Business resilience for the new normal
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Tim Foster, Partner, joined BDO at the beginning of 2013 and has considerable experience of providing partnership internal audit, corporate governance and risk management solutions to a portfolio of clients. One of his areas of expertise is helping leaders develop and maintain resilient companies.
We spoke to Tim Foster, BDO Partner in Risk Advisory Services, about business resilience and why it’s more crucial than ever as we start the transition back to office life.
What’s business resilience and why is it so important?
Business resilience is your company’s ability to weather and adapt in moments of crisis and other unexpected scenarios. Most people know about financial and legal resilience. Other types of business resilience include your premises, your management, your employees and your customers and suppliers. The pandemic has affected all these areas in one way or another and it has been a testing time for business leaders.
What challenges to resilience have we seen over the pandemic?
Over the pandemic there's definitely been a strain on technology because of the change in ways of working. The technology space has faced some challenges, specifically around people working from home. For many of our clients, employees working from home has been a real test for the use of technology. I think overall we're finding that actually it's worked. However, on the other hand, continued – and increased –home working will test infrastructures further.
Although there was a degree of tech resilience in 2020, people are now finding that their kit is starting to feel the strain. We’re all online longer during the day and that's putting pressure on equipment, such as laptops, which normally have quite a good life span. To help solve these issues, there needs to be quite a lot of investment, both nationally and by individual companies. UK network providers are busy trying to put in new networks, but this is having an impact on home workers’ ability to get online. In fact, several clients have told me that their staff are pushing to get back into the office as soon as possible because they've had so many technical issues at home.
There is another big challenge testing the resilience of the tech sector right now. New tech equipment is difficult to source due to a combination of COVID, Brexit and the Suez Canal obstruction. The resulting supply chain issues have led to a shortage of semi-conductors and computer chips, which are needed in everything from computers to cars. At the same time, global demand for semi-conductors has dramatically increased as people have needed more devices to work, learn and socialise from home. As a result of this perfect storm, IT companies are struggling to meet their clients’ demands for new devices and programmes.
This global shortage of semi-conductors has affected several BDO clients and challenged their business resilience.
"From having to delay technology change projects, to added security risks due to people working on older equipment, these are just some of the issues we’ve advised clients on in the past 12 months."
What are businesses doing to cope with these challenges?
Some of our clients are trying to think differently about how they use technology, but they're having their hands tied on the physical infrastructure side of things. For example, many are not being able to replace equipment as quickly as they need to. The semi-conductor shortage is expected to last 12-24 months¹. If you couple that with adaptations needed to premises, that's going to lead to even more changes in infrastructure.
Why is premises resilience a hot topic right now?
Premises is one of the seven key areas of business resilience, and it’s hugely relevant in the current climate. Many businesses are struggling to understand how best to structure their return to the office. Some companies thought ahead and started to redesign their offices and factories, but there are still many who have yet to make those critical decisions.
In certain sectors, businesses absolutely know they need to upgrade their technology or redesign their premises to work in a different way, but they’re hesitating. Decisions over investing in new technology, redesigning premises, moving premises, etc, are being delayed. I do sympathise because we’re all looking to the future with a degree of uncertainty, and particularly so in several key sectors.
And on top of this uncertainty, of course, there is a lack of funding to pay for changes. Some businesses simply cannot afford to redesign their office premises, because they haven’t been getting enough cash through the door over the last 12 to 18 months. Where companies don’t have spare cash for an office redesign, for example, they’re considering doing something radically different. This creative and agile thinking is at the core of business resilience.
Where companies do have the funding to make decisions and steam ahead, their challenge tends to be around access to building materials and skilled labour. Because of the heavy demand on builders and contractors, delays are inevitable.
Clients are asking us to help them figure out what the next 12-24 months is going to look like, and which areas are worth investing in. Our advice tends to be that if something has been working well in the current way, there may not be a mad rush to do something different. You could stretch that out a bit longer and take the pressure off. Perhaps you don’t need to get back into the office as quickly as others.
My tip would be to talk to other business leaders and get as much information as possible about the future of your sector. But also thinking creatively about how you make changes as well. It may not work to base your decisions on historical thinking.
"Things have changed and thinking around critical decisions and investments may need to change too."
How are companies thinking more creatively, generally?
We work with a manufacturing organisation who know they need to replace some of their machinery as it’s been running hot for some time. COVID has actually had an impact on how they use that machinery because demand has dropped, so they are thinking about different ways to use it going forward. Should they replace the equipment like-for-like; modernise it; or adapt it to do something different?
Companies like this no longer have, say, a million pounds to put towards new equipment. They are having to be more creative around funding. Ideas they are generating include:
- an operating lease
- selling or part-exchanging old equipment
- getting part funding from the customer base
There are many different ways of doing things, if you’re able to think outside the box. That’s the mark of a resilient and agile organisation.
Have you seen any impacts on investment?
It feels like investment in new systems is being put on the back burner for a lot of organisations because of the other challenges that they're dealing with around COVID and Brexit. As COVID recedes slightly, we're uncovering some challenges as a result of Brexit and the impact it’s having on global supply chain. Companies need to solve this, so they can keep fulfilling customer orders.
Another factor is that with people working from home, it’s not the typical environment in which to launch a new system. It’s quite a large technological change while everybody's working in a very different environment, and it adds an extra layer of complexity. I think that's put some organisations off. Plus, then you couple that with the spend. Businesses are asking: “Do we want to rush in and spend loads of money on new software when we don't know where we're going to be from a sector perspective?” This particularly applies in the hotels and leisure sectors where it’s not going to be a good time to replace a finance system, for example.
Where we are seeing some movement is in the shift to cloud operations. In fact, many of these programmes have probably been escalated and prioritised. Due to the remote working environment, it makes sense to move things to a cloud infrastructure. The sectors where we have seen these investments recently include food manufacturing and food distribution. These sectors have seen higher demand over the past year or so and companies may have identified some stresses and strains as a result. Many have brought forward plans to replace ERP systems and infrastructure and make their tech more resilient.
Has the pandemic made companies more digitally agile?
One of our clients is a large UK food distributor who has experienced significant strain in their back office in their shared service centre environment. They’ve reviewed the structure of their shared service centre and the technology they're using to see what could be done differently. We’re challenging them to think about how they can use things like AI and build that into how they work with their customers and suppliers.
Some companies have found that due to reduced availability of staff, they have not been able to process transactions in a traditional way. They’ve realised they need to become more resilient going forward and that means putting more emphasis on technology like AI, automation and robotics to make sure they can process transactions more readily without relying on people. They’re recognising that when it works and works well, it introduces a level of agility that’s easier to apply through technology than it is through people. And again, that creates resilience, because if we're less reliant on people you’ve got greater flexibility.
Another example is in the construction sector, where materials have been held up due to supply chain issues. Many of these types of organisations are shifting onto e-commerce platforms. Where they may have dabbled with it in the past, they are now seriously having a rethink around how they use technology to engage with customers and suppliers. This is very significant because if you roll back the clock 18 months, these manual industries were still very physical; it was all about the relationship with the customer in store. They’re now having to recognise that their customers are changing, and they need to keep up with that. They’re needing to trial things like real-time delivery, e-commerce platforms and contactless transactions. It’s an exciting time, particularly in tech.
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