Covid-19 has been a unique sort of disruption for the resources industry. The pandemic has lasted longer than most short-term shocks, such as major accidents or terrorist attacks. However, it has also moved faster and more abruptly than longer-term trends, such as a trade war or the development of step-change technology. The dynamic nature of the pandemic helps explain the significant monthly shifts in concern with regard to covid-19. While extreme concern has declined from 20% in March to 3% in May, the level of high concern has remained persistent at around 50% across the industry. Some of this shift is explained by differing experiences with the virus across geographies, however it is also testament to the dynamic and volatile risk profile of the virus.
Our data from May has been the most polarised since the research effort began in March. The dissonance demonstrates the differing experiences of different geographies and different businesses. Some businesses feel as though they have overcome the operating model disruption (such as virtual work or service models), with 23% saying they expect less than three months of significant impact from covid-19. Others are still grappling with the crisis, as cases worldwide exceed eight million and the longer-term economic impact remains unknown and potentially underestimated (despite global recessions). In May, 37% of the industry expect the significant impact of the pandemic to last for at least another year, either in the continuation of disruption to normal working conditions or in the medium-term economic impact.
What could the long-term look like?
Covid-19 has been too large an event and too pervasive in its impact for the industry to revert completely after it is over. Some changes will be a continuation of pandemic-enforced operating models, such as working from home (59%) and virtual service models (38%). In these cases, covid-19 has operated as a catalyst to an already established trend. The development of better communications technology has enabled more virtual work, yet the cultural inertia (and invested capital in concentrated corporate offices) has slowed the acceptance of these working conditions. Given no choice, there has been a widespread demonstration on the merits of working from home for many, and the industry expects this trend to accelerate post-covid-19. The increased acceptance of flexible work is unlikely to be a binary shift. We will likely see a mix of hybrid models, with some days at home, some in the office and a more flexible approach to work locations. The increased prevalence of working from home will also mean the burden of paying for office space is likely to shift from companies to employees. More permanent work from home models mean that employees need to rent/ buy more space to dedicate to their work, while businesses pay less for office space. An increase in home-office allowances or tax concessions will be necessary to maintain real wages in this more flexible environment.
While many businesses will encourage people to come into the office, even if on a more flexible arrangement, one lasting change is that to the need for travel. As a global industry with geographically dispersed, often remote assets, travel has been seen as a necessity for collaboration between off-site and on-site teams, staffing remote areas and leadership engagement. The end result is bloated travel budgets, an implicit cultural acceptance of the need for travel in many situations, and the physical and mental travel toll on many people.
No longer. Overwhelmingly the industry expects a significant re-evaluation of the need for travel. Video calls, interconnected digital systems and the benefits of decentralised autonomy have compensated significantly for travel restrictions, leading to many in the industry to question the need for travel and its significant costs. Anecdotally, there are reports of companies applying stricter rules regarding travel costs as restrictions ease. Large numbers of road warriors jet-setting around the world could become an outdated construct in a virtual, interconnected world.
In the case of services businesses, many were forced to transition to different delivery models during the heights of lockdown, varying from transferring client interactions to video calls through to virtual asset management services. These models appear to have exceeded expectations, as the long-term sustainability of covid-19 operating models for services companies steadily increased from 17% in March to 33% in May.
Other structural industry shifts will be a long-term consequence of the response to the virus, with government debt arising from stimulus policy seen as a worrying impact in the medium-term (52%). As governments around the world collectively commit trillions of dollars to shoring up the economy during and after the pandemic, the resources industry is worried about the impact of the level of government debt on tax policy.
For all the discussion of the importance of industry collaboration in responding to the crisis, the data suggests this is overblown. Ultimately, competing businesses will look to use disruptive events to their advantage – ‘never waste a good crisis’ – rather than adopting a new form of capitalism. Industry collaboration has its place in particular with regard to shaping government policy, however ultimately the market is competitive, and a pandemic is unlikely to change that.
Better luck next time
As with any crisis, much of the discussion in the aftermath centres around the ability to prepare for similar situations in the future. Understanding what enabled effective responses to the pandemic informs the design of future risk management structures regarding a similar crisis.
Across operators and services companies, leadership and culture were the most important enablers of successful adaption (70% for operators and 66% for services companies). Those that had the right systems and technology in place to manage a virtual working environment had a natural head start – the ability to quickly transition to the new way of working was essential in maintaining business continuity for operators (50%) and services companies (59%). The other major bulwark against covid-19 was a strong balance sheet, at 40% for operators and 47% for services companies. Capital was key in managing disrupted production capabilities and price fluctuations for operators and interrupted contracts and loss of revenue for services companies.
Interestingly, organisational structure was particularly important for services companies in adapting to new ways of working. Whether this was due to decentralised decision-making processes, flexible employment systems or flat organisational structures, the key lesson is the importance of building resilience into operating models.
Only 10% of the industry were able to leverage foresight and planning in their covid-19 response, which suggests that plans were either not in place or inadequate for dealing with the crisis. There may be a re-evaluation of the role of these processes in strategy and operating model design, with one potential outcome being the reincorporation of scenario development and planning in business decision-making.
As companies look to insure themselves against the next pandemic (or any crisis that impacts in a similar way), a focus on the right leadership and culture, well-established systems and technology and a strong balance sheet are likely to hold businesses in good stead. However, the opportunity to use more forecasting and planning processes and a robust operating model to manage disruption should not be understated. Hopefully, next time we’re better prepared.