Managing the Whipsaw: Planning for the Next Normal

By HPA Senior Advisor Alex Nesbitt

Managing strategic change under the best of circumstances is both an art and a science. During times of extended and extreme uncertainty, however, it can test even the most seasoned organizational leaders. Due to COVID-19, realities have flipped, lives and communities have turned upside down, and business as usual is anything but.

Because of this ongoing public health crisis, companies around the world are facing a multitude of challenges, including, but certainly not limited to, massive swings in consumer demand and spending, concerns around workforce safety, and supply shock like we’ve never before seen. With panic in buying and shutdowns in supply happening in tandem, the supply chain rollercoaster has had an impact just about everywhere on just about everything: at the company level; in hospitals and medical centers (PPE); with suppliers; and most publicly among consumers, for whom shortages of common essentials like flour and toilet paper have left households scrambling and anxious.

Most organizations are designed to do the same things repeatedly within a relatively narrow band of volatility. The current level of multidimensional volatility makes it difficult to set direction and make plans that are robust enough to hold up to market changes. Executives and employees alike feel they are being whipsawed every day, which is both emotionally exhausting and operationally ineffective. It is during times like these that organizations look to their leaders for stability and direction. But, how do you provide stability and direction when everything seems to change every day?

One set of answers to this question comes from supply chain management. While the level of multi-dimensional volatility we are now experiencing is new, volatility is an old and familiar problem to supply chain managers: Changes in demand signals amplify order volatility as orders move back through the supply chain. Organizations seeking more stability and direction should consider borrowing these three practices developed by supply chain organizations to manage volatility more effectively:

1. Emphasize Collaborative Data Sharing

Transparently sharing information across functions, customers, and suppliers as rapidly as possible is key. A great deal of volatility comes from people overreacting to perceived market signals. When supermarket shelves empty, it looks like a huge increase in demand. The natural tendency for a store is to overreact and massively increase its order more product. If you look at real-time demand data, you are in a much better position to react appropriately and not increase volatility due to a retailer’s overreaction. Getting cross-functional, multi-layered views­–more quickly­–helps pump the breaks so there is less volatility.

2. Shorten Planning Horizons

Most companies run on an annual planning and budgeting cycle. In this environment, trying to plan on an annual basis is a waste of time. Organizations need to become much more agile in today’s environment. Well run supply chain organizations do this by speeding up their planning cycles so plans are adjusted daily and, in some cases, more frequently than that. Today, every part of a company needs to speed up the planning/doing cycle. If plans are completely up in the air, start by creating a plan for the next month and putting in a daily or weekly process for planning updates. Once adaptive processes are stabilized, extend the planning cycle out to a 90-day horizon.

3. Improve Adaptive Alignment Through Scenario Planning

When Dwight Eisenhower said, “plans are useless, but planning is indispensable,” he meant plans quickly become outdated, but the process of planning is invaluable.  Even the best plans will not anticipate all emergencies. By definition, emergencies are unanticipated events; however, the process of planning significantly improves our ability to adapt to unanticipated events in a coordinated and effective manner.

COVID-19 has taught businesses the importance of adapting to the new normal while anticipating the next normal. Unfortunately, crystal balls can’t tell us what will happen in the future or when. That said, organizations can become more adaptable in an aligned manner by using the right kind of planning tools. Leaders looking to make their organizations more robust and adaptable should consider a well-used planning tool called scenario planning. Scenario planning helps map out alternative futures, what these futures mean for the organization, which data indicates how the future will unfold, and how the organization can be most successful in each alternative future. This process can be of enormous value if you have the discipline to focus on what’s important, and not be totally consumed by what’s urgent.

The multi-dimensional volatility we are now experiencing is likely to be with us for a long while, and the semblance of stability we were used to may be a thing of the past. And that’s not necessarily a bad thing. The 2020 pandemic has revealed weaknesses in many organizations and has forced all organizations to become more agile and adaptive. The challenge for leaders is to make agility and adaptiveness repeatable for their organizations. These insights from the supply chain world provide a starting point for the journey ahead.

Read HPA’s How Strategy Development Changes in a Downturn for additional insights on strategic planning during the COVID-19 pandemic.

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