Private businesses are seeing major impacts in the wake of the Covid-19 pandemic
DURBAN - Private businesses are seeing major impacts in the wake of the Covid-19 pandemic.
Just 9 percent of respondents surveyed in February and March 2020 expected revenues to decline; in June 2020 that number jumped to 51 percent. Some private businesses are weathering the storm better, though. A new PwC survey shows that agility is paying off in improved performance.
The latest EMEA Private Business Survey, covering 53 countries, shows that some private businesses are standing out and performing better under pressure. The survey identified companies who combine a number of traits – who are customer-focused, people-driven, tech-enabled, and flexible – as ‛agility champions’. These agility champions are taking a strategic approach to resilience and making tough choices around workforces and cost reduction, while continuing to invest in the key areas that will keep their businesses competitive, including training and upskilling and new technologies.
While private businesses in Europe, Middle East and Africa have seen a major impact due to the Covid-19 pandemic, agility is paying off in improved performance.
The current operational and financial challenges that private companies are facing make this pandemic an agility stress test for their business modesl. Leaders whose companies have been able to combine flexibility with a focus on people, technology and their customers – known as ‘agility champions’, report better profitability and expect stronger performance in the future.
Getting the workforce ready for the future
Given the impact of stay-at-home orders in some regions and the need to protect staff from the risk of infection, many companies have pivoted to work-from-home models where possible – more than 60 percent of the private businesses respondents said they are enabling remote work. It is noteworthy that 79 percent of agility champions in Africa (compared to 65 percent of global respondents) are increasing their use of new technologies. Some of these solutions are likely to support the shift to an increase in remote working while maintaining business continuity. Others may also provide the technical backbone needed for other types of cost reduction, such as automation, or for new ways to interact with customers. While business in Africa might be lacking somewhat more when it comes to technology than their global counterparts, the appetite for changes is stronger than ever.
Agility champions are doing more to prepare their workforce for the future at the same time – 57 percent of agility champions say they are training and upskilling workers, compared to just 40 percent of laggards. It is notable that in Africa 77 percent of respondents say they are training and upskilling staff.
Private businesses also favour options that keep staff on-board over staff cuts – 64 percent of private business respondents overall are mandating the use of holiday or overtime pay as a way of managing the impact of the pandemic vs the 34 percent who say they are reducing workforces through layoffs. By keeping employees on staff when possible, private businesses will be able to emerge stronger from the Covid-19 pandemic.
In our view, humanising remote work will be one of the biggest challenges private businesses face in the years to come.
Improving the bottom line without compromising competitiveness
In 2020, maintaining liquidity has become increasingly important. Agility champions are more skilled at taking action to improve their cash position. Two-thirds (66 percent) of agility champions say they are enhancing their working capital management as part of their response to the recent crisis, compared with just 45 percent of laggards.
With the top line under pressure, private businesses are also looking for other ways to enhance the bottom line. Agility champions and laggards alike say they are using cost-saving measures, like cutting marketing budgets or cancelling non-vital services, as a way of managing the impact of the pandemic. But it’s important to make cuts in a way that doesn’t harm the business, and redirect costs to the areas that are critical for growth. To do that, companies should revisit strategic priorities and understand differentiating points in their value chain when making cuts.
Agility champions are leading the way. For example, while it may be tempting to slash technology investments as a quick way to cut costs, the majority of agility champions (58 percent compared to 41 percent of laggards) are actually increasing their use of new technologies. And while supply chain is often considered to be purely operational, true supply chain excellence can actually be a strong differentiator as well. More than half of agility champions (52 percent) are making changes to their supply chain strategies as part of their way of coping with the pandemic.
Flexible strategies, driven by a strong customer focus and collaborative approach
One of the keys to success in a challenging environment is to understand the overall market landscape. The survey shows that agility champions are looking to understand their markets and the customer segments they serve as a way to position their companies and emerge stronger. The majority of agility champions see both expanding into new markets or client segments (58 percent) and exiting markets that don’t prove profitable (57 percent) as critical to success in the future. Some will use mergers and acquisitions as a way to jump-start growth, with 39 percent of agility champions saying these will be key.
African private businesses are also looking at working together with partners to achieve their business goals, whether it’s through strategic alliances or by collaborating with start-ups.
Private businesses respondents are also introducing new products and services designed to meet customers’ needs. Nearly three-fifths of agility champions (57 percent) see this as critical, far more than laggards. The same number, 57 percent, also believe that changing or adapting their business model will be vital to future success. In Africa, 69 percent of respondents say they are taking a fresh look at their product and service portfolio, as well as their business model.
The most agile companies are also well-aware that it will be difficult to achieve success on their own. Agility champions are far more likely to see working together with partners to achieve their goals, whether via strategic alliances (58 percent vs 39 percent of laggards) or by collaborating with start-ups (29 percent vs. 20 percent of laggards) as critical.
Getting tomorrow’s leaders involved today
When it comes time to adapt the business model, it’s important for leaders to drive forward change and set the “tone from the top”. Survey results suggest that for agility champions, this kind of tone is also coming from the next generation of leaders (Next Gen), whether they be family members or up-and-coming young managers. Half of agility champions believe that getting the NextGen more involved in decision-making and management will be critical for the future, compared to just around a third of laggards (34 percent).
NextGen leaders often bring with them a strong commitment to environmental and social issues, although this level of awareness isn’t unique to the next generation. Agility champions are committed to taking a long-term view, and don’t intend to transform their organisations at the expense of the environment or their community. Agility champions ranked sustainable business practices higher than any other consideration as a must for future success, with 81 percent seeing these as critical (compared to 69 percent of laggards). That puts sustainability above even technology as a prerequisite for building a strong foundation for future growth. Around three-fifths of private business respondents overall also believe that business has a role to play in achieving societal goals such as diversity and or equality.
Agility alone isn’t enough to ensure resilience but it can play a strong role. Resilience requires continuing commitment and a willingness to invest time and resources in all the essential agility criteria, so that they become mutually reinforcing. That means doing your homework, for example on how technologies can help your business, and being ready to make more fundamental changes in ways of working and how you do your business.
Many private businesses are doing this quite successfully. Private businesses will continue to provide critical support for economies throughout Africa. However, government responses to the current crisis have the potential to enhance resilience, or to undermine it.
Gert Allen, Private Company Services Leader for PwC Africa
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