The last few months have been unprecedented in recent history, both challenging and concerning for all of us. Whilst the future is uncertain it is rapidly becoming apparent that the nature of doing business will change and there are immediate implications that should be considered, writes CEA Director, Paul Ross.
Broadly there are three phases that business will endure – immediate business survival, business resumption and the new norm. We have been in the survival mode for the past few months and various government initiatives (furlough etc.) have been at the front of everyone’s mind. We are now moving towards business resumption and the necessary conditions that will have to be met in order to return to work and to achieve the respective revenue generation from manufacturing, distribution, service etc.
The third element, the ‘new norm’, is the one that has many possible outcomes and ultimately the one that businesses will need to adapt to in order to thrive and prosper. Whilst one can speculate about the exact elements and what will happen, it is wise to consider some of the factors that will influence business moving forward. The following represents some thoughts and opinions on both the immediate and wider implications and what may need to be considered for the new normal :-
– The ‘new norm’ period should be considered as being divided into two parts, the first twelve months of restructure and alignment and then new business normality as markets align. Obviously as time passes, the restrictions on business will ease and companies will have adapted to their individual situations based on their respective products and markets.
– UK position within Europe and ROW.
This includes the trading position within Europe and the whole Brexit final departure issue which is fast approaching. The means by which Brexit occurs may create further havoc in terms of commercial terms, distribution and supply chain etc. (a whole topic in its own right). A further consideration is the position of China and any likely trade impact as a result of this crisis (US intervention etc?). Then there are the commercial activities in relation to the above – including legal distribution and supply agreements, import documentation, tariffs, finance and credit terms etc.
– Business travel, overseas meetings and exhibitions.
It is highly unlikely that there will be any immediate lifting of the international air travel restrictions and as such the opportunity for in-person face to face meetings will be limited. Although conference facilities such as Zoom and Teams allow for dialogue they do not necessarily create the same opportunity for relationship building and interpretation of body language etc.
– Supply chain resilience and less dependency on any one key supplier.
Vertical integration and less globalisation.
– Working arrangements and utilisation/strengthening of IT provision to accommodate such.
By necessity, all companies have adopted new ways of working and the accelerated uptake of digital conferencing platforms has become the norm. It is also likely that many companies will encourage the greater adoption of remote working and flexible working arrangements moving forward. The impact on certain businesses may be the relocation to smaller remote offices with lower overheads, as is currently being seen in the financial sector in central London.
– Payment terms to/from suppliers and customers.
Payment terms are likely to be affected and unfortunately many manufacturers and suppliers are already experiencing this. Obviously the end result is cash flow issues and the respective impact on balance sheet.
– Customer demand and market drivers.
Whilst the markets are significantly lower there will be an increase in demand over time but there will be a cushion effect as a result of the inventory levels held by distribution. Current product forecasts will be revised to take this into account which will possibly have the impact of slowing down the immediate recovery.
– Workforce retention and succession.
Despite the current furlough arrangements being in place to protect employees it is inevitable that there will be further significant redundancies as we move forward. Sadly the industry has already seen this happening as businesses have to adapt to the market and establish their new period cost and overhead structures. Regrettably this will lead to further skills shortages as employees are made redundant or elect for early retirement etc.
A further impact may be the deskilling of certain activities (assembly operations etc) to allow flexibility of labour within a reduced workforce.
– Financial implications.
Loan repayments and establishing a new basis for financial viability. Pension plans and portfolio performance resulting in increased company contributions etc.
– Investment opportunities, acquisitions, mergers etc.
As time passes it will inevitably result in certain companies not being able to recover independently and unfortunately some will collapse whilst others merge to provide a stronger business.
The list could be significantly longer and will obviously vary as conditions change but the above should hopefully stimulate some thoughts for consideration and provide a backdrop for ongoing activities. It is important to identify that whilst the current conditions are difficult, they will improve over time as the world adapts and once again becomes at ease with the new norm.
Paul Ross is a former director of Caterpillar UK Holdings, Ricardo plc and member of the CEA’s Executive Board. Paul is happy to discuss his thoughts with CEA members. Contact Paul via email@example.com