Leading through the

COVID-19 Crisis
April 14, 2020 JOHN CLEMENTS CONSULTANTS, INC.
Thinking of you, Philippines
JOHN CLEMENTS CONSULTANTS, INC.
 Ambassador Catalla Dr. Baiera

Thinking of you, Philippines

JOHN CLEMENTS CONSULTANTS, INC. Sources: New York Times, Philstar, Yahoo
Assess the Situation LEADERSHIP
– Part 1
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 • Circumstances taking us beyond our
knowledge and capabilities
• Avalanche of information – but hard to know
what is correct
A challenge like • Competing priorities: keep people healthy
many of us have vs. keep the business going
• Highly dynamic situation: “It changes by the
never seen minute.”
before • End point is not at all clear
• High uncertainty, high stakes
• Decisions have to be made under stress, in
real time

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You are not alone

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 • What do we do when no one knows
what to do?
The
• What do we do with a situation this
leadership complex?
challenge
• What do we do when things are moving
this fast?
• We have to figure it out in real time,
under considerable stress
• This is our new, Covid-19 normal…
• …for a temporary but indefinite period

Source: Professor Dutch Leonard JOHN CLEMENTS CONSULTANTS, INC.

 Leadership

Decision-making process

How to get
through this Teams

situation
Communications

Values

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Where can we go for
leadership guidance?

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 Stockdale paradox and
Stockdale leadership
• Be brutally honest about the
circumstances
• False hope is detrimental
• Combine brutal honesty with a rational
basis for hope
• Never lose faith that you will prevail in the end

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 • Don’t panic
Through this crisis, • Don’t tell yourself fairy tales
your mindset (and
• Develop the ability to zoom in
your health) are and zoom out
your most precious
• Take care of your physical well-
assets – guard them being
well!
• You are going to get through this

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The Innovation
Wheel
Goal

External
People
world

Innovation

Customer-
Processes
centricity

Resources

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 • Do more with less; be hyper-efficient
about how you use cash
• Be discovery-oriented
Think like a • Engage in clean sheet thinking
• Think five years out
startup
• Be willing to experiment
• Put a premium on learning…and
continually building on that learning

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 • Oversees all aspects of the situation
Establish a (medical, financial, logistical, economic, etc.)
• Seeks to identify and understand evolving
critical and emerging issues and competing
incident priorities
management • Reframes issues as questions / decisions
• Deliberates about key questions and
team and decisions
process • Formulates and delegates problem-solving
for specific issues to other groups

Source: Professor Dutch Leonard

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Source: McKinsey JOHN CLEMENTS CONSULTANTS, INC.
 • Candid discussion
• Psychological safety
Set • Joint inquiry, not advocacy

reasonable • Best efforts

expectations • Rapid learning
• Not everything we try will work
• We’ll keep working until it does

Great leaders are great learners

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Source: Professor Dutch Leonard
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 There is hope

• We are all in this together

• Collectively we have a huge reservoir of
creativity and ingenuity
• We will figure it out
• We will get through this

Source: Professor Dutch Leonard JOHN CLEMENTS CONSULTANTS, INC.

Assess the Situation THE MEDICAL
SITUATION
– Part 2
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Lessons learned 100 years ago, initially
ignored in the current pandemic
• Faster public health
response times = lower
mortality rates
• China, U.S., others initially
ignored this learning
• We can do better
• Going forward, all of us
need to learn from this
pandemic and perform
much better in the future

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Bill Gates’ TED talk in 2015:

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Source: Professor Sergio Rebelo
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 A tale of two Tullys

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Seoul, South Korea – Feb. 25, 2020 Metro Boston, USA – March 27, 2020
J.P. Morgan
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 • Prior experience with
epidemics (e.g., SARS)
• Cultural differences
• Different political
structures (ability of
federal and local
governments to restrict
movement)
• Testing capabilities

J.P. Morgan

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 What has worked

Isolation;
Mobile phone household
and CCTV quarantine
14-day tracking
quarantine of • Digital tracking of travel
arrivals
Contact
• Risk of infection based on travel
tracing history, flights taken
• Those at higher risk quarantined at
Aggressive home and movement tracked
U.S.A. testing through mobile phone
Taiwan
Temperature checkpoints
China
Social distancing South Korea
Banning gatherings of a certain size JOHN CLEMENTS CONSULTANTS, INC.
 • Digitized tracking of each person’s travel history
• Each arriving traveler electronically tagged for risk of
infection, based on flight origin and travel history
• People with low risk of infection were sent passes via SMS
that allowed for faster immigration clearance
Taiwan’s • Those with higher risk were quarantined at home and their
movements tracked via mobile phone to ensure they
approach remained at home during the incubation period
• Taiwan has also done proactive testing
• Through the national health database, identified
people with severe respiratory symptoms
• Those who previously had tested negative for
influenza were retested for COVID-19

Source: J. P. Morgan
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Source: Professor Sergio Rebelo
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How do pandemics end?
• Virus mutates and is no longer deadly
• A vaccine is developed
• Won’t be a full return to normal until a highly effective vaccine has been
discovered, tested, manufactured, and made available to billions of people
• At least a year away (if feasible)
• A vaccine will not help those already infected
• Effective treatments are discovered
• 20 promising therapeutic compounds being assessed

Hope for the future – but we need to act on the reality of today

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Assess the
Situation – Part 3
ECONOMICS

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Economics: A picture is emerging
• Asia will rebound first – but who will it sell to?
• Severe economic contraction in the U.S. and Europe
• 20-25% of U.S. economy is in the equivalent of a medically-induced coma
• Unemployment at depression levels
• U.S. still highly resilient
• Stimulus bill (really a disaster relief bill) and Federal Reserve actions are aggressive
and will stabilize the situation (> $4 trillion pumped into the economy)
• Three-fourths of the U.S. workforce will still have jobs and money; the other one-
fourth will get aid – so demand is still there, and when the economy reopens,
customers will arrive
• Recovery will be slow
• The Philippine economy may flatline but not decline
• Other emerging markets may suffer greatly
Sources: Professor Paul Krugman and Capital Economics
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Economics: A picture is emerging (cont’d)
• China taking advantage of the situation; playing the big brother role
• China has a problem in the intermediate term because it sells to rest
of world
• Possible reversal of trend towards greater globalization
• Reviewing supply chains – brining them closer to home market
• Bringing manufacturing back to the U.S.
• Big challenge if pandemic accelerates in Africa and Latin America –
limited medical infrastructure

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Source: Deutsche Bank
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Sources: Professor Sergio Rebelo and Federal Reserve Bank of St. Louis
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 Kurzarbeit (short work)

• Firms allowed to reduce

hours and pay
• Government pays workers
60% of after-tax wages
• Firms able to keep their
workers – and ramp up
production quickly once the
economy recovers

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Source: New York Times, April 11, 2020

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The crisis will be an accelerant
• Brands will be amplified (for better or for worse)
• Digitization will accelerate
• Teleconferencing
• Telemedicine
• Retail
• Education
• Credentialing rather than a degree
• Experimentation
• e-commerce (to the detriment of bricks-and-mortar retail)
• Proximity will accelerate: production closer to demand
• Globalization will slow down
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Markets bottom and then rise while fundamentals get worse

J.P. Morgan

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What shape to the
economic recovery? V U W L
QUICK RECOVERY MODERATE RECESSION DOUBLE-DIP GLOBAL
(shallow V) (U-shaped) RECESSIONS DEPRESSION
(W-shaped volatility) (L-shaped)
Global • Recovery in Q2 2020 • Recession during Q2 • Recovery during Q4 • Deep, long-lasting
economy and 3 followed by • More infections next depression
recovery winter
• Another recession in
2021
Asia • First to recover • Lower exports to U.S. • Asia not exempt but • Asia not exempt
and Europe less affected
U.S. • Quick recovery • Unemployment slows • U.S. not exempt • U.S. not exempt
the recovery
Europe • Somewhat slower • Recovery varies by • Europe not exempt • Europe not
recovery country exempt

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What might happen?
BEST CASE
• Worst of the pandemic is over
by June
• Global economy returns to
normal starting in Q2
• Effective therapeutic medicine
as well as a vaccine are
discovered in next few weeks
and rapidly brought to market
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WORST CASE
• No immediate end; instead,
there are waves of infection
• Global economic depression
• Balkanization of economies and
geopolitical alignments
• Every man for himself attitude
• Geopolitical tensions escalate
 • We shall recover…although not as fast as
Best guess we’d like to
• Asian recovery ahead of the U.S. and Europe
• Second wave of infections in Hong Kong and
Singapore a warning signal?
• Suppressed economic activity drags on for
several more months

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 • Getting on top of a pandemic early can
be a source of country-level
competitive advantage (e.g., South
Key insights Korea and other Asian countries)
• The longer the crisis drags on, the
bigger and more permanent will be the
changes

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Mankind’s resiliency: There is hope

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Adapt Your Strategy
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 Recessions shuffle the deck
more than boom times do

What
happens in a Gains or losses show up early

recession

Gains or losses made during

recessions tend to endure

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Source: “Taking Advantage of a Downturn” by Sarabjit Baveja, Steve Ellis, and Darrell Rigby
Myth and reality
MYTH REALITY

Downturns are when most More businesses fail after a

companies fail downturn – mainly because their
actions have been inadequate to
position the company for growth

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 • Ensure the survival of your
company
Adapt your • Adapt your business model to
strategy the current situation, and
position your company for long-
term growth

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Find, Flank,
Fix, Finish
FIND CASH!
 Cash is no longer
king…
…cash is god

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Cash flow = net profit + depreciation + net
working capital
CASH FLOW CATEGORY ELEMENTS
CATEGORY
Net profit • Revenues: Assess new revenue opportunities
• Costs: Assess ways of lowering costs, including converting fixed costs to variable costs
Net working • Accounts receivable: Accelerate the cash conversion cycle: timely and accurate invoicing,
capital time deliveries to favor those who pay most quickly
• Accounts payable: Extend payables – intelligently: don’t kill your suppliers
• Capex: Revisit capex very seriously and very dramatically
• Assets: Seriously consider divesting assets to generate cash
• Financing: Get the cash from your lines of credit now; seek relief on debt covenants
Source: Professor Marc Bertoneche

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Beyond survival
• We need to be realistic - survival is primary - but
downturns also present strategic opportunities
• The best companies do more than survive: they
position themselves to thrive in the future upturn
• During downturns, smart executives don’t panic: they
coolly place counterintuitive bets to outperform the
market, so…
• ...do what you need to do to make sure your company
survives, but…
• …take a long-term perspective as you adapt your
business to the current situation

Sources: “Moving Upward in a Downturn” by Darrell Rigby; “Winning in Turbulence” by Darrell

Rigby, and “Seize Advantage in a Downturn” by David Rhodes and Daniel Stelter
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 • Communicate regularly (daily, at this stage) with your
employees
• Don’t assume information creates informedness
• Candor and empathy are key
• Look before you lay off
• Downsizing in a downturn can do more harm than
good
Some basics - • Companies with few or no layoffs perform
significantly better than those with large numbers
Organization of layoffs
• Clearly, companies with falling revenues and
shrinking profits need to act
• But unless the eliminated jobs remain un-replaced
for at least six to 12 months, there will not be a
financial payback

Sources: “And If the Good Times Stop Rolling? Dealing with a Downturn” by Tom Brown and the
“Use Downtime to Enhance Skills” section (by B. V. Krishnamurthy) in “Unconventional Wisdom in a
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Downturn”; “Look Before You Lay Off” by Darrell Rigby
 • Materials and equipment unavailable from Chinese suppliers ➔
suspended or reduced operations
• Moved manufacturing of high-end models to Vietnam
• Kept South Korean plants on standby to allow for a fast post-quarantine
Getting on reopening
• Launched sale on newest phones soon after release
top of the • Provided $1.2 billion in loans and fast payments to stabilize ecosystem
partners (suppliers and retailers)
crisis and
maintaining
forward
momentum

Source: Boston Consulting Group

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Implications for the
Philippines
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 • Low levels of testing (around 20,000 individuals have
been tested) ➔ Infection levels probably much higher
(asymptomatic individuals and those with mild
symptoms not tested)
• High Death Rate – 4.7% as of April 5 – another sign
that mild and asymptomatic cases were not being
COVID-19 in detected
• Testing should vastly improve over coming weeks
the • Over 300,000 test kits now or soon to be
Philippines available
• Eight labs have a daily testing capacity of at least
1,700 people
• More than 70 labs soon to be operational

Source: Wallace Business Forum

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Philippine health care system under strain
• Reports that emergency rooms are full
• Hospitals reporting that they have staff in quarantine
• 592 staff in quarantine at the two Saint Luke's Hospitals as of late March
• Private hospitals are at full capacity
• Makati Med and the two Saint Luke's Hospitals
• No longer accepting patients
• “We must NOT underestimate COVID19. Philippines is implementing social
distancing EARLY because we can't afford a full blown Wuhan/Italy/SK. Those
places have strong healthcare systems but it still SURPRISED them. PLEASE STICK
TO THE PLAN & COOPERATE. Let's help each other out.” Dr. Edsel Salvana –
Philippine NIH – March 12
Source: PSA Consultancy JOHN CLEMENTS CONSULTANTS, INC.
 Declining
number of
deaths
potentially a
positive
development

Source: PSA Consultancy

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 Economists
appear to be Projected GDP Growth for the Philippines, Full Year 2020

just as • Banko Sentral Ng Pilipinas: 5% to 5.5%

• S&P: 4.2%
confused as • Capital Economics: 0.35%
the rest of us • Asian Development Bank: -0.3 to -1.7%

Sources: PSA Consultancy and Boston Consulting Group

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Philippines no
worse off than
its Asian
neighbors

Sources: Asian Development Bank and Boston Consulting Group

 • Virus will need to be under control by mid-year –
Philippines must avoid being perceived as a
pariah nation (for the sake of its OFWs)
• Relief to workers and families will need to be
Economic delivered efficiently and honestly
• Private sector businesses remain under severe
considerations strain
• Can financial relief be delivered in time to the
private sector?

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Takeaways

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 • Global crisis starts to ease in three to six
months, but…
• …18-months of on-again, off-again crisis
management
• Global recession (duration uncertain)
• Select Asian countries (China, Singapore,
Best guess South Korea, Taiwan) recover faster than the
rest of the world – but who are they going to
sell to?
• Slow GDP growth in the Philippines; may
avoid a recession
• Need for scenario planning
• Survival ➔ Opportunities
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 • If it plays its cards right, the Philippines could
come out of this crisis in better shape than
most developing nations
• Imperative that the country get infections
under control: cannot afford to be seen as a
Possible pariah nation
• There may be significant health, social, and
implications economic challenges
• The poor cannot afford to get poorer
for the • Reduced OFW opportunities
• Reduced OFW remittances
Philippines • Some decline in BPO employment
• There are likely to be opportunities
• Opportunities in a recovering Asia?
• Opportunities in domestic travel?
• Opportunities to adapt strategies?
Sources: John Clements Consultants and PSA Consultancy
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Take Care

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 • Take care of yourself – you are critical to
your family, your team, your company
• Anxiety and constant surprise and
problem solving are exhausting
• Stress and disrupted sleeping patterns
only weaken your immunity system
• Seek (episodic) sanctuary
• Give yourself permission, when
Take care needed
• The scarcest resources in crisis are
leaders’ attention and energy –
preserve and focus yours!
• Be safe – keep your distance and wash
your hands
• Help others keep safe
• This is going to be a marathon
Sources: Profs. Dutch Leonard and George Day
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 Family Prayer
Take care!
Hold to your
core values!
Gratitude Compassion

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How can we help?
• Consulting expertise
• Business unit strategy
• Supply chain management
• Organizational effectiveness
• Executive coaching
• Human resources
• Recruitment
• Outplacement
• John Clements Leadership Institute
• tully.moss@johnclements.com