? What are the new sales, marketing and product changes necessary to make products easy to market, sell and serve?
- How will we connect, engage and keep safe our people, suppliers and other partners? What do we need to do to strengthen positive elements of our culture, our values our identity? How will we keep people mentally together while they are physically apart?
- What changes are required to business processes, operations and the organisation to create sustainable ways of working? What will you change to move from crisis response or ad hoc arrangements toward a new business as usual?
- Where should we use information and connectivity to replace process coordination and oversight? Where can we use automation to reduce process variation, reallocate personnel to higher value activities, provide more customised service at standardised cost?
Recognise that while companies are more digital in the crisis; they also are more physical. Physical in the sense of relying on the movement of goods and services, increased health screening and facilities control, more geographically disbursed. Leaders concentrated on getting back to business in the immediate response to the health crisis. In 2021 they need to go forward to industrialise and secure their operations for the future.
ADDRESSING ENVIRONMENTAL, SYSTEMIC AND FUTURE CHALLENGES
Improving top line revenue estimates and the requirements for operating in a new world represent the nuts and bolts of a plan. Considering the potential of future challenges completes the planning process.
It is normal for basing future plans on preventing a recurrence of past events. Never again or we will be ready for it next time, reassure people that they are in control. Unfortunately, in a world of change, protecting against the past is a weak solution to the future The new rules, expectations and assumptions creating a bounce forward world are far from predictable. In response your 2021 plan should include thinking around the following:
- What is our exposure to future shocks? What exposure goes beyond the current forces (economic recession, COVID-19, government regulation, competition etc.)
- What must become true for us to achieve our ambition and plans?
Bouncing forward successfully requires moving into the future rather than repairing the past. Traditional planning processes concentrated on fixing problems, reducing weaknesses, removing costs, etc. This is effective in a stable environment where managers rely on the value of no longer repeating past mistakes. In 2021, consider the impact of uncertainty and the reality that it may be impossible to fix everything. But it is possible to build on your strengths in ways that matter.
PLAN FOR 2021 BASED ON ALIGNING BELIEFS, ACTIONS AND FOCUS
Leading in times of change is hard. Planning in times of uncertain change is beyond hard. Normally, leaders have a high degree of confidence in their and their company’s ability to meet its commitments and realise its goals. In 2021 that confidence is tempered by the reality that the crisis is more than financial, its biological, societal and unfortunately political.
Rather than trying to control for these things, essentially leaders need to establish a simple system to make sense of the world. That system is based on the interactions among beliefs, actions and focus. These form the leadership plan
- Beliefs – what you and the organisation’s world view is, what you see as important and where you see yourself and the world going. Beliefs are critical in a turn as they form the basis for comparative advantage – the why you are going against the currents of conventional wisdom.
- Actions – how are you responding to those beliefs, particularly when external situations lead to new opportunities. You see these opportunities based on your beliefs. You take action because they are consistent with what you believe.
- Focus – what is important, the central thing that you are taking action to improve. The focus is the collection of outcomes resulting from your actions and consistent with your beliefs.
You need all three to make sense and take action in uncertain times. See Three aspects of winning in a turn for more details and an example. As Ty Webb, played by Chevy Chase, said in the movie Caddyshack – Danny, see your future. Danny be your future. Make your future.
That future starts with the 2021 plan, the first plan you will make for the rest of your company’s future.
This article is republished from the Gartner Blog with permission.