Luxury businesses are navigating the economic ramifications of the COVID-19 pandemic by doubling down on their agility. In a market racked by supply chain breakdown and the disappearance of a bricks-and-mortar market, business agility is a critical way to build resilience into the very DNA of any business.
In early April, four luxury professionals from diverse sectors joined a special IMD Business School webinar open to executives from across luxury sectors. They discussed what luxury companies are doing not only to survive the COVID-19 crisis but also to exit it with stronger momentum.
In an instant poll, the participants reckoned that the companies that would emerge stronger from the crisis would be those fostering business agility. Of these executives, 68 per cent thought that mastering omni-channel, and 52 per cent thought re-engineering supply chains, would prove to be essential sources of agility.
At first sight, agility may sound like another buzz word. But research shows that concrete and rigorous principles underpin business agility.
So, let’s first define what business agility is. It is the flexibility a business develops when it can reconcile two tensions.
The first tension plays between nimble; the ability to be highly adaptive to unexpected customer and market changes, and stable; the ability to deliver with consistency and a clear direction. When a company reconciles this tension, it is more prepared to deal with uncertainty and shocks such as COVID-19.
The second tension plays between simple, the ability to simplify what the business does and how it does it, and complex, the ability to avoid over-simplification and to continuously learn. Once a company reconciles this tension, it is more sophisticated in the way it can respond to uncertainty.
Here is how luxury can reconcile these two tensions and use business agility principles to survive this crisis and bounce back with greater momentum.
The COVID-19 crisis illustrates how three features of nimbleness matter in times of crisis: fast innovation, customer centricity and resource fluidity.
Take Italy’s Automobili Lamborghini, for example. The car manufacturer demonstrated how an established luxury business can be as adaptive as a start-up when circumstances demand it.
Andrea Puggelli, Head of Customer Journey, and Giovanni Perosino, Chief Commercial Officer, outlined how fast Lamborghini has been to innovate in new, socially-responsible areas. Lamborghini quickly shifted its last open manufacturing workshop to produce masks for the Sant’Orsola-Malpighi Hospital in Bologna. It has leveraged its 3D-printing capabilities to print sanitary protectors and it has been adapting its best-in-class carbon technologies for hospital equipment.
In China, some Western luxury firms have also used fast innovation to strengthen their customer-centricity. Pablo Mauron, Managing Director China at Digital Luxury Group (DLG), explained how one high-end jewellery brand sent each client in China ten face masks at the beginning of the pandemic to reinforce customer relationship. Another company sent a bottle of champagne to each client to celebrate the end of the lockdown. Lamborghini’s board of management used its UNICA app to directly communicate with loyal customers during the outbreak and offer them support.
Resource fluidity also matters. Saving cash to continue investing in what will help to bounce back is crucial. But resource fluidity is about non-cash assets too. For example, Mauron remarked that companies that are primed to bounce back sooner now that China is back at work are those that had quickly shifted significant inventory there before the lockdown in Europe started.
But Balance Nimble with Stable
While it’s important to improvise to respond to the constantly evolving context, the crisis requires the simultaneous stabilization of the core business. Lamborghini, for example, has created a permanent task-force to monitor and make ongoing decisions to protect the health of its employees, support the liquidity of its dealers (80 per cent of them have seen their operations completely halted or severely impaired), and prop its weaker suppliers up.
According to Digital Luxury Group, luxury businesses in China have dedicated much more time and creativity to protect existing customer relationships than to acquire new consumers. As soon as the lockdown was lifted, they started to offer them value-added services to induce them to revisit their stores.
The pandemic also reminds us that contrary to the belief that agility means a lesser role for senior executives, in fact, senior executives are critical to reaffirming an easily lost sense of direction and cohesion in turbulent times.
According to Giovanni Perosino, during a crisis, employees can be afraid and middle management can rapidly lose optimism. The role of senior leaders is to acknowledge legitimate fears while cultivating positivity in their teams.
Perosino does this in several ways. He communicates regularly about what senior management does to prop the business up; he reinstates the sense of lost continuity, for example, by reaffirming plans to prototype and incubate new projects in Asia. He pushes the message of renaissance after the crisis, which he places in the context of previous crises Lamborghini has survived.
Simplifying the business includes removing excessive bureaucracy, for example by breaking down internal silos to give more space to collaboration where necessary.
One way of breaking down silos is by creating one common set of data and standard IT systems. This increases the level of transparency in the firm and helps employees to make more relevant and better-informed decisions. According to DLG, companies that have succeeded in creating one centralized database have been able to activate their CRM in a much more effective way during this crisis in China.
But Balance Simple with Complex
But while a firm should simplify what it can to be efficient and focused, it should not over-simplify. Businesses are more flexible when they balance internal simplicity with the right type and level of complexity.
In a crisis, it’s simpler to close as a clam. But Lamborghini is doing the opposite. It orchestrates its network of external partners to create more effective solutions. For example, on the medical front, it is joining research efforts with the University of Bologna, the oldest in Europe. As it adapts its supply chain to COVID-19, it coordinates its interventions with suppliers through the Terra dei Motori network.
Running a healthy level of complexity also requires keeping or building some slack and redundancies where it matters.
To illustrate this, let’s come back to the link between omni-channel and business agility mentioned in the survey earlier. In time, luxury companies have become experts in the management of physical retail, often combining owned retail and third-party retailers. They have honed the corresponding routines for controlling prices and creating a luxurious in-store consumer experience.
Certainly, online retail significantly complicates the rules of customer experience, pricing control, supply chain and communication management. For this reason, several luxury brands have preferred to avoid it altogether. Yet, e-commerce seems to have absorbed the shock of the crisis more effectively and will continue to do so afterwards.
Adding online commerce might increase internal complexity but it gives the firm some slack for continuing to interact with consumers. Being present solely in the physical space might suddenly make a strategy overly simplistic and a business fragile.
Business agility equates to resilience because it’s what makes firms more flexible. This is because more flexible companies avoid either/or trade-offs; instead they look for and/both solutions. Companies that harness a greater level of agility will not simply survive the crisis but come out of it both quicker and stronger. Business agility is set to become the next performance frontier for luxury businesses.