The pros and cons of an infrastructure boost post pandemic

infrastructure boostThe UK Prime Minister has signalled a massive infrastructure boost to help the country’s economy to recover post pandemic.

The details and plans for allocation of money are likely to be fleshed out in the autumn but in a speech at the end of last month he indicated that more than £5 billion would be spent on infrastructure projects, many of them in northern and central England as part of his pledge to tackle the imbalance between London and the South and the more deprived regions.

The projects will include spending on hospitals, roads, railways and schools, including what are called “shovel-ready” projects to help businesses and individuals to recover and address the expected mass unemployment.

Business directors should be planning now to take advantage of the proposals, especially those in the construction and tech sectors that are likely to be recipients of the government money.

I know of at least one company, supplying a unique range of thermally efficient, environmentally-friendly products to house builders, which is already well-placed to grow post-Coronavirus to supply its Passivhaus compliant insulated foundation and walling systems.

The government initiative does however highlight some issues that are associated with ambitious plans that are announced without thinking them through.

In his speech, the Prime Minister promised to simplify the planning system and regulations to speed up the process.

Unless some thought and care is put into how the infrastructure boost is carried out there is a risk that the initiative will undo what little progress has been made to reaching promised environmental targets.

For example, while improving the road infrastructure is needed in some parts of the country, it is likely to increase the numbers of vehicles on the roads and in turn will contribute to an increase in CO2 emissions and global warming.

In fairness, the PM did also promise to “build back greener and build a more beautiful Britain” with a commitment to plant approximately 75,000 acres of trees every year by 2025. He does like his promises.

It may also be the case that ambitious infrastructure plans fail to meet the objectives of creating a large numbers of jobs. It is likely that businesses will be looking to find ways of reducing their dependence on labour investing in and more automation and technology-driven ways of working.

These are points highlighted by the economist Joseph Stiglitz who argues that there are infrastructure spending risks but also acknowledges that “well-directed public spending, particularly investments in the green transition, can be timely, labour-intensive (helping to resolve the problem of soaring unemployment) and highly stimulative”.

It is clear, however, that directors will need to find innovative ways of delivering the proposed infrastructure while at the same time also promoting their “green” credentials.

#infrastructureboost #economicrecovery #construction #techinnovation

Is commercial property investment no longer a safe haven?

commercial property a safe investment?Commercial property pre-pandemic was considered one of the more secure options for money by investors, particularly by pension fund managers.

But the consequences of changing consumer behaviour, the aftermath of the pandemic lockdown and the retail High Street revolution would suggest a pause for thought and perhaps a rethink.

While the most obvious sector of business related property to be in trouble is retail it may prove not to be the only one.

Retail has been hit by a significant move to online shopping that has been building for several years, but it is also beset by what has been called an archaic rental collection system, whereby rents are payable quarterly.

The most recent Quarter Day was on 24th June (Midsummer Day) and it has been estimated that in the region of just 14% of retailers were paid their rent that day.

It was no surprise, therefore that Intu, owner of some of the UK’s biggest shopping centres, such as Lakeside and Manchester’s Trafford Centre called in the administrators the day after the Quarter Day.

Intu had been struggling even before the lockdown as a result of a list of store closures announced throughout the year so far, including well known names such as Warehouse, Oasis, Monsoon, Quiz, Pret A Manger and others. It has been estimated that in excess of 50,000 jobs have been lost in the sector so far.

The lifting of lockdown in retail is not likely to help to restore the High Street’s fortunes given the restrictions and limitations shops have had to impose to ensure customers are safe from infection.

But commercial property is not only about retail.

Lockdown meant that many businesses had to close their offices and again, they have only been able to re-open amid considerably changed circumstances for safety reasons.

Not only this, but many previously office-based businesses have discovered that their employees can work efficiently and often more productively from home and have therefore they have been reviewing their business models to enable employees to carry on working remotely.

Where they have a need for some employees to be in the office at least some of the time, they have introduced rigorous sanitisation measures, abandoned such practices as hot desking, installed safety screens at more widely-spaced desks and introduced flexible working so that employees no longer have to arrive or leave at the same time. Much of this is aimed at helping staff avoid travelling on crowded public transport but it is  also a recognition that flexibility is benefitting both employers and employees.

The trust issue assumed by management has also largely been allayed; indeed staff have tended to work harder at home than they did in the office with few companies experiencing any loss in productivity. I would argue that requiring staff to work in the office was never a trust issue but more one related to the egos, status and security of managers who need the reassurance of having staff on hand; nothing to do with employees’ ability to work.

Inevitably, the successful experiment will mean that many businesses no longer require such large commercial premises and will terminate leases as soon as possible to downsize the space needed.

Indeed I know of two large professional firms who were about to move into larger offices in the City when the lockdown hit, fortunately for them they hadn’t signed the lease and have since decided then no longer need larger premises since everyone has worked perfectly well from home.

Furthermore less space will be needed as the recovery to pre-lockdown levels is looking unlikely.

Earlier this year McKinsey produced a paper full of advice for private equity and investors in commercial property about the radical changes they would need to consider for the future.

“Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. Some players will feel an even greater sense of urgency than before to digitize and provide a better—and more distinctive—tenant and customer experience.”

And this was just the start!

It went on to suggest that commercial property owners, especially in B2B environments, will have to change their behaviour and “engage directly with tenants. They should follow up quickly on the actions they have discussed with tenants. Not only are such changes the right thing to do—they’re also good business: tenants and users of space will remember the effort, and the trust built throughout the crisis will go a long way toward protecting relationships and value.”

However, the report does suggest there will be some commercial property niches that could benefit from the pandemic upheaval, such as commercial storage, and in time there may be others.

There is no doubt that the nature of the commercial property market is changing, but it is perhaps premature to predict its demise.

#commercialproperty #safeinvestmnent #propertymanagement #commerciallease

 

Business triage involves allocating limited resources to achieving realistic outcomes

Business triage prioritises the most urgentBusiness triage refers to the process of prioritising work in a crisis when there is more work to do than resources available to do it. The aim of triage is to maximise the outcome and minimise the damage by being realistic about what can be achieved with limited resources.

It is more commonly understood in the medical context, usually in response to prioritising treatment of casualties following disasters or other emergencies.

According to Investopedia, in a business context, “Triage helps companies by enabling them to attend to emergencies quickly, but it also poses risks, as it tends to involve the elimination of certain time-consuming steps that are normally part of the workflow”.

While business triage is normally associated with decision-making and action a crisis, its principles can also be applied to all forms of transformational change.

In my last blog I advised directors that now is a good time to conduct a strategic review of businesses in order to prepare for a resumption of activity as the Coronavirus lockdown eases.

The review may well have revealed processes, and products or services that are no longer viable as well as potential future opportunities and you may be considering re-organising your business to reflect this.

For some of you this may be urgent and you will be embarking on the business triage process to determine the changes you need to make to reduce overheads, perhaps your workforce, and to re-organise the whole business process.

The warning about the risks involved is therefore timely.

If cash flow has plummeted and staff have been furloughed your business may have been relying on reserves, CJRS (Coronavirus Job Retention Scheme) and CBILS (Coronavirus Business Interruption Loan Scheme), but reserves may be running down and furlough schemes are being phased out. And, sooner or later the loans will have to be repaid.

These are all important considerations for business triage as you prioritise cash flow by reducing overheads, perhaps by make some staff redundant much of which may be necessary to survive. Once survival is guaranteed then you can consider future plans but for the moment it is important to be mindful of the costs involved, particularly, but not only, of redundancy.

The aim of the business triage process is to emerge as a leaner and fitter organisation, more resilient and more efficient, with processes targeted on the most profitable parts of your business.

Many directors have some tough decisions to make and these will require judgement about priorities and affordability such that they may need to bring in others with the experience of making such decisions.

Both a failure to make decisions early and a failure to make the right decisions may mean that your business won’t survive.

#Triage #Businesstriage #Decisionmaking

As businesses resume operations it’s a good time to take stock with a strategic review

a strategic review helps your business move forwardI would normally be recommending a strategic review of your business at this time of year, when activity slows down for the holiday season.

This year, of course, things are very different because of the pandemic lockdown but as you resume business activity my advice remains the same because a strategic review will help you to identify the resources, costs, opportunities and capabilities that will help your business move forward.

It may be that carrying out a review will help you identify new products or directions in which you can take your business as in a changed economic landscape innovation is likely to be a key to future success.

A business needs to be sustainable and profitable so firstly you need to identify the resources that are already available to you and these can be divided into physical resources, human resources, intellectual resources and financial resources.

To use the example of a manufacturing business, physical resources would include equipment and inventory and manufacturing plant, but also the premises, if the business owns them. However, over time for all their longevity such assets as manufacturing plant can become obsolete or inefficient and it is important to plan for when their lifespan will run out and for updating them perhaps with automation to improve efficiency.

Human resources will include existing employees and their skills, perhaps suppliers with whom you have a long-standing relationship, the board of directors and shareholders if any. Do you have the right skills and capabilities in the organisation to help it move forward, perhaps even in a new direction?

Intellectual resources include any processes or products that are already protected by patents, anything emerging from research and development or perhaps potential demand for a new but related product identified via marketing activities or customer research. The talent within your business could also be potentially an intellectual resource.

If you have identified a new product or direction for the business it is important to establish as far as possible how much it is likely to cost and where you may need to invest to turn it into a reality so current costs are an essential element in the equation.

If reflections during lockdown or insights following a strategic review give you ideas for a new direction you will need to know your business’ financial position to fund working capital and afford any investment so forecasting your cash flow is imperative as your reserves may be have been depleted by the lockdown and you may need further finance.

Doing your homework now while business activity is still quiet could make all the difference to a successful business development.

Directors should be mindful of future investment and changing values post pandemic

future investment and changing valuesBusinesses planning their post-pandemic strategy are likely to be seeking future investment to shore up their balance sheets but directors will need to be mindful of the changing values of stakeholders and in particular those of their customers who in turn are influencing investors.

Before the immense disruption caused globally by the onset of the pandemic, climate change, global warming and the need for a more sustainable form of economics were a major preoccupation.

That preoccupation has not gone away.

While physical attendance at a second summit on ethical finance by international delegates from Government officials, financial institutions, consumer goods corporations, supply chain intermediaries and conservation organisations planned for Edinburgh this month has had to be cancelled, it has now been replaced by a virtual summit.

And this month, the UK’s Investors Association published a paper on the future of investment in which it, too, identified the importance going forward of ethical investment highlighting:

…“Increasing importance of sustainable investment. There is growing customer emphasis on the material impact of sustainability issues on financial returns, notably among institutional clients, as well as a more prominent focus on setting non-financial objectives (for example, to invest in companies and projects that have specific social or environmental benefit).”.

The focus and emphasis among investors is very much on CSR (corporate social responsibility), or its replacement ESG (environmental, social and governance) which is becoming the criteria for oversight of behaviour and values and holding companies to account.

Changing consumer values have been highlighted by others, including the retail “guru” Mary Portas, who has been promoting what she calls the “kindness economy” where, she argues, that shoppers may now be more alert to how businesses treat them, their workers and the planet.

Former BoE (Bank of England) governor Mark Carney also referred to this growing awareness in an article in the Economist last April, where he said that “fundamentally, the traditional drivers of value have been shaken, new ones will gain prominence” and where “public values help shape private value”.

These are issues that company directors will need to be mindful of when formulating their post-pandemic business plans, especially if the plans involve securing future investment.

Returning to pre-pandemic “normal” is not likely to be enough for business survival as the desire among both investors and consumers is for more ethical values and this has not been eroded by the pandemic.

What lessons can be learned from the 1930s New Deal for post pandemic recovery?

New Deal and unamploymentThe New Deal was a series of measures introduced by President Franklin D Roosevelt to help the US economy recover from the Wall Street Crash and subsequent Great Depression.

It introduced a string of measures to better protect workers from ill-treatment and the consequences of unemployment and to better regulate banks and financial institutions.

As noted in the Encyclopaedia Britannica “Opposed to the traditional American political philosophy of laissez-faire, the New Deal generally embraced the concept of a government-regulated economy aimed at achieving a balance between conflicting economic interests”.

Perhaps one of the best-known Acts was the Glass–Steagall Act of 1933, which separated commercial from investment banking.

But the New Deal measures were also designed to stimulate and revive economic activity in agriculture and business, founded on the economic theory, as propounded by the UK economist John Maynard Keynes, that massive Government spending should be used to promote recovery and that spending cutbacks only hurt the economy.

Over the 20th Century the economic theory pendulum has swing back and forth between government regulation and a market driven laissez-faire economy with the later particularly being adopted by Margaret Thatcher.

The economic response to the Coronavirus pandemic and its consequences have opened the taps to flood cash into the market in a way that even Keynes would be impressed. Chancellor Rishi Sunak’s initiatives to protect businesses, employees and other vulnerable groups are similar to the measures introduced in the early days of the New Deal.

But as lockdown measures are eased what other measures might the Chancellor adopt to stimulate the economy?

Similar to that adopted in the 1930s, the Government is considering a spending spree on what are called “shovel-ready” projects, particularly the construction of infrastructure (roads, railways, internet, schools, hospitals and other projects) that will get some people back to work quickly.

Other ideas used then and being considered now are how to get consumers to resume spending, although this should be more than just re-opening retail, leisure and hospitality businesses.

With so many people losing their jobs or worried about their economic future, there is a real concern that consumers won’t spend. Perhaps despite other short-term initiatives that were not used in the 1930s such as a reduction in VAT (Value Added Tax) on consumer products, a reduction in NI (National Insurance) contributions for employers and employees, and training people for the future.

For businesses, particularly, some reduction in Business Rates, or even a revamp which has long been called for, and more flexible repayment of the Coronavirus loans (CBILS) may help but the landscape has changed and it would appear unlikely that we shall return to a pre-Coronavirus level of business. None the least due to the number of redundancies that are coming, and perhaps just as bad, the likely prospect that the purchasing power of fiat currencies will reduce significantly despite any artificial manipulation of inflation data.

While it is often said that a recession can be the best time to start a new business, as companies ranging from General Motors, Burger King, CNN, Uber and Airbnb did, it is arguable that the post-pandemic economic damage will be so severe that more even more radical New Deal-type of measures will be needed.

Protecting your business from technology post-pandemic

technology comes with risks as well as rewardsLast week one of my blogs highlighted the growth opportunities to businesses of adopting new technology post-pandemic.

However, businesses, like consumers, can also be vulnerable if you do not take steps to understand and control the adoption and use of software and technology in your company.

Already, reports have emerged of new scams specifically related to Coronavirus. They have resulted in consumers being promised delivery of products for which they have paid but which subsequently discover do not to exist.

Then, there have been the scams to remote workers related to fake contacts from alleged payroll departments and internet service providers asking for personal information, according to TSB Bank.

But in a business context, while digital technology has been embraced to make it easy to continue to work during the pandemic lockdown, in the future how and what technology is used needs to be carefully considered and integrated with business processes going forward.

The temptation may be to “start to build resilience in their businesses by complementing product-focused models with scalable and stable digital alternatives” such the remote hosing of data and the use of third party software tools and AI as explored in an article in information age on potential business technology opportunities.

The article suggested that there will be an increase in B2B initiatives to adopt “smart and quick ways to slash costs and monetise existing assets”.

But the essence of business is competition and this suggests increased opportunities for industrial espionage and hackers unless you take considerable care to protect your business.

Those unfamiliar with the technology are likely to be vulnerable through their lack of knowledge or understanding. Tech is a highly specialised area where few directors are knowledgeable about its vulnerabilities and drawbacks.

Companies will need such specialists and ideally someone in-house to be sure their systems are robust and protected from such potential threats.

You should carry out due diligence on your digital service providers and protect yourself with robust legal contracts although for many online providers this may be impossible such that small businesses in some instances might be advised to avoid certain providers.

Using AI, “smart” cloud storage and other digital technologies to improve efficiency and cut cost has many benefits but only if such systems have back-ups and tight security controls as protection.

 

The future of global sea freight transport post lockdown

sea freight faces a difficult futureThe words “new normal” have become something of a cliché in predictions for a post pandemic world but there is little doubt that global sea freight transport is likely to be very different for some years to come.

Even before countries started closing their borders and taking other measures to protect citizens from Coronavirus the sea freight industry was facing pressures.

Much of the pressure relates to concern by the IMO (International Maritime Organisation) about the industry’s impact on the environment and specifically its use of sulphur oxides which is harmful and is considered to be the cause many premature deaths.

From January 2020 the IMO had imposed new emissions standards designed to significantly curb pollution produced by the world’s ships which will be no small feat given estimates that more than 90% of the world’s trade is carried by sea.

To achieve this target, it proposed to ban shipping vessels using fuel with a sulphur content higher than 0.5%, compared to the present upper limit level of 3.5%.

The challenge is immense since the commonly used marine fuel has a sulphur content of around 2.7%.

The move is generally predicted to be likely to add to shipping costs.

However, an even more significant factor has come into play with the advent of Coronavirus which has highlighted individual countries’ vulnerability to their dependence on global supply chains.

As a result, there have been calls for a revival in UK manufacturing and the onshoring of the manufacture and processing of critical products, such as medical supplies and pharmaceuticals, among others.

At the same time, there have been calls from more than 200 top UK firms and investors who demanding that government deliver a Covid-19 recovery plan that prioritises environmental initiatives that tackle climate change and propel a “green” economy.

It has been argued, notably in an article in the Economist, that globalisation was “in trouble” even before the pandemic took hold.

Then, argues Prof Richard Portes, professor of economics at London Business School, “Once supply chains were disrupted [by coronavirus], people started looking for alternative suppliers at home, even if they were more expensive.

“If people find domestic suppliers, they will stick with them… because of those perceived risks.”

While inevitably there will be a need for global sea freight transport once things return to ”normal” it would seem likely that the volume of freight moved by sea will be considerably reduced.

Tech offers growth opportunities post lockdown

groth opportunities post pandemicIt is likely that there will be many growth opportunities for companies to embrace the use of technology after the Coronavirus lockdown.

Many organisations and businesses have had to switch to a remote way of continuing to provide their goods and services and this has affected everything from medical consultations to teaching, even more online shopping and whole offices now remote working.

Having discovered that it is possible to function in this way it is likely that many will carry on doing so when restrictions are eased and this will provide growth opportunities for tech companies.

Among the beneficiaries already have been providers of online tools including conferencing facilities, such as Zoom, Microsoft Teams and Skype, productivity and project management tools like Asana and Trello and online collaborative and co-creation tools like Miro and MURAL.

But for all their benefits there are also caveats in terms of speed and reliability of broadband, security and protection from intrusion or hacking.

Particularly in the area of providing public services such as health care or education there are also concerns about democracy and the uses to which authorities could put all the data that is gathered, as the writer and activist Naomi Klein has pointed out in a recent article

Security is also likely to be an issue for businesses, not only regarding online financial transactions but also in building resilience into their supply chains.

Ernst and Young has identified growth opportunities in a recent report that also advises directors on how to address some of the potential concerns.

It identifies opportunities for companies to embrace technology:

  • New and more efficient ways of working and living means growth opportunities for companies including the tech companies that provide improved and more secure infrastructure for customers;
  • Retrofitting by design for those organisations that have adapted during the pandemic but plan to continue using their new working processes in the future;
  • Reimagining the seemingly impossible, such as the provision of robotic support to the healthcare sector.

But for the most innovative companies there are likely to be growth opportunities for updating business processes in some instances in products using technology, some of which have yet to be imagined.

The EY advice to directors of all businesses when planning the way ahead is:

  • Challenge all legacy technology, frameworks, infrastructure and how things have been done in the past;
  • Encourage new ways of technology-driven work to drive flexibility, efficiency and productivity;
  • Invest in both personal and business research and development, innovation and learning about technology;
  • Hire people with technology skills, including software engineers, developers and data scientists;
  • Grow the organization’s ecosystem and establish alliances with innovative companies, entrepreneurs and start-ups;
  • Innovate and automate now for the future.

All of the above should provide growth opportunities for imaginative companies in the years ahead.

 

Is it time to stop propping up traditional so-called UK Key Industries?

UK Key industries of the futureThe main UK Key Industries are often still considered to be aviation, aerospace, steel and car production.

As a result of the Coronavirus pandemic and subsequent lockdown the UK Government is working on a plan, called Project Birch, to provide short term bail-outs to those companies “considered strategically important” to the national economy.

However, how to define strategically important? Is it in terms of their contribution to UK GDP (Gross Domestic Product), or to the number of jobs they account for, or to their ability to be viable and profitable businesses that can operate in more normal times without state aid?

It would be reasonable for a Government to consider a business to be strategically important in terms of employment during a crisis, such as now, especially given that some of the above-mentioned Key Industries are in parts of the UK where there is traditionally high unemployment with few alternative job sources, especially when whole communities are dependent on a major manufacturer.

This would apply to the car industry in the North East and to the Steel Industry in South Wales.

However, given that many are foreign-owned, there is little certainty that their owners will invest in them for the future benefit of UK, and often their commitment to keeping them open is in doubt, as previous negotiations for Government help have already demonstrated. It is therefore questionable whether they should be regarded as UK Key Industries in the medium and longer term.

According to the ONS (Office of National Statistics) the UK Key Industries today are in the services sector, including banking and finance, steel, transport equipment, oil and gas, and tourism: “the services sector is the largest sector in the U.K., accounting for more than three-quarters of the GDP”.

So, as former Treasury minister and architect of the Northern Powerhouse project Jim O’Neill has warned, any short-term bail-out of the UK Key industries identified in Project Birch as strategically important must be linked to strict conditions: “If the lion’s share of the equity is simply going to preserve jobs at any cost, that’ll ultimately just add to our weak productivity problem,” he said, in an article in CityAM.

It is a point echoed in an article in the Financial Times about the UK’s “age-old” problem of identifying winners and losers. In my view there are still far too many zombie and borderline insolvent businesses in the UK; most of them have been propped up by lenders not wanting to write off their debt, not because they will contribute to the future of UK PLC.

My blog on Tuesday focused on the opportunities for business innovation that are likely to come post-Coronavirus as a result of changed priorities for consumers and investors towards a greener and more sustainable economy rather than a largely consumer-oriented one.

Perhaps in orchestrating an economic recovery it would be wiser to focus on stimulating and investing in new and innovative businesses and in re-educating and training the workforce for the future and not leaving them untrained and propping up the past.

Identifying new potential UK Key industries, such as pharmaceuticals, innovative technology and the manufacture of sustainable new products is imperative for our future prosperity instead of propping up ailing industries simply because they employ large numbers of voters.