| | The recession has raised
concerns about
commercial models,
supply chains and
finance that will
reshape business
behaviour well into the
next decade, according
to the CBI.
Launching its report
The Shape of Business –
The Next 10 Years, the
UK’s leading business
organisation said that
the recession and credit
crunch had become the
catalysts for a new era.
The report flags four
key areas of UK business
where fresh approaches
will develop because of
the downturn:
● Businesses do not
see credit terms falling
back to pre-crunch
levels and, having
become wary of higher
debt levels, firms will
look to alternatives to
debt-driven growth to
protect investment and
innovation. More
financing options will
be created and deployed.
● Companies will
reorganise and
re-examine their
approach to working with
partners – from
suppliers to
universities, and even
competitors. Ongoing
concerns over a ‘domino
effect’ of supply chain
failures and issues
around trade credit
insurance will compel
firms to forge more
collaborative supplier
relationships.
● Sustainability and
ethics will become more
integrated into the
business model. Firms
will seek to improve
accountability and
corporate citizenship
further to attract and
retain customers and
staff.
● A more flexible
workforce will evolve,
assisted by developments
in technology and
training, and building
on the spirit of
collaboration between
employers and staff
which has grown over the
recession. For some
firms that might mean a
smaller core workforce
and a larger
‘flexiforce’.
Richard Lambert, CBI
director-general, said:
“We may be at the start
of a new era for
businesses, in which
attitudes to finance and
to corporate leadership
are changed for a
generation by the shock
of the past two years.
“What we now need is
a more balanced, less
risky pathway to growth
– one in which the
short-term returns may
be lower, but the
long-term rewards for
management success will
be a lot more | |
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| | sustainable and secure,”
he added.
“There are important
questions around how
businesses are going to
finance growth and
investment in the
future. And in a more
collaborative, less
transactional world,
closer relationships
with customers,
suppliers, employees and
shareholders look like
becoming the new norm.”
Many of the report’s
findings are supported
by a new survey
conducted by Ipsos MORI
in October and November
and sponsored by the CBI
and business advisory
firm Deloitte. Entitled
Recession as a Catalyst
for Change, the survey
of business leaders,
mostly CEOs and
chairmen, and
representing a UK
workforce of almost one
million and a global
turnover of around
£1trillion, revealed a
shift in attitudes
towards financing and
supply chains.
Over half (55%) of
respondents said that
they will now only
tolerate a lower level
of risk from gearing
and, within that group,
70% said an economic
recovery would not
reverse their position.
Two-thirds (68%) expect
no improvement in credit
availability in 2010 and
are reshaping their
business financing: 50%
said they would use less
bank debt; 44% said they
would rely more on
equity finance; and 26%
said they would make
more use of bond
issuance.
And when asked about
supply chain fragility
during the recovery,
only 24% said that they
are not concerned.
Businesses were most
worried about a unique,
specialist supplier
going bust; that the
supplier’s own supply
chain would collapse;
and that the supplier
would be unable to
obtain working capital.
Because of these
ongoing threats, 68% of
firms said they would be
strengthening the level
of partnerships with
suppliers in the coming
years. One in three
(30%) said they would be
increasing their number
of suppliers. And around
one in five said they
would be offering
finance to key
suppliers, reducing
dependency on ‘just in
time’ processes, and
shrinking geographic
distances to suppliers.
Lambert added: “Firms
looking to reduce risk
and acknowledge their
interdependence are
seeking more | |
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| | collaborative ways of
working through
partnerships and joint
ventures. Perhaps we
will see a flourishing
of supply chain finance
– in which firms with
the largest, most solid
balance sheets help
finance their smaller
suppliers or customers.
“Businesses want to
adapt to a harsher
credit climate by
finding new sources of
funding. Why not
encourage new forms of
institutions to finance
the growth of small and
medium-sized enterprises
through equity and debt?
And why not make it
easier for companies to
raise money locally,
perhaps through new
regional banking and
investment institutions,
rather than having to
rely on a few very big
players in London and
Edinburgh?”
John Connolly, senior
partner and chief
executive of Deloitte
UK, said: “The findings
of this survey are
consistent with those in
Deloitte’s Quarterly CFO
survey. We know that
companies have
identified certain
long-term responses to
the events of the past
two years, such as a
more cautious approach
to debt and, more
generally, an attitude
of greater financial
conservatism.
“We can recognise
that many businesses
have proven resilient to
the effects of the
downturn: profitability
has taken a knock but
the impact has been less
pronounced than might
have been expected.
Corporate insolvencies
are running at
significantly lower
levels than the
recession of the early
1990s, and unemployment,
whilst still growing, is
not as high as some
people feared. The route
to recovery is sure to
present challenges, but
UK business has shown it
has the ability to
respond with imagination
and flexibility.”
The Deloitte survey
also showed that higher
credit costs are hitting
business investment
plans. However,
investment for a
low-carbon economy seems
to have escaped the
squeeze, and 88% said
they would invest as
much as planned before
the recession, and 27%
said they were planning
to spend more than
planned. Government
policy on green issues
is vital, however, with
two-thirds (65%) citing
it as an important
influence on investment
decisions. | |
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