4 min read.Updated: 23 Apr 2020, 09:38 PM ISTTulsi Jayakumar
One would expect a survey of SMEs to capture the chaos, panic, gloom and despair of the covid crisis, but one conducted just before the lockdown drew a blank from respondents
One of the thrills of being an academic and researcher in a business school is the ringside view offered into the human mind and its proclivity to behave predictably “irrationally". Time and again, I muse on the sheer brilliance of Dan Ariely’s use of the term in his book by the same title, as yet another encounter with the group I mostly work with—family-run businesses in India’s small and medium enterprise (SME) sector—confirms and confounds these behavioural quirks. Daniel Kahneman and Amos Tversky have used the term “heuristics and biases" to describe such quirks. Who knows, it may just be nature’s way of arming the mutant mind (rather than body) with what’s needed to deal with mutating viruses for survival.
As covid-19 unfolded and was declared a pandemic, I undertook a survey of SMEs to understand its impact on business and the sector’s response. The survey itself drew a muted response, questions having been sent out in the week preceding the country’s lockdown. For, it was business as usual for most of them. My interest group was busy doing what we academics have taught them to do diligently—worry about toplines and bottom lines and make enough money to justify their existence. A pandemic should spell chaos, panic, gloom and despair. This must get captured in despondency and lowered expectations reflected in such surveys. However, the responses drew a blank on the very fears that would get unleashed just ten days later, after the covid crisis hit home, resulting in chat groups buzzing with opinions and counter-opinions.
As I could see, all the makings of a tragedy were apparent in the survey administered pre-lockdown. The questions were clear and sought to capture the facts as they were. The facts were there, too, staring one in the eye. Order books were lower in the March quarter compared to the corresponding quarter of the previous year, or even the previous fiscal quarter, inventories of both finished goods and raw materials had piled up, and capacity utilization had shrunk. These were all unmistakable signs of a slow-down, the kind which astute businessmen, with a keen business sense and foresight should have been able to discern. However, only in hindsight do we have 20/20 vision.
Though the respondents agreed that their receivables had been affected by the pandemic and that with their current cash flows, their businesses could last no more than three months, they did not see the world turning upside down anytime soon. Any hit to their receivables would last no more than 30 days. This is the same over-confidence and over-estimation bias that makes people cross railway tracks over-estimating their ability to run and dodge an approaching train. The pandemic, metaphorically, may be a fast-approaching train, which they may see but can’t escape because their mind is playing tricks on them. The problem is that unlike the train, the virus is invisible, even though the associated deaths aren’t. Policy responses such as a lockdown help in such scenarios by giving an intangible threat a tangible form.
The survey’s most interesting response was to a statement I had posed simply as : “I expect the impact of n-covid on businesses like mine to last for...", with four options: up to 3 months, 3-6 months, 6 months to a year, more than a year. Let’s say “n-covid" in the above statement were to be substituted by the cliched term, “a global downturn". The responses would have been closer to reality, as it appears today. However, the human mind is not used to dealing with unstructured problems and situations which it has never encountered in the past. And hence, the overwhelming majority of the respondents faced with an unstructured problem, just a couple of days before the lockdown, estimated the impact of covid-19 as lasting no more than 3 months.
And now that the pandemic has displayed its true colours, SMEs are running helter-skelter to survive this year to thrive later. Whoever told them the virus has an expiry date? But then, a business mind attuned to working QSQT (quarter se quarter tak, or from quarter to quarter) underestimates the probability of misery lasting beyond four quarters, since a virus can’t do that after all.
I then receive requests from several SMEs asking me to recommend “experts" who can advise them on quick-fix cost-cutting “strategies", especially those that would do away with inconvenient labour, with its “high" wages and salaries—again, an indicator of the myopic nature of the human mind, with its inherent bias for the present.
Cutting costs at this time is akin to going out food-shopping when you are particularly hungry. It would trigger binge-cutting of the worst variety, setting off a chain of pandemic-like economic consequences, leading you down a spiral.
Oh, so what would the good academic doctor prescribe for this flu? A shot of “No panic" and “optimism", accepting new lower normals, with miseries shared and not socialized among workers alone. This would help others thrive, so that you may survive not just today, but well into the future.
Tulsi Jayakumar is professor of economics and chairperson, Family Managed Business, at SP Jain Institute of Management and Research. These are the author’s personal views
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