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.

Directors should plan for innovative UK manufacturing to revive their businesses post-Coronavirus

UK manufacturing innovation UK manufacturing was in dire straits even at the onset of the Coronavirus lockdown, with the CBI (Confederation of British Industry) reporting output dropping at its fastest pace since 1975 in the first quarter of 2020.

As it progressed the pandemic and lockdown revealed many weaknesses in the global supply chain, most notably in the availability of PPE (Personal Protective Equipment) for frontline health and care workers.

However, it is often said that in disaster there are also opportunities and many businesses demonstrated their agility in switching their usual production to manufacturing both PPE and sanitising equipment, for example.

But, as attitudes change, so the opportunities for innovation increase and it is a good time for directors to start planning strategies for not only producing essential supply chain elements within the UK but also for devising new products to fit the new agendas.

The UK Government has announced two initiatives aimed to protect UK business and promote innovation, Project Defend and Project Birch.

Project Defend aims to identify and protect vulnerabilities in business supply chains, with project leader Liz Truss recently describing three aims: reducing the use of suppliers from countries seen as “unreliable partners”; encouraging UK manufacturing; and, stockpiling key items such as medicines and components.

Project Birch is a short term initiative whereby the Government will “temporarily guarantee business-to-business transactions currently supported by Trade Credit Insurance, ensuring the majority of insurance coverage will be maintained across the market” potentially until the end of the year.

Meanwhile support for a recovery plan with projects that support the environment has been given added impetus with a letter to the Government from 200 businesses urging it, among other things, to drive investment in low carbon innovation, infrastructure and those industries that support sectors covering the environment, increase job creation and recovery.

All this should encourage UK manufacturers to think in terms of innovation rather than striving to recover their existing operations.

A report by McKinsey in 2019 in the context of post-Brexit UK business and supply chains identifies several key issues directors should consider when planning their strategy for the future. Their findings are relevant in the current post-Coronavirus recovery context.

The key issues for directors, it says, will be to: redefine their sourcing strategy; revisit their footprint; review inventory build-up; and, crucially adjust their product portfolio to exploit their capabilities and experience.

I know of at least one company, supplying a unique range of insulated, environmentally-friendly products to the construction industry, which is already well-placed to grow post-Coronavirus as the Government seeks to stimulate the economy, jobs and housebuilding. Build Homes Better proposes to use its technologically advanced products to build environmentally and energy efficient housing based on its rapid building system. Check them out at https://buildhomesbetter.co.uk/

The time has never been better for a revival in UK manufacturing with innovative solutions for both new products, developing a greener economy and for strengthening the in-country supply chain.

A complex jigsaw puzzle for directors in planning a post-coronavirus retail strategy

the retail strategy jigsaw puzzle As more restrictions are relaxed, allowing increasing numbers of retailers to re-open, directors have many issues to consider when planning their retail strategy for recovery.

Given that High Street retail was already in serious trouble, directors need to address a number of complex questions to assess their chances of survival and develop their retail strategy for reopening, short-term survival and growth.

This will include understanding and meeting the interests of many stakeholders including customers, staff, suppliers, landlords, investors and regulators.

Reducing overheads is likely to be key, given the need to include social distancing measures that will inevitably limit numbers in-store at any one time, thus reducing the number of transactions that can be achieved in any working day. This raises the question of whether or not the business is viable as it needs sufficient revenue to cover the cost of staffing, utilities, rent and related premises expenses while also generating profits.

Customer behaviour and changing attitudes are also likely to be a key factor that will determine retail strategy.

Even before the lockdown there was clear evidence that shopping online was increasing dramatically where those retailers that had introduced online with delivery or click and collect were generally surviving rather better than those that had not. Research by the accountancy and business advisory firm BDO has indicated that online sales rocketed in April by 109.6% compared to last year, although this did not factor in the loss of high street sales caused by the lockdown.

However, there has been much talk of a “new normal” post-Coronavirus and Mary Portas, the retail guru, has highlighted this in her suggestion that post lockdown will bring a “new era of shopping and living” which she calls the kindness economy in which shoppers will search for brands that reflect their values. Environmental and ethical concerns were already becoming increasingly important before the coronavirus pandemic and they will almost certainly continue to be a growing factor.

In addition, consumers will have less disposable income given the likely job losses although it is not yet clear how disposable income will be deployed if restrictions remain for mass events, leisure, travel and holidays. Certainly, being confined to home has encouraged a shift in consumption and again it is not clear if these will be permanent such as surviving without spending on disposable fashion, for example.

Accessibility to high streets may also change now that people are being encouraged to walk and cycle more and drive or use public transport less. Will this impact on shopping habits with shoppers making fewer, and more considered, purchases, not least because they will have to be carried home if not bought online?

All these considerations will weigh heavily on directors planning their future retail strategy and will likely mean convincing shareholders, lenders and suppliers to think long-term for a return on their investment.

The question is, can directors fashion all these competing interests into a retail strategy to ensure survival and growth in the future?

If remote working becomes the new normal businesses must pay attention to GDPR

GDPR and remote workingRemote working has enabled some businesses to carry on throughout the coronavirus lockdown but have they paid enough attention to GDPR (General Data Protection Regulations)?

As more businesses open up with the easing of restrictions a combination of more stringent safety measures in workplaces and a realisation that they can carry on successfully with remote working may lead many to adopt remote working as part of their normal business practice.

GDPR was brought in in May 2018 in the UK to strengthen data protection for individuals. It imposed significant financial penalties, as much as 4% of a company’s annual turnover, for breaches and failures.

However, research by the IT support company ILUX, among 2000 remote workers during lockdown revealed that one in ten believed that their expected working practices were not GDPR compliant.

A combination of these workers using their own IT equipment and inadequate IT support from their employers at a time of crisis was partly to blame for this.

If businesses are intending to continue using remote working for all or part of their workforces, they will need to revisit a number of practices that affect GDPR.

Some will perhaps require a significant outlay, but it is arguably money well spent if the alternative is a massive fine for non-compliance.

Ideally, remote workers should be supplied with business-owned devices, not home computers, phones and/or tablets, preferably connected to the business’ intranet.

All devices should have the latest patches applied, to ensure security vulnerabilities or other bugs are fixed, as well as anti-virus, anti-spam and web protection. This should apply not only to devices but also to network security such as device encryption, firewalls and web filtering.

In addition, the business should revisit its GDPR guidance for secure working for employees and advise them on how best to maintain their IT security, including passwords and replacement policies and best practice including using multi-character passwords, two-factor authentication, and not re-using passwords.

GDPR security for remote workers also includes keeping laptops, mobile phones and tablets securely locked away when not in use and not allowing family members or housemates to use, or see, anything work-related. The same applies to removable devices like USBs, which should also be checked first for malware before use.

Any personal data remote workers need to access for their work and then stored on a USB or in printed form should also be locked away securely when not in use.