What to do when your company overnight faces a global crisis entailing lockdown of the country, employees working from home, collapse of value chains, digitalization of all communication and co-operation?

A team of researchers from the Department of Management at Aarhus BSS, Aarhus University put this question to a representative selection of managers of Danish small and medium-sized companies during the period 1 April to 15 May 2020, shortly after the lockdown of Denmark.

”Considering the seriousness of the corona crisis, it is surprising and interesting that only 15 % of the managers find it necessary to change their management strategy and thus adjust their organization to handle the situation better,” says project manager, Professor Lars Frederiksen from the Department of Management at Aarhus BSS.

The survey is part of the REBOOT SMV project, supported by the Danish Industry Foundation. During the survey, the researchers follow how the Danish small and medium-sized companies and their managers react to the COVID-19 crisis. The researchers will establish some recommendations to the managers as how to handle the many challenges. The project started in the spring 2020 and runs for one year. The first datasets are now processed, and the analyses so far are based on responses from 1,177 companies.

Two phases

To handle a crisis like the present, management has to take action in two phases, says Professor Børge Obel, Department of Management, Aarhus BSS. Børge Obel is one of Denmark’s leading researchers within organizational design.

“Phase one is to develop a strategy for how to handle the immediate shock occurring when a crisis hits. During phase two, the organization and the business model are adjusted to strengthen the company for ‘the new normal’ when the shock has subsided.

New management strategy

75 % of the managers, who immediately changed their strategies when the crisis hit and the subsequent lockdown in March 2020, participated in the survey, and their answers have now been analysed.

“Some of the changes were reasoned by the trade and situation of the individual company, but three main themes clearly stood out across the companies – namely changes in the organizational design, a more agile management, and increased focus on communication”, says PhD student Jonathan David Jensen who participated in the data collection and the analyses of the data.

Centralized or decentralized management

30 % of the managers went the opposite way because they decentralized the decision-making because of the crisis. This especially applied to service industries having less logistics than producing industries and with a close contact to their customers.

“The corona crisis came as a shock to the companies. Overnight they were challenged on demand and the delivery of goods, and the supply of raw materials became insecure. Ordinarily, managers will centralize and trim the logistics in times of crisis (i.e. phase one). It is not until phase two in the crisis that managers turn to more decentralized decision-making, therefore preparing the company for the next phase,” says Børge Obel.

Operation or development

Many mangers did not know if they should concentrate only on operations, or if they should also focus on a development strategy.

More companies say that the tasks had to be prioritized in dialogue with their cooperation partners: “This is crisis management so more projects are on hold, and we have daily status meetings with customers and suppliers.”

“Companies should always have a plan to make themselves more resistant to crises. According to theory, one way to achieve this is to have so-called “slack resources”- a kind of buffer in e.g. the stocks or the equity of the company. This comes with a cost, but it will safeguard the companies against lack of supplies and liquidity,” explains Børge Obel.

“It is good always to be 100 % cost effective, but if a crisis occurs, the companies might be hit hard on e.g. supplies or capital. Thus, it is better to foresee difficulties and make compromises beforehand to become more resistant to shocks and crises.”

Increased focus on communication

The analyses of the datasets show that the third and last important theme is to focus on making the management strategy more visible and securing transparency of the actual situation, the roles and the new guidelines.

The transition from in-person communication to digital and virtual fora is something the managers return to again and again in their responses. “We use immense energy on online management (Skype, Teams etc.) and on written communication to all employees.”

“In shock situations, it is important that the management handles the communication because the communication is decisive for how the customers, the suppliers and the employees react to the situation,” says Børge Obel.

The fact that many employees should work from home increased the focus on the communication with the individual employee e.g. via “more conversations with the individual employee” or “more guidance and personal ‘nursing’”.

”It is important to think through the manager-employee relation when in-person meetings are no longer possible. Therefore, the managers have to invest more time in communicating with the individual employee,” says Børge Obel, and he adds, “In times of crisis, it is crucial that management almost immediately takes the necessary decisions regarding the organizational design, the agility and the communication of the company”.

For more information and for company cases, please contact

Professor Lars Frederiksen

Email: l.frederiksen@mgmt.au.dk

Phone: 5360 8842

Professor Børge Obel

Email: bo@mgmt.au.dk

Phone: 20207355