COVID-19 Pandemic:
The Catalyst for Business
Innovation?
Stuart Witchell
Managing Director
Head of APAC region
Berkeley Research Group, Limited
The novel coronavirus (COVID-19) pandemic has
resulted in a terrible human toll and seen economies
wobble. It has highlighted a significant lack in global
trust, issues with global interdependency andproblems around state capacity in the provision ofessential health services and around governance. As
economies across the world continue to reopen, it isimportant to take stock of the situation and identify
trends that could affect economic activities in themonths and years ahead. Recovery is expected to be
gradual as households and firms remain cautious,
but should improve in 2021 as fiscal and monetary
policy remain loose and the possibility exists of a
vaccine being found.

peers to adapt as necessary; many companies aresuffering and in extreme cases even shutting down.
Travel restrictions and quarantines have, forexample, left manufacturing firms short of bothlabour and parts, which in turn has caused
continuity issues across industries and stalled plansfor investment and M&A activity. Mobility andsocial-distancing measures have led to enforcedchanges in social-economic behavior, hitting theaviation, tourism, hospitality, entertainment andluxury goods sectors especially hard. Businesses
must navigate the financial and operational
challenges ahead whilst ensuring the needs of theiremployees, customers and suppliers are met.

With a lower-scale shutdown and strong government
support, Japan is expected to be comparatively lessaffected than many other developed economies. Low
unemployment and strong corporate balance sheets
should mean relatively little permanent damage.
Japanese companies are potentially better placed
than others to ride the wave of global economic
recovery in the next twelve months.

With crisis there is often opportunity. A new age ofissues and events exists that may be regional or
global in nature and may have direct or indirect
implications to business operations and the meetingof strategic business objectives. We live in a VUCA
(Volatility, Uncertainty, Complexity and Ambiguity)world. In these uncharted waters, the need to adapt
a more holistic approach to risk-proofing businessorganisations becomes more pressing than ever.
Business decision-making has always required
access of reliable and timely information, and the
pandemic has exposed how unprepared many
companies are in their collection, collation, analysis
and dissemination of actionable intelligence, and inmanaging ‘extraordinary risk’.

Governments have never had to shut down
economies to save lives, nor reopen them still in the
midst of a pandemic. Similarities are found withbusinesses’ plans to close and reopen. Where arigorous policy response was deemed necessary,businesses will unavoidably be impacted, with bothnear-term effects and less-expected longer-runconsequences. Each company is implementing its
own plans and identifying useful strategies taken by

Many business leaders continue to be preoccupied onthe ‘now’, which has included the support of their1employees, customers and suppliers and focusing onliquidity. These immediate needs are logical andnecessary.

external competences to address rapidly changing
environments”. Dynamic capabilities is distinct fromoperational capabilities, which pertain to the current
operations of an organisation. In contrast, dynamic
capabilities identifies “the capacity of anorganisation to purposefully create, extend or modify
its resource base”: the fundamental assumption ofthis framework of thought is that core competencies
can and should be used to modify short-termcompetitive positions and build longer-termcompetitive advantage.

However, business leaders need to start focusing on
the “next” and preparing their companies for change.
Going forward, there will be a period of uncertainty
with slow economic recovery in some areas, stronger
competition and changes in consumer confidence
which will require courage from business leaders.
The ‘new normal’ will be challenging for companies
that are conservative in their thinking. Companies
must have the courage to examine their strengths
and weaknesses critically, develop new competitive
advantages and position themselves better in this‘new normal’ world. Waiting is no longer an option.

From this standpoint, the coronavirus will likely
have a major impact in three important ways. First,
it highlights developments that may have gonelargely unnoticed previously. For example, shifts in
the global political landscape and the way in which
China has already established areas of influence insome parts of the world become more apparent.
Second, it demonstrates how companies need to be
more alert to the alignment of their global operations
and strategic partnerships, as they will inevitably be
operating within fluctuating geopolitical conditions,notably the growing tensions between the US andChina. Finally, it catalyses changes whose ultimate
outcome and impact are difficult to predict currently,
including the future of the EU and Japan’s response
to handling changes in workforce demographics.
Again, this is further evidence that businesses must
review their strategic priorities regularly and put inplace tools that can identify and interpret thechanges and meaning of seemingly discrete
developments.

One of the most direct business impacts of thepandemic has been a significant disruption to supply
chains. For example, China was forced intoquarantine which led to shutdowns of factories.
Compounded by the US Trump administration’s
increasingly hostile rhetoric and rapidly shifting
geopolitics, much subsequent discussion has takenplace regarding the prudence of maintaining a
sizeable portion of the Japanese supply chain inChina. Within the post-pandemic new normal,
companies will be operating in such a VUCA
environment, and strategic decisions have to bemade with available information at hand.
Unfortunately, many companies are behind theirwestern peers and competitors in integrating asufficiently a robust ‘intelligence’ system in
identifying, monitoring and assessing these macrochanges, ‘extraordinary risks’ and new opportunities
in the world. As we enter this new decade, this is an
opportune moment to sharpen our perceptions andobserve beyond the obvious.

Risk management departments need greater
recognition within the C-suite to allow businessleaders to make critical decisions with all available
information. The traditional role of risk
management departments will become more
important, but it will need to evolve to meet its
expanded remit. The culmination of these events will
challenge business leaders. Several areas should beaddressed which are both proactive and reactive innature. Examples include:

David Teece, professor in Global Business anddirector of the Tusher Initiative for the Managementof Intellectual Capital at the Haas School of Businessat UC Berkeley and chairman of Berkeley ResearchGroup, developed the concept of Dynamic
Capabilities to account for a “firm’s ability tointegrate, build and reconfigure internal anda. Geopolitical risks: These need to be assessed2independently and monitored regularly. There isoften too much reliance on ‘off-the-shelf’reporting or use of internal resources. Whilst
useful as background, it is critical that a tailoredapproach be developed to identify risks for
specific operations and actioned upon quickly.

partners, suppliers and other significant thirdparties. Better use of technology and analytics
can support in this.
e. Company-wide risk assessment: Overall,undertaking a company-wide risk assessmentthat identifies, assesses and prioritises businessrisks is a key element to mitigation. A risk
assessment should consider country risks andrisks related to industry, customer and suppliermix, products and services, third-party
relationships and financial transactions.
Companies also need to have in place an effective
whistleblower
mechanism,
governanceframework and internal controls to identify andmitigate instances of fraud, bribery andcorruption when they occur.

b. Market-entry risks: As companies continue toinvest overseas, market-entry risks should begathered carefully, assessing the risks specific toan industry and company. Whilst important tounderstand current government regulations in aparticular country, of more value is assessing
likely changes to future regulation and how that
could affect an investment. Intelligence istherefore key to this understanding.
c.

Due diligence: To ensure high corporate
governance standards are met, due diligence on
potential partners, acquisitions and/or suppliers
should be enhanced and is appropriate to bothcountry and industry risks. Often, financial
information of companies operating in emerging
markets is unreliable, and therefore relying juston legal and financial due diligence is notadvised. Desktop research alone to identify offbalance-sheet risks such as corruption,
government relationships, etc. is no longer
sufficient, especially in opaque markets. It is
critical to have a robust system to allow thecollection and assessment of intelligence related
to investments.

In conclusion, this pandemic has highlighted theneed for senior executives to assess theirorganisations’ future business outlooks morecritically, to include breaking down the traditionalsiloes governing risk assessment which tend toprioritise on operations and compliance. Speed ofinnovation is critical in these unprecedented times.
We hope that JOI members recognize the pandemic
as a stage for growth and change, and prosper anddevelop organization which nurture business
innovation while enhancing resilience to risk. We arealso happy to support members in the process ofadvancement of dynamic capability.
※ The views and opinions expressed in this article are thosed. Regulatory, fraud and corruption risks: Postcoronavirus, there are likely to be increased
issues affecting firms, especially related toregulatory changes, fraud, bribery andcorruption particularly in emerging markets
where internal and other controls are weak.
Therefore, businesses must review theirexposure, especially in emerging markets, andmonitor and assess these risks continually. Froman internal control and governance standpoint,
business leaders should ensure their structures
are in place and effective. This applies to not only
their own operations, but also those of their keyof the author and do not necessarily reflect the opinions,
position, or policy of Berkeley Research Group, Limited or its
other employees and affiliates.

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