The devastating impact of the COVID-19 virus on Australian business is unprecedented. Many business leaders are focused on the survival of their business “right now” and are understandably spending less time planning for the future than would normally be the case, explains Simon Kelland of Scotwork.
That means there are two parallel challenges to manage – tactical and strategic. These challenges are not solely the province of small or medium enterprises in the Defence industry – even some large businesses have been severely impacted due to supply chain disruption.
The immediate tactical challenge for leaders is to stay in business and ensure the safety of their people while maintaining productivity. Then comes the difficult decision – how to keep as many people in a job as possible while managing the conversations and impact on those affected with openness, dignity and fairness.
Then there is the working capital strain. Customers and suppliers present threats to solvency, highlighting the need for flexibility in commercial and contractual obligations.
At the same time, each business must maintain the key relationships that have been developed over many years. There is, of course, also a broader responsibility to the wider Defence and industry community to survive and continue to provide services and products during this period so that capability can be maintained.
At the strategic level, some astute executive teams will also focus on the opportunity this crisis represents. They will be rigorous as they analyse their business and make the decisions necessary to prepare for a future when the virus has been effectively dealt with.
Simply returning to ‘business as usual’ will not be the objective of those prepared to accept the challenges head on, rather the opportunity to emerge with business that are better, stronger and fit for purpose in a new, “post-COVID-19” business landscape.
In the words of McKinsey and Company, “when you put a microscope to one eye and a telescope to the other, you get a headache” – it’s very difficult to be simultaneously strategic and tactical.
That means to navigate the dual challenge successfully, different people in each business need to focus on the tactical and strategic levels so they don’t “get a headache.”
Leaders will require the ability to successfully negotiate across a broad range of internal and external challenges within a business and social environment that is changing on a daily, almost hourly basis with new lockdowns, changing rules, border closures and so on.
Defence has already nailed its colours to the mast (pardon the pun) by showing a willingness to listen to industry, implement standstill arrangements and pay suppliers in super quick time as well as deploy ADF resources in support of the community fight against the virus.
The ball is now firmly in the court of industry to decide what to do next. It is a big question.
It is not being overly dramatic to suggest that the next few months may present an inflection point at the most fundamental level of business relationships; the choice between a short-term, transactional, win/lose approach or a more open, nuanced, flexible and relationship centred approach.
And it is a choice, there is no law of nature that mandates one approach over the other, and the choice is wholly in the hands of leaders who have a responsibility to take action and choose the future for their businesses.
It is not a simple choice though since it requires trade-offs – do we sacrifice potential short-term results to build stronger, more mutually beneficial and trusted relationships or do we make hay while the sun shines? There’s no easy answer to that question but it’s worth remembering that trust is hard to win but easy to lose.
Trust is not a given between businesses in supply chains and is not strictly necessary if the choice is to take a transactional approach. There are risks of course – if there is no trust then it’s really all about power and the last few months have demonstrated that the balance of power between customers and suppliers (and competitors) can turn upside-down very quickly.
A transactional approach is also simpler to manage because it’s pretty cut and dried. “The contract says” is transactional language. Simpler doesn’t mean easier though – the general environment governing low trust, transactional business relationships is competitive, “us and them” and the focus is on our needs with little consideration for the needs of our counter-party.
Still, it may be the right choice if your business has overwhelming power (unique IP, dominant market position) and there is no real prospect of that power diminishing over time.
If, however, the choice is to take a mutually beneficial, relationship-centred approach then trust is critical to success, because true mutual benefit only arises over time and typically the parties trade-off some short-term results to make an investment in the relationship for future gain.
In a present value sense, the total value to both parties may well be significantly higher than would be the case in the alternative, transactional approach but it is vastly more complex to manage since intent is more important than what “the contract says”.
To go down this road takes courage and skill because it requires enduring openness by both parties (and “open book” isn’t the same as openness… it takes two to tango), a continual willingness to be flexible and the intent to look for opportunities to trade concessions as circumstances change in ways not contemplated by the contract.
So, coming back to the challenges of COVID-19 and what that means for the big question facing business leaders – which future do we choose? Do we think we can win over the long term at the expense of our suppliers, customers and other key stakeholders or do we think we need strong, flexible and mutually beneficial relationships to survive and prosper?
If it’s the former then it is entirely appropriate to take a short term, transactional approach because that’s simple and cheap to execute and doesn’t require a high level of skill.
On the other hand, if it’s the latter alternative, be prepared to make the necessary investment in your key relationships to build trust, be prepared to support your people as they make trade-offs to build long-term value and, without being naïve, be prepared to be open, honest, flexible and empathetic when dealing with individuals and businesses that are critical to your success.
My choice? That’s easy – 40 years ago I went to a school run by the Quakers whose motto is “nemo sibi nascitur”. No person is born an island unto themself.
Simon began his professional career as a chartered accountant before moving into banking more than 25 years ago. As a banker, leading deals and businesses in major banks and specialist structured financiers, Simon was directly involved in negotiating many high value, complex transactions.
In recent years as a full-time negotiation specialist, Simon has helped clients in a range of industries negotiate highly satisfactory outcomes, often within a high stakes and time-pressured environment. Simon specialises in the defence contracting, banking and finance, and professional services industries.
Simon Kelland is partner and principal consultant at Scotwork.
Simon has led hundreds of negotiations in his career. As a banker in the 1990s, Simon led the negotiation for what was, at the time, the largest information technology financing ever completed in Australia, achieving a mutually beneficial outcome for both parties.
He also led a number of strategic corporate negotiations as CEO of the leading Australian technology specialist financier and, as a senior executive in the banking industry, Simon had executive leadership and responsibility for many large, complex negotiations – both external and internal.
As a negotiation consultant and advisor, Simon has advised on and led multiple negotiations on behalf of clients, including complex procurements, strategic alliance renegotiations, joint venture restructures and M&A transactions.
Some of Simon's executive titles before joining Scotwork in 2005 included: executive director of project and structured finance at ANZ investment bank in Sydney, general manager of strategy and business development at ANZ bank's specialist finance company subsidiary, Esanda, managing director of Esanda Fleet Partners, chief executive of Equigroup, and associate director in the asset and infrastructure group at Macquarie Bank.
At ANZ, Simon was also a member of the Chief Executive’s Group – a strategic decision-making body comprising the 50 most senior executives of the bank. As a partner at Scotwork, Simon leads by example and mentors the team.
Simon qualified as a chartered accountant in 1991, is a member of the Australian Institute of Company Directors and was for many years a trustee of the Committee for the Economic Development of Australia.
Simon holds a Bachelor of Commerce from the University of Tasmania and has completed executive programs at Stanford University Graduate School of Business in the US and IMD in Lausanne, Switzerland.