Back in June, on the day shops were allowed to reopen in Ireland, I took a walk down Henry Street and came face-to-face with the economic impact of COVID-19. Outside one large store there was a queue of excited shoppers with enthusiastic staff cheerfully managing the two-metre rules. Just a few hundred feet away a shuttered shopfront told a very different story of an outlet that had succumbed to the pandemic.
The pandemic has provided an unwanted and unforgiving test of a business’s liquidity and the resilience of the sector it operates in. Any retailer without an online presence was always going to find the lockdown difficult, and many of the ones that won’t survive were already struggling with their existing business models.
For other businesses, it was more of a mixed bag with some sectors continuing to operate almost as normal. Ireland’s life sciences sector is a prime example of this. On the other hand, the automotive parts sector which has been steadily growing in Ireland, has been badly hit. Interestingly Irish companies that have some manufacturing footprint in Asia Pacific have been among the best prepared because the issues there gave an early warning of what was to come.
Focus on Liquidity
As we emerge from the lockdown, chief executives and their chief financial officers will have liquidity issues at the top of their agendas. Accenture research shows that two out of five organisations are at risk – there is an urgent need to prepare for at least 18 months of further instability. The smart companies, however, are the ones that lead strategically and operationally in moments of crisis and focus on economic viability, cost efficiency and competitive moves.
There is an imperative to rethink almost every aspect of the business, but five levers in particular need to be activated to ensure long-term survival:
1. Manage liquidity: Every business must nail down working capital, and make sure there’s always cash to pay bills and employees. Put a hold on non-essential work, cut back on contractors and talk to clients and suppliers about invoice arrangements and outstanding payments.
2. Financing and credit: Many organisations are moving quickly to renegotiate debt paydown and credit facility options with their banks to help them through the summer. However, we are also seeing larger businesses using the lockdown to secure their place in the future. They are building up a war chest of cash reserves to go after new business as restrictions ease.
3. Eliminate or reduce costs: COVID-19 has accelerated cost management programmes and encouraged new ones. The most obvious to all of us working from home over the past number of months, is the more long-term move to remote working and how office space is managed in the future. The willingness of employees to adopt remote working tools bodes well for advancing digital transformation programmes focused on greater efficiency. Businesses must also be aware that spending cuts imposed in March are not sustainable. Some employees are going to have to travel again and work may need to be contracted – but there is an opportunity to re-evaluate costs and the processes around them to ensure that they do not return to previous levels.
4. Government aid programmes: The Irish Government has rallied around businesses during the pandemic and provided a range of support initiatives, from payment breaks and wage subsidies to the credit guarantee scheme for small businesses. Expect more to come as the consequences of the economic hit the country has taken become clearer.
Ready for the Future
All of these levers come up in conversations that Accenture is having with clients right now. We are also talking to some traditional organisations about ways they could engage with start-ups to inject legacy business models with a new agility, something that wasn’t even on the radar a few months ago. A new willingness to embrace technology is also apparent, and the business case for delivering services from the cloud as opposed to on-premises IT stacks – the OpEX versus CapEx argument – is likely to gain more traction.
Another aspect of the pandemic that seems to have had a lasting impact on business leaders is closer human engagement. Going forward, companies are looking to build on the trust and goodwill that was evident during the lockdown and put it at the centre of relationships with employees and stakeholders, as well as customers.
All of this is part of what we call the ‘never normal’, a post-pandemic world where old rules no longer apply, and you have to think and act differently. COVID-19 has changed priorities and made managing liquidity and enterprise value the main objective for business. The smarter organisations, however, are the ones that shore up the balance sheet to avail of new business opportunities. They are using the economic downturn to plan for an upturn and growth.
At worst, the pandemic has been a day of reckoning for business models that were starting to creak in an increasingly competitive world. At best, the crisis has made change an imperative that all businesses need to embrace. Strong leadership is called for, to make interventions and ensure that an agile and more resilient business emerges from this crisis, one that is much better positioned to survive and thrive through the next.