COVID-19 Update 3: Current Reality and Phase 3 Preparedness
This is the third in a series of posts helping business leaders understand what is happening, how the pandemic may evolve, and actions they can take to protect their employees, communities and shareholders.
My last update about the COVID-19 on February 5 was optimistic but warned that we would be entering phase 2 of its progression. Specifically, that we would see a spike in cases in China, the development of clusters outside China, and economic impacts to supply chain and GDP. That has largely been borne out by events. Now that Phase 2 has begun, we can start to derive more insights into how it might evolve moving forward into a third phase – a global pandemic.
The Good
The virus kills a very specific at-risk population. For those without pre-existing conditions, do not smoke and are under 50, there is a very low chance of dying. Yes, as the Atlantic points out, a majority of people will contract the virus, but those outside that at-risk population have a small chance of it developing into a severe case, and a vanishingly small chance of dying.
Companies are being very responsible about international travel, and it looks like the supply chain will have a delay in the system but not a collapse. JPMorgan believes a significant amount of sales are delayed, not lost and that business and consumer spending will rebound in the second half of the year.
The capability, infrastructure, and acceptance of virtual work/remote work has allowed international business to go on, and the high automation rate of manufacturing, especially in the U.S., means the supply chain for goods, while perhaps delayed, will continue to flow.
It is probable that while the virus may spread in the U.S. and infect many, it will not cause food production and distribution, energy, and health care to grind to a halt. Public services will continue, and stores will remain open. While I still believe we will have a 2-quarter recession, the back half of the year looks to have added growth and stimulus.
The Bad
AARP says there are over 108 million people in the United States over 50, and according to the American Lung Association over 35 million Americans have chronic lung disease such as asthma and COPD. 35 million Americans are smokers. Roughly 20% of those smokers are 50 and older. That is a very large at-risk population. If the virus establishes a foothold in the U.S. and spreads nationwide it will have an infection rate like the common flu, with a much higher mortality rate for those populations most at risk. Until a vaccine is developed and deployed next year, we could see 250,000 deaths (that is a very conservative number, the math suggests double that – I go into it below -- but I’m not ready to commit to that until I get more data about how the virus behaves in the U.S.) and tens of millions of people needing medical attention or not working.
The United States is a large, free and pluralistic society. Over the past several years the executive branch has experienced a significant cut in funding and experts most able to potentially constrain this virus. The current president has appointed the vice president to lead the response and all communications about the virus, someone who has a very public problem with basic science. These are not political statements, just facts we will have to deal with to understand whether or not our country will be able to stop a virus from spreading that has these attributes that already make it difficult in the best of times.
There other trends happening in the country that will increase the odds the virus spreads here.
The era of deepfakes and conspiracy theories, often advanced or backed by those in power will muddle the response and allowing people to make excuses and not prepare, or disbelieve authorities and not comply with quarantines.
A highly divided electorate that will not respond well to the potentially draconian policies that may be needed and put in place by this administration or the next one.
Economic Bifurcation that has made it difficult or impossible for 40-60 million people to take time off, seek medical attention without crippling financial cost, or care for others who are ill. 32% of those are in at-risk categories for the virus. Many people will continue to go to work, hide symptoms, and spread the virus to others unless significant financial resources are brought to bear by the federal government and employers.
The End of Retirement means that we have more people over 65 still in the workforce. Many of them are working because they have no savings. They cannot afford to take a lot of time off and will probably work and spread the virus. The disproportionate impact on this group of workers will create problems for companies trying to find the skills and management they need to create value.
Given these factors I believe that it will spread in the United States. The drain on the workforce, healthcare community, and education systems will be severe. The impact to restaurants, malls, physical stores, entertainment venues, travel industry, and energy sectors will be large. As I mentioned in my last memo, expect a 2-quarter recession. Now I think that recession will be more severe.
Even though the at-risk population is 10% to 15% of the American population, everyone will be impacted. To ensure that those 30+ million at-risk Americans have a lower likelihood of being exposed everyone will need to self-quarantine if they are exposed, work from home or take off work. I mentioned the math suggests a high death toll this year. Let’s spell it out. I’m estimating at least 30 million Americans are in the at-risk population. If 40-70% of those come down with the virus, it will kill 10% of them. So back of the envelope 30,000,000 x 55% x 10%...equals over 1.5 million deaths (note this number is 3 times larger than the number I published this morning - it is based on new estiimates of mortality rate of at-risk populations from Scientific American). We will all do what we can to prevent 1.5 million deaths, and that means significant operational and economic impacts for companies.
What to Do Now
Hopefully leaders have been reviewing and implementing the recommendations made in the last two memos. Here’s a link to a rundown of actions already discussed and today’s additions. Now that we are seeing what phase 2 is looking like, here are few more things leaders can do for their employees, customers and shareholders.
Continuously Monitor Developments. That Coronavirus Taskforce I suggested in the first memo? They should have good sources of information by now, have framed how they think things will evolve, and be ready to shift if it goes differently. They need to stay working on this through the entirety of the pandemic.
Leadership and Workforce Contingencies. A large amount of most companies’ leadership is over 50, and probably 15-20% of them smoke or have pre-existing conditions that make them more vulnerable to more severe cases of illness. Be sure to have people ready to take over when a leader is in the hospital for 2-3 weeks. Cross-train people in critical business functions. Stress-test your partners and suppliers – what happens when account relationships go dark for a few weeks? What can you do in-house? Work with your suppliers and partners to understand their contingency plans.
Continue to communicate with your employees. Encourage your employees to be prepared. While avoiding any hint of hording, ask you employees to slowly build up supplies for 2-3 weeks in case a cluster interrupts local travel, shopping, or forces them to self-quarantine. Supplies would include foods that do not spoil that you might eventually eat anyway (canned soups, pasta, frozen meat like burgers, canned and frozen vegetables), as well as any over-the-counter and prescription medications, extra batteries, and disinfectant/cleaning supplies. There are good lists out there on what to stock up on. Educate your employees on the real facts of this virus. While you have done this already, keep doing it. There is a lot of spin out there, even pure conspiracy theories, and you need to counter what is popping up out with real facts. Help your employees see through all the noise to the real information. Make sure you build and maintain the trust of your workforce during this time.
No F2F External Conferences. Postpone any non-mission critical face-to-face external conferences until we see how the virus spreads. They can be rescheduled. Restrict travel and attendance of conferences for employees. Start activating your plans around remote/virtual working. Limiting the possibility your workforce can be exposed increases your productivity.
Digitize and Automate. As mentioned in previous posts, hit the start button on plans and investment in automation and digitalization of the enterprise. The economy will come back roaring after this recession. Companies that can use machine learning/predictive analytics to exploit new business models that might arise after this virus impacts everyday life will capture share.
Grow Your Business. Look around at other investments. Money and energy will be cheap, more qualified people will be looking for work, companies will have lower valuations. Stop buying back stock and grow your business capabilities, footprint and workforce know-how.
Imagine a Post Pandemic Future. People will adopt new habits to get through this crisis. Some habits will be temporary, but some will stick. Maybe people really start to like BOPUS (buy online pick up in store) – how will you create the ability to impulse buy in a BOPUS world? Maybe people will be lonely from low interaction – how might your company create experiences for people that build connection and community? Start thinking now about how people’s patterns will shift permanently and what that will mean for innovation or disruption of your business.
Conclusion
This pandemic continues to evolve as forecasted. Its unique features made containment almost impossible. But deaths are highly restricted to a specific at-risk population. While the U.S. has roughly 30 million people in this at-risk group, the pandemic will not cause a complete breakdown of social services or large-scale outages of food, power, or healthcare. It will cause business interruptions and lower revenues for most companies for a couple quarters. But the back half of the year looks attractive for business, and the time is now to innovate and be ready with faster, more digital and more automated business models customers will expect when buying returns.
NOTE: Edited to reflect new mortality rates for at-risk populations from Scientific American , which triples the total number of deaths.