The Covid-19 pandemic has immeasurably impacted the way that we work and live our lives. Malcolm Thixton, lead partner at BDO LLP in Southampton gives a perspective from the viewpoint of the Central South.
Many businesses have started to transform the way they do business, by revisiting operations, identifying efficiencies, adapting product lines and finding new ways of working. As has always been the case, economic downturns are accelerators for change.
In August, our ongoing survey of 500 C-suite leaders of mid-sized businesses across the UK shed light on the scale of redundancies across the mid-market. 91% of businesses made staff redundant due to Covid-19. While most businesses made a small number of cuts, just under a third made around a fifth of their workforce redundant, despite the Government’s Job Retention Scheme running until the end of October.
However, the findings also pointed to some early signs of recovery and resilience within the mid-market. A third of businesses (33%) said revenues were either unaffected or had actually increased in recent months and over a quarter (26%) had launched new products or services.
One of the biggest challenges facing many businesses has been the need to adapt at speed. They have needed agility in decision making and the ability to drive changes in order to cope with disruption.
Now, businesses need to be prepared for the permanent changes of customer buying behaviours, increased competition and a clear migration to digital ways of attracting and retaining customers. The most resilient businesses are those that have adapted already, with many reporting benefits and accelerated growth.
Although the long term impact of Covid-19 on the way we do business and live hasn’t yet been fully understood, a few trends are now evident:
1 The role of the traditional office workplace has changed, with remote or flexible working featuring more. Will offices now become a hub reserved for innovation and social interaction? Remote working brings productivity, cost and environmental benefits which many staff will want to protect – so employers must factor this into future thinking.
2 The role of the urban space has changed. Since the office is no longer the default destination for commuters – how will cities like Southampton and Portsmouth, and the businesses within, adapt to the challenge of reduced footfall and increased social distancing requirements?
3 The Central South economy with its sector diversity proved resilient through the downturn following the 2008 financial crisis. In subsequent years we have seen an increasing number of its businesses expand into overseas markets. The increased focus on e-commerce and online sales due to travel restrictions now means it makes little difference whether you are servicing a client in your region or in another country. Our mid-market companies can continue to succeed and increasing numbers can provide services around the world if we invest in digital skills and our ability to adapt.
4 Supply chains are likely to face ongoing pressure and flux as disruption to global supply arrangements and the repurposing of manufacturing capacity around the world becomes more evident. Preparing contingency plans, outsourcing or re-shoring operations, relocating production and reducing cash tied up in supply chains will remain key to future success.
5 Digital is here to stay, but that creates new risks and challenges. The quick shift to remote working for many businesses has put a strain on IT teams and systems, with many failing to adjust controls due to the urgency of the changes. Cyber and fraud threats will represent a growing risk, so businesses need to urgently revisit their risk register and assess the impact that working in a more digital, remote way will have.
Along with risks, these trends represent significant opportunities for businesses that use this time to rethink how the future might bring efficiency, optimisation and growth.
Many of our local businesses are also redesigning their products or services, leading to high levels of innovation and the need to bring to market new ideas quickly. Access to finance through the government-backed loans and incentives has meant many businesses have been able to redesign their offerings quickly.
Traditional incentives such as research and development tax credits still exist in addition to this support and shouldn’t be missed, and some of the support such as the VAT deferral will need repayment and so businesses will need to plan ahead and ensure the right funding is in place.
Other companies are also redesigning their supply chains, distribution channels and operations, outsourcing many processes, increasing efficiency and also accessing systems to expand into new markets.
What is clear is that standing still is not an option. The reality is that alongside planning for an effective economic recovery from the Covid-19 pandemic, businesses also need to plan for a potentially protracted global recession, for the outcome of Brexit negotiations and shifts in competition and markets.
Business owners need support more than ever to think through the above disruption and complex change. We are using our Rethink framework to help clients manage business priorities and address issues in a focused way. This is helping their decision making and identifying the changes needed.
The road ahead is far from easy. The world has changed as a consequence of Covid-19. Businesses need to understand this ‘new reality’ as early as possible and rethink how they will be positioned within it. As part of ‘Rethinking the Central South’ over the coming months we will be tracking how our regional mid-market businesses are meeting this challenge and sharing the insights from their business leaders as they make that journey.