Building an agile business strategy to battle the dynamic economy

• The challenges facing UK businesses
• Building resilience is the key to long-term success
• Balancing growth
• Tips to build resilience and realise opportunity
• How we can help

 

In February 2023, our ‘Rethink Data’ survey that covered challenges and opportunities facing mid-sized businesses revealed that the UK economy is facing an uphill battle against relentless market changes. Taking supply chain disruption as an example, 34% of medium-sized businesses are currently experiencing supply chain delays due to complex customs regulations as a direct result of Brexit, while the rising number of COVID-19 cases and last year’s lockdowns in China have caused delays for almost two in five businesses.

Additionally, profits that are usually invested into the business are being limited by increased costs. 34% of business leaders surveyed have seen the cost of goods sourced from the EU increase, which has led to 24% of organisations having to cease trading in the EU. Moreover, the cost of importing or transporting goods has increased for 31% of all mid-sized businesses, with 40% of mid-sized property and construction companies experiencing increased transportation costs. So, it’s no surprise that rising interest rates and mounting costs are the top concern for 54% of mid-sized businesses.

Entrepreneurs are also contending with the cost of investing in recruitment to gain access to labour, while 32% are investing in upskilling or retraining employees to create an agile structure that can react to market changes.

Despite all these inevitable external challenges, our number one concern is the fragile position of the country’s business founders and innovators. Businesses have not had the time to recover from the everchanging market since the anticipation of Brexit in 2019, and even now are having to adapt to the uncertainty in Moscow and increased interest rates. The overwhelming need for relentless agility has led to decision fatigue amongst the workforce, which the economy already sees through the loss of talent and with thousands opting for early retirement. All of these points leave UK entrepreneurs in a unique and fragile position.

The only way for businesses to survive and recover from persistent, external knockbacks is to build financial resilience and create agile operations that ensure they can continue to seize the opportunities arising in uncertain times.
 

Building resilience is the key to long-term success

Despite persistent economic setbacks, scale-up businesses remain resilient in the face of uncertainty. 36% are seeking investment or equity financing to grow in the current climate, with nearly 39% of organisations expecting to launch new products or services this year.

Determined to survive, data suggests that businesses are aware that adapting to change is the key to unlocking growth and surviving in the disruptive market. The most common adaptations amongst businesses include onshoring their supply chain to reduce their dependencies on imported goods (23%), passing rising costs to the customer (28%) and scaling back activities to cut costs (28%).

However, due to the number of external factors influencing business decisions, making one or two strategy changes isn’t sufficient. The most effective route decision-makers could take is to analyse how each aspect of their business is performing against their own growth strategy and make adjustments that will prioritise the areas that will drive growth. Ultimately, this strategy could save a business.
 

Balancing growth

Data shows that businesses plan to grow in the face of uncertainty, however, we know that this can prove a challenge. Unbelievably, scaling up too quickly has been to the detriment of several organisations.

Rapid growth can lead to an exhausted and unmotivated workforce, who will struggle to innovate at the same pace. What’s more, if an organisation requires multiple rounds of investment to scale, funding or debt could become unmanageable, adding to the rest of the challenges that a business is already facing in the uncertain market. It’s also important that companies aren’t blinkered by their growth goals, since failure to keep pace with the everchanging environment could lead to exhausted resources.

To ensure all these factors are considered, decision-makers need to take a step back and look at the bigger picture to ensure their growth goals are aligned with the market.
 

Tips to build resilience and realise opportunity

Businesses will either rise or fall in the face of uncertainty. Those that aren’t proactive about overcoming challenges will be displaced. In contrast, a well-designed business with a resilient strategy will be able to navigate the market and innovate or adapt to overcome obstacles and provide solutions that will win market share.

To become financially resilient and agile, businesses should review the following priority areas:

1. Identify the changing needs of customers

   From market trends to political and economic factors, there are plenty of reasons that consumer needs are constantly evolving. A business that relies on a historical offering or way of working is interchangeable in a dynamic market. Companies need to ensure they’re obsessively trying to fulfil their customers’ present and future needs, instead of looking to the past, to maintain and increase their market share.

2. Design a talent strategy

   Businesses need to ensure they have the right skills and quantity of staff available across their business to be able to plan for, and adapt to, change. However, the current job market is a recruitment war that organisations need to ensure they win. By securing the right talent, they will find it easier to navigate through a dynamic environment.

3. Understand the drivers behind the business

   It’s crucial that decision-makers understand what drives the profitability and turnover of their company in uncertain times. Additionally, they need to recognise how external factors may affect business’ performance. Whatever increases their profit margins - whether it’s the number of countries they operate in or the productivity of their workforce - it’s important that these drivers are tracked and monitored to produce an accurate cashflow forecast.

4. Dynamic scenario planning

   Having understood the drivers of the company and how external factors could impact them, businesses need to forecast for potential cashflow issues and allocate their resources accordingly. To do this, they should go through all the plausible ‘what if?’ scenarios that could impact their profitability and ensure they’re equipped to adapt to that outcome if needed.

   When seeking funding for growth, it’s also essential that entrepreneurs have a monthly review of their maximum and minimum cash periods to ensure they are managing cashflow accurately.

5. Understand the supply chain risks

   The supply chain is one of the most valuable and weakest assets of a business, particularly in the current climate. It’s important that companies own and actively support their supply chain to ensure it is resilient and reactive to change.

6. Revisit third-party contract

   Similar to a business’ supply chain, it’s just as important that companies identify all their dependencies, ensuring each one is secure and robust to react to any market changes. This might be a good time to consider whether it is time to bring some third-party deliverables in-house.

7. Challenge pricing strategies

   To manage the costs of high inflation, most companies are balancing the squeeze on profit margins. However, business leaders should be looking to more sustainable options that could improve overall profitability. It may be in the organisation’s favour to move to a subscription-based payment to encourage a more reliable stream of income. Alternatively, it might be in their interest to bring payment dates forward to ensure cash is flowing through the business.

8. Measure and monitor internal performance metrics

   As well as understanding how factors might affect the main drivers of a business, it’s also important for entrepreneurs to have a holistic view of the business’ performance. Referring to their ‘what if?’ scenarios and comparing their performance against key market competitors, companies should monitor their business health closely and be prepared to react when needed.

9. Manage working capital closely

   When looking at the funding they require, businesses often forget about the capital locked up within their business. A well-performing organisation can manage their supply processes to minimise the amount of stock or capital locked up within the company at any one point in time.

10. Make cash-generative decisions

    A resilient business is bold enough to look to the past and strip back any parts of the business that is no longer of use to them. BDO Business Lens data shows that this is a common action organisations neglect, which ties up cash and resource that could be focussed on more productive areas of the business.

11. Create a purpose-led culture with ESG

    It’s vital to look at all aspects of ESG to create and implement values that employees and third parties are invested in. By creating a purpose-led culture, a business is more likely to attract and retain talent and build robust partner relationships that will stand the test of time.

12. Understand the value of technology

    Technology – and specifically AI – provides opportunities for businesses to drive efficiencies. However, due to its accessibility, businesses are making the mistake of implementing AI too quickly and reducing their workforce to cut back on costs. Instead, entrepreneurs need to look at what their people are doing and where they’re adding value before they make any drastic changes.
     

How we can help

At BDO we offer a Business Lens tool that allows business founders and directors to assess their business’s strategy and diagnose any weaknesses within their growth plans.

By honestly answering questions about performance, place, people, process, productivity, purpose and profit, the Business Lens generates a bespoke report, offering insights on how you can overcome potential growth barriers. With this information, our expert team can help business leaders build out an aligned strategy that will set them up for sustained growth successfully.