Good - But good enough?

A publication by IMD and the Swiss Economic Forum

GOOD - BUT GOOD ENOUGH? Entrepreneurs discuss how we can overcome the COVID-19 crisis and what Switzerland’s economic future will look like.

In collaboration with:

Table of Contents

04 Resilient? Definitely - up to a point 12 Leadership: awaken the strengths in your team 18 Howmuch state intervention should there be? 22 Is family a help in a crisis?

26 Accelerating out of the COVID-19 Crisis 32 Faster and more agile 40 The future is bleak – but not for us 44 “We have to be much more responsive to our customers’ needs!”

Executive Summary

The COVID-19 crisis undoubtedly put a stop to economic and social activities in Switzerland. And yet, at the same time, it awakened creativity and innovativeness for many, while also providing an impetus for fresh energy.

The country has coped well with the first phase of the crisis. “We can [handle the] coronavirus,” was the proud claim made by Federal Council member Alain Berset after lockdown had ended. In fact, Switzerland and its economy have proved to be surprisingly robust in the face of an encroachment on economic and social life unlike anything seen since the Second World War. However, some weaknesses in the domestic economy have become apparent. As part of a globalised economy, Switzerland has not been immune to the consequences of interdependence: supply chains have been interrupted, gaps in digitisation discovered, and a thin capital cushion revealed. Examining how the country could come out of the crisis in a better position than it entered it was the subject of an initiative set up on an ad hoc basis by the Swiss Economic Forum in cooperation with IMD. Under the banner

SEF.Interactive, the two organisations sought to keep dialogue flowing between business leaders, politicians and academics in the absence of the usual conference calendar. SEF.Interactive aims to analyse the current challenges caused by the lockdown. In the early summer, over 200 SEF participants forming virtual groups of varying sizes, took the time to describe their experiences during the crisis and formulate possible solutions. They looked at the road ahead and made suggestions as to how Switzerland could better manage future crises: for example, by investing in education and digital technologies, or by having more agile companies and a more flexible Swiss state. This might be a state that not only has physical borders but also virtual regions beyond its frontiers, conceived as a way to better combat pandemics.

The participants also looked into the question of whether family businesses are better able to survive crises (answer: ‘yes, but...’) and how big governments should be (answer: ‘enough, but not too much...’). They discussed what true customer proximity means (answer: being faster and more reliable than the competition) and what leadership in crises really signifies (answer: communicating and empowering employees). The conclusion is that yes, Switzerland has come out of the crisis in good shape (for the time being) but can do even better! This paper summarises the main findings. The discussion was supplemented by a survey covering current issues sent out to all participants. The results can also be found in this white paper.

04

Resilient? Definitely - up to a point

Most SEF.Interactive panellists took the view that Switzerland had coped well with the crisis in this first phase, albeit with some limitations, especially with regard to the steps taken when easing lockdown restrictions. One reason for this good performance is the flexibility and adaptability of many Swiss companies, and especially their employees. According to the experts, some business leaders from the SEF circle find this assessment over-optimistic, pointing to the large differences between sectors and expressing concerns about the effects of a second wave.

For the optimists: The crisis has also had positive aspects, says Ursula Nold, President of the Migros Cooperative Association. Peter A. Fischer, head of the NZZ, is also surprised at how robustly the Federal Council has reacted to this crisis and sees “reason for a certain optimism”. FDP National Councillor Christian Wasserfallen praises the agility that Swiss companies have shown, especially SMEs. Katharina Lange, Professor of Leadership at IMD, even identifies a “Sully moment” (see box) in how Switzerland reacted in the lockdown: “Switzerland’s crisis management was impeccable!” For the sceptics: Sceptics say it depends on which industry people work in, warning that not everyone has experienced good times. For instance, while representatives of the sporting goods industry, such as cycle dealers, can hardly keep apace with deliveries, events and cultural organisations can only gaze helplessly at halls and auditoriums that have been nearly empty for months and that are likely to remain so for the foreseeable future.

Resilient? Definitely - up to a point

5

However, the positive underlying feeling is not misplaced. At the beginning of July, economic activity in the Swiss economy was already at over 93% of the average for the past three years. This has been shown by an analysis of real-time data from Geneva private bank Lombard Odier. The bank analysed figures from seven categories: imports, exports, mobility, retail, trade, food consumption, work attendance, and air pollution. Put together, these give an up-to-date picture of the state of economic recovery compared with the average for the three years preceding the crisis. Moreover, the emergency loan programme set up by the federal government with the banks in “Sully” fashion (i.e. at lightning speed) has also been used far less than had been expected. Apparently, companies are not in such dire need of emergency capital after all.

6

Resilient? Definitely - up to a point

What then is the reason for this resilience of the Swiss economy?

Firstly, everyone agrees that the Swiss government acted quickly and decisively in March. In addition, good structures were in place. Reduced working hours, for example, have proven their worth as a stabilising element in the crisis. The emergency loan programme referred to previously has also received a lot of praise, as an example of how business (in this case the banks) and politicians can work well together in a crisis. Moreover, the state is only slightly in debt and has even been able to reduce its debt over the past 20 years. This has meant that the starting position was already good. Secondly, the economy has also proven to be strong and resilient for the most part. Thirdly, “soft” factors have helped weather difficult times. The crisis has brought many people together, says Ursula Nold. Albrecht Enders, Professor of Strategy & Innovation and a member of IMD’s Executive Board, brings an outside perspective: as a German, he finds

it fascinating to observe how the Swiss are pragmatically seeking ways out of the crisis in unprecedented fashion, going beyond the limits of ethnicity, culture, national boundaries, and interested stakeholders. It is a privilege to live and work here, as Katharina Lange confirms. Despite the limitations, the positive underlying tone also finds confirmation in the survey of all participants in July. Although a third of those surveyed experienced sales slumps of between 20–50%, and another 20% had even lost more than half of their business during the lockdown, almost half of them took a positive view of the post-lockdown future. That said, the divided outlook of participants in SEF. Interactiv is reflected by the fact that 30% of participants expect a gloomy future.

Resilient? Definitely - up to a point

7

TAKEAWAYS:

The Swiss structures and economy are healthy.

In crises, people from all sectors pull together.

The crisis is hitting industries and companies in very different ways.

How strongly has the lockdown affected your sales revenue?

30%

No reduction, nor increase

34%

Reduction of sales revenue 20 - 50%

14%

Reduction of sales revenue 50 - 75%

14%

Increase of sales revenue 10 - 25%

8%

Reduction of sales revenue over 75 %

Results of SEF.Interactive survey – July 2020

50%

0%

25%

75%

100%

8

Resilient? Definitely - up to a point

How do you assess the future economy of Switzerland over the next 12 months?

48%

Neutral

41%

Negative

11%

Positive

Results of SEF.Interactive survey – July 2020 Results of SEF.Interactive survey – July 2020

How do you assess your own professional future in the next 12 months?

7%

39%

36%

18%

Fairly negative

Fairly positive

Positive

Neutral

Resilient? Definitely - up to a point

9

Flashlight: Sully

• 15 January 2009 • US Airways Flight 1549

10

Resilient? Definitely - up to a point

On 15 January 2009, US Airways Flight 1549 took off from New York with Chesley “Sully” Sullenberger at the controls of the Airbus 320. Sully was an experienced pilot with over 20,000 flying hours. Shortly after take-off, both engines failed due to a bird strike. Within seconds, Sully had to decide whether to bring the aircraft (which was still in a climb) safely back to the airport or whether he should risk an emergency landing. The lives of more than one hundred people depended on this split-second decision. He decided to land the aircraft on the Hudson River, because he did not believe that it could make it back to the runway. The landing was successful; all 155 passengers escaped without any major injuries.

Resilient? Definitely - up to a point

11

12 Leadership: awaken the strengths in your team

According to SEF.Interactiv participants, one of the crucial issues in a crisis is leadership; leadership in good times is not trivial, but leadership in a crisis is crucial. What does that mean? As one participant puts it, “you have to be incredibly close to the front line in order to be able to deal immediately with the smaller crises within the larger one. At times like as these, employees expect direction. You have to project calmness to provide reassurance in uncertain times. Communicating with conviction is crucial here.” MGB President Ursula Nold says much the same, as well as emphasising another aspect: the crisis has strengthened employee’s self-empowerment. Those who were able to

rely on good partnerships have come through the crisis well. Many SEF members agree: it was good to pass on responsibility to teams internally and let the employees get on with the job. It turned out that there was plenty of energy available to be harnessed. Good partnerships are important for customers as well as employees. Many SEF. Interactive participants spoke about the efforts they have been making to stay in touch with their customers, both now and more particularly in such crisis situations. Good relationships have not only proved their worth but in some cases flourished, quickly and pragmatically.

Ursula Nold underlines this development as experienced by Migros. She says that the crisis has cemented people together. On the one hand, intensive work has been done in-house, for example in logistics, to secure supplies. She has seen an unbelievably high level of employee commitment. However, at the same time, a strong trend towards local products was also observed: people wanted to express solidarity with local producers – as Migros itself had done. Her employees had received thousands of letters of thanks.

Leadership: awaken the strengths in your team

13

As Chief Operating Officer of leading bank UBS, Sabine Keller-Busse must ensure that the entire organisation functions through good times and bad: “How do I make sure the bank remains operational without interruption? How do I maintain a high level of customer service and ensure the safety of employees spread all over the world? And do all that in a company that is regarded as systemically relevant and therefore needs to stay operational?” UBS told over 80% of its employees to work from home at a very early stage. According to Keller-Busse, its annual investment of over CHF 3.5 billion in IT systems has paid off in this respect. In addition, in recent years the company has vigorously brought roles back in- house, allowing it to rely on its own service centres and making it less dependent on external service providers. Corporate clients have been provided with ample liquidity within the framework of the federal government’s loans programme – quickly, thanks in part to the support of bots. Here, too, early digitisation has borne fruit. UBS processed 24,000 loan applications within a very short time. “At UBS, the established crisis management processes that we engage in annually have ultimately paid off when it comes to managing a major crisis.”

In statistical terms, the survey found that one third of participants have communication at the top of their list of priorities; one in ten rely on flexible- working employees; one in twenty rely on stable infrastructure. One in eight simply underline the importance of staying calm. Right at the top of the list, however, comes a rather obvious consideration that becomes vital in a crisis: having enough liquidity.

14

Leadership: awaken the strengths in your team

TAKEAWAYS:

Good, close, and trustworthy communication with customers and employees.

Awaken the tiger in the company: empower the employees.

Nothing works without sufficient liquidity.

What was the most important in this crisis?

Sufficient cash flow

41%

Good communications internally and externally

28%

Stay calm

14%

Flexible employees

7%

7%

Reliable supply chains

3%

Good IT-infrastructure

Results of SEF.Interactive survey – July 2020

50%

0%

25%

75%

100%

Leadership: awaken the strengths in your team

15

Flashlight: Sweden

• 90% of their workforce on reduced working hours • 300 SAS employees were ready for action

16

Leadership: awaken the strengths in your team

In Sweden back in March, the managers of SAS airline asked themselves what would happen if they put 90% of their workforce on reduced working hours. With the help of experts, they decided to put cabin crew on a three-and-a-half-day crash training course to become auxiliary nurses: after all, the flight attendants already had the basic knowledge to deal with in-flight emergencies. Hundreds of SAS employees were eager to sign up; in a pilot test, 30 were able to benefit from the training just two weeks after the introduction of reduced working hours. Within two months, another 300 SAS employees were ready for action. Shortly after that, additional employees from the hotel and restaurant sector were invited to join the scheme. In the meantime, a similar programme has been introduced for teaching assistants. This was made possible by the existence of a close-knit network of contacts within the Swedish economy and society at large.

Leadership: awaken the strengths in your team

17

18

Howmuch state intervention should there be?

18

How much state intervention should there be?

01

02

The Swiss government had acted out of a mixture of fear and creativity, and the result was a pleasant surprise. So says Peter A. Fischer, head of the influential economics section of the NZZ newspaper, which otherwise tends to be critical of the state. However, his statement only applies to the initial phase. Fischer says that the government had “used its stabilisation measures sensibly” at the start of the lockdown. Rudolf Minsch, representing Economiesuisse, an organisation not usually renowned for being close to the state, also praised the initial measures taken by Swiss officialdom, including the debt brake and the well-balanced state budget, the only solution allowing the measures to be in any way sustainable. Like Peter A. Fischer, however, Minsch criticises the government for releasing the brakes too late. On the other hand, one participant with an Indian background but based in Switzerland praised Swiss politics in general terms. Unlike the situation in many other countries, none of the leading politicians had sought to exploit the crisis for their own benefit. The country was what mattered, and nothing else. Petra Gössi, head of the Free Democratic Party of Switzerland (FDP), experienced the crisis at the political centre of Switzerland. Her scope of action had been limted as the parliament had been unable to act for a long time. All competencies lay with the Federal Council. Basic rights were restricted. Communication within the parties and with the population was massively disrupted. Politically, the crisis had been a major challenge. Petra Gössi draws five lessons from it:

It is worth having a functioning state: for

Politicians also need a push towards digitisation in order to maintain their ability to act in crises.

everyone, for the economy, for society, and for culture. Neither an ultra-liberal nor a socialist state could have acted so sensibly.

03

04 Politicians and the

Risk management must be strengthened. There will always be crises.

authorities must check how many precautionary measures should be taken, for instance by reviewing what should be in the compulsory stock and in what proportions.

05 Very importantly, crisis management will place a heavy burden on the next generation: these

generations must be given a perspective, not just inherit debts.

How much state intervention should there be?

19

Arturo Bris, Professor of Finance at IMD, warns of the political challenges in the coming months. Small economies are often successful, but Switzerland as a small nation does not have the protection of a large organisation like that of the EU such as other small economies. The country must therefore fight for connectivity, and not isolate itself. Individual participants warned against too much state intervention, now and in the future. Others, on the other hand, took a different line: it was not a question of the economy versus the people; the two belonged together in Switzerland. However, they would like to see more of the radical slimming-down in which the state engaged during the crisis, a rethinking of regulations, more flexibility; perhaps, they say, what is needed at the end of the day is a stimulus programme after the loan scheme. Hans Hess, President of Swissmem, the country’s Association of the Mechanical, Electrical and

Metalworking Industries, warns against too much direct support from the state. According to Hess, change must be permitted, even if the industry he represents is currently suffering severely from a lack of orders, payment defaults, and delivery difficulties. In the end, it was primarily up to business leaders themselves to find a way out of the crisis. Economic journalist Peter A. Fischer warns of the danger of the loan programme not really supporting companies in a targeted manner, thus slowing down or even preventing necessary structural change. Nevertheless, three out of every four participants are of the opinion that state intervention is good and appropriate – although only three out of ten have themselves resorted or had to resort to state aid.

TAKEAWAYS:

A strong state is also needed in a crisis.

Interventions should be as short and limited as possible.

Debts from the crisis should not be a burden on future generations.

20

How much state intervention should there be?

How do you assess the interventions and offers of the government related to the lockdown?

Appropriate

Very good

Exaggerated

Neutral

12%

14%

21%

53%

Results of SEF.Interactive survey – July 2020 Results of SEF.Interactive survey – July 2020

Have you taken advantage of government aid (direct payment, loans, etc.)?

38%

3%

59%

Still to be reviewed

Yes

No

How much state intervention should there be?

21

22

Is family a help in a crisis?

Family businesses account for a considerable part of the Swiss economy. More than two third of Swiss SMEs are family-owned. Peter Vogel, Professor of Family Business & Entrepreneurship at IMD, highlights six points that distinguish family businesses and, taken together, make them more resistant to crises:

01

02

03

ACTING AND PLANNING FOR THE LONG TERM: For family businesses, 25 years is the equivalent of a quarter for a listed company. They really do think long- term.

FINANCIAL STABILITY: Family businesses are, on average, less in debt and therefore more financially independent.

EMOTIONAL ATTACHMENT: The owners’ emotional attachment to the company is usually much stronger than in non-family businesses. This means that in crises everyone rolls up their sleeves.

04

05

06

SOCIAL COMMITMENT AND PHILANTHROPY:

ROBUST VALUES AND LOYALTY: The value system between owners and employees is also more sustainable. This means that owners’ loyalty to the workforce is high, as is the loyalty of employees to owners.

ENTREPRENEURSHIP: In family businesses, the entrepreneurial spirit reigns

Family businesses are often strongly embedded in their social environment, resulting in increased social commitment and concomitant social loyalty.

supreme. This includes the ability to constantly reinvent itself and to seize entrepreneurial opportunities in times of crisis.

Is family a help in a crisis?

23

However, in this crisis these strengths alone are not enough, says Vogel. At the same time, almost all companies are in the midst of the fourth industrial revolution, and thus in a period of digital disruption. The challenges in a crisis are especially demanding; companies that underwent digital transformation years ago will emerge from the crisis in a stronger position. Rudolf Minsch, Chief Economist of Economiesuisse, recalls the old saying “waste not, want not”, and applies it to companies as well as to the state. Family businesses, in particular, tend to be more robust and financed on a long-term basis. IMD professor Peter Vogel advises owners not to be afraid to seek help from outside: having independent members on their board of directors, for instance. It is crucial for positions on family businesses’ boards of directors and in management to be filled by future- oriented and high-calibre individuals: the “rubber-stamping” boards once typical in SMEs are no longer sufficient

today. Also, in times of crisis, he says, it is important for non-owner-managed companies to intensify communication between the board of directors, management, and the owner family, including successor generations. Such crises often lead to an acceleration in successions. As in all other companies, the intensive involvement of employees is recommended in family businesses as well, in order to make even better use of grassroots knowledge, follow a bottom-up approach, and empower employees, especially in family businesses. According to the survey, the SEF.Interactive participants clearly agree: family businesses are better equipped to master the challenges of a crisis, including lockdown and its long- term consequences.

TAKEAWAYS:

Family businesses usually have a sounder financial foundation.

The longer-term view helps family businesses cope better with a crisis.

Extraordinary events accelerate fundamental issues such as succession, even in family businesses.

24

Is family a help in a crisis?

Who could master the lockdown better?

Owner-led enterprises

Manager-led enterprises

92%

8%

Results of SEF.Interactive survey – July 2020 Results of SEF.Interactive survey – July 2020

Who is better positioned to master the crisis in the long term?

15%

Public companies

Family Businesses

85%

Is family a help in a crisis?

25

26

Accelerating out of the COVID-19 Crisis Case study: HowMBA graduates brain power help a medium-sized company? By Arnaud Chevallier, IMD Professor of Strategy

Agathon is a company at a crossroads. Its innovative plan for strategic growth inaugurated in 2019 was off to a fine start until the COVID-19 pandemic disrupted the global economy. The virus have had a severe impact on the projected growth trajectory of the company. But there are opportunities. A groupd of MBA graduates investigated together with the company’s leadership team for options. The group was able to develop a rapid response to the challenges posed by the COVID crisis. Drawing on deep industry knowledge and the international background of participants, the teams identified several possible solutions that touched on many key areas of the business and mapped a clear way forward.

Agathon, operating in a “niche of a niche” market with outstanding quality Agathon is a century-old, family-owned company headquartered in Bellach, Switzerland. With 230 employees worldwide, it is known as a leading manufacturer of high- tech grinding machines for indexable inserts. These inserts are used in metal-cutting tools that can then be used to produce parts for a multitude of products such as washing machines and airplane engines, with very fine precision – on the scale of a micrometer. The company’s second business division is the production and distribution of standard parts for mechanical engineering, as well as tool and mold construction. Agathon is active predominantly in Western Europe, but has also expanded to the U.S., Japan, and China.

Broad expertise and structured process In 2019, Agathon devised a growth strategy that was rolled out later that year. Although early signs were promising, the COVID-19 pandemic has significantly affected operations. With customers in flux due to significant budget cuts and spending reductions, the company expects a painful decline in revenues in 2020. Facing tremendous uncertainty, Agathon must now decide whether to continue on the original path it had set for itself or change course.

Accelerating out of the COVID-19 Crisis

27

IMD and Agathon partnered to evaluate the company’s current position and develop recommendations for moving ahead. On Agathon’s side, the effort engaged their CEO as well as two other C-level members. On IMD’s side, 29 participants in the Global Management Foundations (GMF) program (made up of Executive MBA candidates) worked in seven teams under the guidance of professors Albrecht Enders and Arnaud Chevallier to provide recommendations. Participants in the GMF program are executives and senior executives from a wide breadth of industries, geographies, and overall expertise. The program has a rigorous filter, and only accepts business leaders with tremendous potential. This training in strategic thinking provided them with the integrative approach needed to drive structure into the Agathon project. This specific methodology guides them through a systematic process to frame the problem,

diagnose it, explore solutions, identify the best solution, and convince stakeholders. In just nine days, participants were able to understand the complex issues facing Agathon and propose tangible solutions that were creative yet evidence-based.

28

Accelerating out of the COVID-19 Crisis

Testing assumptions and opening new paths The approach resulted in a number of diverse solutions. This is a part of the process that can be challenging to complete internally, as executives are often too close to their own operations to gain the perspective they need to identify a set of criteria that encompasses the requirements of all stakeholders. Leveraging their rigorous training in this matter, project teams gathered opinions from Agathon, pressure-tested these internally and with the executives, and offered revised sets of weighted criteria that aligned with Agathon’s priorities. This included speed and ease of implementation, revenue generation, cost, and level of risk-reduction.

§ One of the most promising solutions is for Agathon to evolve from just providing machines, services, and parts to strengthening its customer journey. Striving to be more customer- centric could include intense mapping of every stage of the customer journey and noting what improvements could be made, as well as identifying large revenue opportunities and building competitive advantage.

§ A further example of this is the suggestion to upgrade Agathon’s website, creating an advanced digital platform to provide for all customer needs and inquiries. § Recruitment of new personnel in key locations could also boost customer interaction as well as sales.

§ Another viable solution consists of

integrating more innovative technology in the parts that Agathon produces. This could facilitate interactions with customers and reduce production time.

Accelerating out of the COVID-19 Crisis

29

A breath of fresh air and fresh thinking Agathon’s executives were impressed and energized by the recommendations developed through the program. “The program not only fulfilled – but went completely beyond – my expectations,” said CEO Michael Merkle. “There was a tremendous amount of creativity, a good deal of structure and many practical solutions that could be implemented quickly.” Company executives felt that the process helped in two major ways. The first was having a group of bright executives who were trained in structured thinking who generated a collection of innovative ways forward in a very short time – the likes of which would have solutions,” said CEO Michael Merkle. “But we were looking for new solutions which we didn’t have on the radar yet.” Equally important, executives mentioned that the recommendations were a helpful sounding board to test and prioritize their own ideas. been difficult to produce in-house. “We know our industry; we know our

CEO Michael Merkle noted that the creativity of the solutions was excellent: Some of them confirmed the company’s thoughts on how to move forward based on structures it already has in place, while others provided exciting new opportunities to pursue. Strategizing is often the easier part of the process – implementing presents its unique challenges that require more definition and planning. As such, the proposed solutions did not limit themselves to grand long-term plans, but also propose tangible next steps in the short- and medium-term. This includes detailed mapping of the customer journey.

30

Accelerating out of the COVID-19 Crisis

CONCLUSION

The pandamic keeps the global economy on tenterhooks. The Case study Agathon shows that managers from outside the industry through executive education can develop fast and pragmatic solutions opening new pathways. Thus, it is possible to achieve the medium-sized company’s strategy and aim for the double-digit growth it desires.

Accelerating out of the COVID-19 Crisis

31

32 Faster and more agile

Switzerland is successful and very competitive, ranking third in IMD’s World Competitiveness Index (see flashlight). However, according to Arturo Bris, Professor of Finance and Director of the IMD World Competitiveness Centre, Switzerland will only be able to advance to the top if it improves in terms of agility and speed. Peter Vogel, Professor of Entrepreneurship at IMD, thinks the key issue is how one is positioned at the precise moment that everything comes to a standstill globally – something that has made this crisis different from all others before it. Defensive capabilities are central to this issue: do firms have reserves or are they sailing close to the wind and are relying on a fair-weather model? In fact, the focus of attention should always be the client. A recently published study by auditing and consultancy firm PwC clearly points to client focus as a factor of success. Nevertheless, companies often see clients as nothing more than sales markets, or squeeze their business model to suffocation. A crisis like the coronavirus brutally exposes all flaws. The question of how fast a firm can react quickly follows. Indeed, the goal should always be to develop solutions together with clients.

A good example is Wilhelm Schmidlin AG from the canton of Schwyz. Urs Wullschleger is its managing director and owner, together with his brother. When they took over the family business 13 years ago, the third generation to do so, they had thought about how to stand out from the crowd in the market in order to be more resistant to a potential crisis. Today, his company is able to produce bathtubs, shower trays, and washbasins exactly to measure, not just in standard sizes but also as bespoke items, and deliver them at very short notice and with extreme reliability – something that the competition does not offer at all. This is a decisive competitive advantage, made possible only by locating production in Switzerland. Such agility and speed are helping Schmidlin navigate the crisis: price plays a somewhat subordinate role for the customer due to the obvious added value of custommade products coupled with short delivery times. The SEF.Interactive participants agree: agility is crucial. However, all stakeholder groups must be involved if the best solutions are to be found.

It is important to analyse the business entirely from the customer’s point of view; this makes it possible to really focus on the customers, and is the only way to become faster and simpler – and thus, in a sense, prepare for the next crisis. Urs Wullschleger also gives the participants a tip moving forward: “if you don’t have a specific idea for the further development of your own business model, it will help if you can at least optimise your processes so that you are faster and more agile than your competitors.”

In their self-assessment, the SEF business leaders rated themselves between ‘sufficient’ and ‘good’ in terms of agility and speed; so, there is still plenty of room for improvement. Moreover, 50% think they need to adapt their business model accordingly.

Faster and more agile

33

Agility is also needed in financial management: here too, cash flow can falter, especially across borders. The federal government’s loan scheme could certainly provide support in this area. Lastly, there is the issue of agility in the digital world. Many companies were not really prepared, either internally or with respect to their customers, and had had to catch up in a hurry. One real estate company, for example, started to train its clients in online matters – online. Here, too, the crisis is leading to a push towards digitalisation and to increased turnover in the IT industry, as business leaders from this sector confirm. Shouldn’t the state become more agile, too? After all, a WEF study has repeatedly pointed out the difficulty of “doing business” in Switzerland. The loan scheme has certainly shown that it can operate more seamlessly. Simon Jäggi from the State Secretariat for Economic Affairs (SECO) says that the circumstances were exceptional, whilst also considering on other measures. Should customs duties and levies be reduced? Hans Hess would welcome that – the old customs duties such as industrial import duty should be cut, he thinks.

TAKEAWAYS:

Companies that are agile and fast are less exposed to price competition.

Swiss companies can become even more agile, and need to rethink their business models.

The state is only agile in a crisis.

34

Faster and more agile

How do you assess the response to the Corona crisis of the Swiss organizations in terms of agility and speed?

10 9 8 7 6 5 4 3 2 1

6.6 Average rating

Results of SEF.Interactive survey – July 2020 Results of SEF.Interactive survey – July 2020

How will your business model change with the crisis?

50%

43%

7%

Has to be adjusted

Remains the same

Will change completely

Faster and more agile

35

Hans Hess, President of Swissmem, says that a lot of rethinking needs to be done, not least in respect of supply chains. However, he does not believe in the end of globalisation. Companies must find a balance between being close to customers, costs, and security of production – and 40% of SEF participants agree with him. Supply chains need to be rethought; they need to be more broadly based, and that inevitably includes more warehousing, even if that means a little extra cost. On the other hand, hardly anyone is now thinking about relocating abroad. A good example of this is Jura, the coffee machine manufacturer. In the first few months of 2020, it recorded a 25% increase on the previous year – but this was only possible because the company had several supply chains, so that production could continue even if one of them came to a standstill. Flashlight: Supply Chains

Are you considering relocating one or more locations of your organization abroad after the crisis?

96% No

4% Yes

Results of SEF.Interactive survey – July 2020

36

The future is bleak – but not for us

Are you considering moving part of the supply chain/warehouse closer to your own locations after the crisis?

40%

Yes

It does not matter for me

30%

30%

No

Results of SEF.Interactive survey – July 2020 Results of SEF.Interactive survey – July 2020

What’s important after the crisis?

55% Being innovative and offering new products/services

24% Seizing opportunities and rapidly expanding business

14% Rethinking everything

7% Keep calm and wait and see how things develop

The future is bleak – but not for us

37

Flashlight: World Competitiveness Report

• Singapore remained in the top position this year

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Faster and more agile

Every year, IMD compares all countries worldwide in terms of competitiveness. Business leaders are asked about their own countries, and their answers are compared with the hard facts. Singapore remained in the top position this year, ahead of Denmark – which jumped from eighth to second place. There is a strong drive in the country towards the ‘greening’ of its economy. Switzerland ranks third, thanks to its strong economy, good infrastructure, and efficient government. The full results can be found here: https://worldcompetitiveness.imd.org/rankings/WCY

Faster and more agile

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The future is bleak – but not for us

Seldom has gazing into the future that lies so close ahead of us been so unclear. It’s as if the future lies in a blanket of fog. Nobody knows how the virus will develop, especially in view of the colder season, when the flu will also return. When will there be a vaccination against COVID-19? What will the next waves of infection look like in Switzerland, the rest of Europe, and across the world? One thing is clear to all those involved in SEF. Interactive: there must be no second lockdown; the damage would be devastating. Two views of the future emerge, too. On the one hand, domestic demand has recovered rapidly and even catch-up effects are discernible. However, NZZ’s economics head Peter A. Fischer is not the only one to be warning of a wave of bankruptcies to come later in the year. The Swiss economy is dependent on foreign trade, he says, and if other countries’ economies do not recover, it will also affect Switzerland. Both FDP National Councillor Christian Wasserfallen and Hans Hess are sure that the export sectors will continue to suffer a major slump in the third and fourth quarters. Only China is showing a somewhat faster recovery.

Wasserfallen, like Hess, therefore reminds us that Switzerland must respond by investing in a good structural environment, in areas such as education, training, and future technologies such as 5G. Counting on a push for innovation in companies is risky. Many are currently asking themselves how they can invest if they are not making money. Small and medium-sized companies are also worried; the real crisis is still to come for them. SEF.Interactive participants take the same view. According to them, it is precisely these companies that are most at risk from the crisis and its consequences. What is coming a little further down the road will be much more difficult. Among other things, a large wave of layoffs is imminent, and not without good reason. In July, the experts at BAK Economics calculated that another 95,000 jobs will be lost by the end of the year.

This in turn will lead to a difficult social situation. Does the Swiss government actually have a “worst-case” scenario, some participants asked themselves? Christian Wasserfallen has his own take. He is unhappy with international developments in particular, as he well might be: the EU Commission’s summer forecast is gloomy, forecasting negative growth of -8.3% for the EU area, compared to the middle of the crisis, when this figure was ‘only’ -7.4%. Wasserfallen (who sits on the boards of various companies) would like to see firms move their supply chains closer to Europe again and build up alternatives whenever they can. Priority should also be given to key technologies such as battery production. Survey participants expect zero or negative growth for Switzerland over the next 12 months. Only one in ten is optimistic about the coming year. Surprisingly, though, the respondents take a much more positive view of their own professional future (see graph).

95000 jobs will be lost by the end of the year

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For Economiesuisse representative Rudolf Minsch, it is also clear that another crisis is inevitable. However, he says that Switzerland has already experienced many crises and that its experience with such shocks is helping it to cope better with these developments. He is, however, worried about the mountains of debt being shouldered by countries and companies alike. SEF participants do have concrete ideas about what needs to change in the future. Take working from home, for example. According to Chief Operating Officer Sabine Keller-Busse, UBS assumes that more employees will work partially and more flexibly from home in the future – perhaps up Switzerland needs to do more in the area of cybersecurity, as more and more people are working from their home offices. In addition to innovation in digital transformation, protection of digital infrastructure must be addressed by government and business. What happens when the world of work gets a makeover by being organised in a to one third of the total workforce. Many participants also believe that

decentralised way? Other, new working models emerge. Employment law will also have to be adapted for this transformation. FDP President Petra Gössi is happy to accept the recommendations. The new world also raises challenges in terms of policy. Over and above any concerns about her own company, Sabine Keller-Busse is one of several people to wonder how companies can treat all employees equally in a world of working from home, in everything from communicating with them to lifelong training. What does such a new world mean for the state? The advice is for thinking to move away from physical national borders towards virtual borders, depending on the level of risk, so that problems with those crossing borders, for example, can be better managed if new outbreaks of infection occur. Despite the uncertainty, the underlying mood remains positive. What we need to do now is to harness the momentum for change and not let inertia set in. A new lifestyle may also emerge – and this must be anticipated.

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The future is bleak – but not for us

TAKEAWAYS:

Switzerland cannot solve this on its own. The future is equally dependent on economic development abroad.

The new world of working from home offices calls for new protection mechanisms for employees and infrastructure.

The worst-case scenario would be a second lockdown.

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44 “We have to be much more responsive to our customers’ needs!”

Albrecht Enders is Professor for Strategy and Innovation at the Institute for Management Development (IMD), and has been involved in the planning and implementation of SEF.Interactive. He believes that the Swiss economy is well-equipped to weather the crisis – but that its vast potential will need to be exploited. Albrecht Enders, how well do you think Switzerland and its economy are doing in this coronavirus crisis? I’m actually very impressed. The cooperation between companies is good, as is the cooperation between companies and the state. The country is small, and people are sticking together and trying to get through this crisis in a very pragmatic way. What positive aspects have you identified? Whether it’s here at IMD, where I’m also on the management board, or at other companies that I’ve looked at – reactions have been and continue to be agile and quick, and not only at top management level; ideas have also come from employees. Moreover, here at IMD we are a completely different organisation today than we were six months ago. At that time, we wouldn’t even have dreamed of programmes that have now become standard! This is a tribute to both the management and the employees, who have contributed many ideas. What about the negative aspects? Switzerland is still very expensive! This becomes an issue in comparison to our foreign competitors, who can work with completely different cost structures, when backs are against the wall. For any organisation that has to produce at local costs – such as IMD – this problem has become even more acute with the crisis. The positive aspect is how companies have changed in terms of speed and innovation. In a case study, you had MBA graduates at IMD develop recommendations for a Swiss company, grinding machine manufacturer Agathon AG in Bellach. What is their most important recommendation? Basically, it was about how to go to the market and communicate with customers. Another important question was how to move beyond current applications into new areas. The fact is that the potential applications for Swiss high-precision technology are much broader than manufacturers imagine. You have to think about who you want to work with in order to find out about these new applications.

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How did the project come about? You know, it was another Swiss thing! Thanks to IMD, this medium-sized company (where I am on the board of directors) was able to draw on the knowledge of outstanding MBA students from all over the world – and the whole thing was organised within two weeks. It was an outstanding experience for the participants and very beneficial for Agathon. Is there a core set of recommendations on what a company can and should do during this crisis? It seems to me that we need to look much more closely at our customers and their needs, as well as at how we can make our products and innovations visible to a broader potential pool of customers, rather than just relying on representative internal or external customers – in other words, a broader approach to the marketplace. This is something that applies to many companies. At IMD, we need to charge our brands with positive aspects such as leadership and innovation, so that when a topic in our field of business comes up, people immediately think of us. In the SEF.Interactive initiative, participants expressed their scepticism about the Swiss economy over the next 12 months, and yet the same respondents were also optimistic about their own future. How do you explain this contradiction? It has to do with the innovations that many companies have begun, as well as the new products, new market segments, and new approaches that have developed. That’s why business leaders are assuming a steep growth curve for themselves. But when you see the slump in sales that many have experienced, it will take a lot to get back to previous sales targets. If they had just sat around for six months, they would certainly not be so positive today. The underlying feeling at SEF.Interactive was that the crisis could also provide a boost in terms of agility and the speed of change. Do you see things the same way? There are no studies on the current situation, but Swiss companies have been under pressure for years to justify their premium positioning. Throughout this coronavirus crisis, one difference has been that we have had time. Previously, everyone was at their limit, then suddenly nothing was selling and you had time to think about how to approach customers in the future. You need a clear head for innovation, so the coronavirus period was very beneficial in that respect. I myself found this to be the case – I was out hiking in the mountains at six in the morning, looking out over Lake Geneva, before virtual meetings later in the day where suddenly some really great ideas came up. It was a highly productive time for me to think in completely different ways!

46 “We have to be much more responsive to our costumers’ needs”

Are the people running Swiss companies good strategists, or are they more tacticians? The Swiss think things through from the inside out. I don’t see big Silicon Valley successes very often. The startup scene here, for which IMD also provides support, is more down-to-earth, but also much more stable, with less volatility than one finds in the USA. What is the worst-case scenario for you in this coronavirus crisis? Cases of COVID-19 skyrocketing to the level that you would actually have to close down again to take the pressure off the healthcare systems in order for the situation to remain manageable – in that respect, a second lockdown would be highly problematic for the economy. And what’s the best-case scenario? Being able to stop the spread, a comprehensive vaccine becoming available, and the emergence of a ‘new normal’. That’s what most companies are assuming. You can’t plan for a state of permanent emergency. One last question: how satisfied are you overall with the result of SEF.Interactive? SEF.Interactive and the SEF in and of itself are very impressive. The ability to bring decision-makers together and have an open dialogue in which people share, comment, and listen is a very strong basis on which to achieve mores. This is also very much in keeping with the Swiss way of doing things and would not be possible in many other countries. It’s been great!

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