Businesses across Scotland continue to grapple with the fallout of COVID-19. Any hope of a short-term downturn, with minimal long-term damage, has long since disappeared.
The immediate priority for many businesses is survival. Sadly, we are beginning to see the costs of the economic crisis with closures and job losses across the country.
The outlook for the next few months looks challenging and uncertain. One thing that we can say is that we are in for a long haul.
As is often the case in the midst of a crisis, much time is devoted to re-imaging a ‘better’ economy. All sorts of ideas are coming to the fore, from living with zero growth through to a 4-day working week. Most of them sound great, at least until the focus turns to what it actually means in reality (hint: there are costs as well as benefits!)
Whether such ideas gain traction beyond the Holyrood bubble remains to be seen. But out in the business world, the pandemic and subsequent lockdown, will undoubtedly usher in changes that will have lasting effects. These slow-burn issues bring with them opportunities as well as risks. The best businesses are already planning on how to adapt to this ‘new normal’.
So where might the changes be?
It goes without saying that the structure of our economy will look very different when we emerge from the crisis. Some sectors will be particularly impacted, from oil and gas through to tourism. Small and mid-market companies who find it harder to deal with volatility will find conditions particularly tough. Given the inter-connected nature of our economy, this will cause a ripple effect from which no business can expect to be immune.
At the same time, for businesses lucky enough to re-start in some form or another, they are likely to face broken supply chains, bad debts, and higher logistical and transportation costs in the short to medium term. Asset values for many will have plummeted, and raising capital isn’t likely to be as easy as it once was. Add to that, Brexit and constitutional uncertainty – not to mention no end-in-sight for the pandemic – and it’s clear that operational resilience and flexibility will be key.
For some businesses, this will be an opportunity to increase their relative market share and to use this time as a launchpad for future growth when conditions are relaxed. Expect to see a raft of mergers and acquisitions as well-run businesses take advantage of weaker rivals.
What about implications for business models?
Perhaps the greatest legacy of this crisis will be the acceleration to digital ways of working, in terms of workforce, route to market and the use of cloud enabled technologies.
Home working has become the normal for many of us. It seems likely that this will accelerate the transition toward more agile and flexible staffing models, even once social distancing is lifted.
This creates opportunities, including in work-life balance, reduced costs (both from travel and rents) and productivity. But it may also bring costs, most notably in creativity, challenge and innovation that may wane if social interaction is reduced. Whatever the outcome, business leaders will have to adapt to new ways of managing, training and communicating with their staff in a more virtual environment.
On sales, the sharp rise in digital markets will also be here to stay. Unsurprisingly, businesses that were investing in new technologies – from online sales platforms through to digital marketing strategies and data security – are those best able to cope in the current crisis. For the rest it’ll be an urgent race to catch-up.
For some businesses, this radical shift in the way of working simply won’t be possible. The gradual decline of traditional retail and casual dining– with knock-on implications for our city and town centres – is likely to have been hastened that bit more quickly.
The experience of COVID-19 is likely to make many businesses more reflective about their vulnerability to major economic disruption. Re-examining capital buffers will be one consideration, but so too will be issues around supply chain resilience and managing global risks.
The policy environment is also likely to change. Here in the UK, the fiscal costs of the lockdown are huge. Whilst some measures will soon be unwound, further investment is likely to be needed to support the recovery. Expect a raft of announcements on infrastructure, apprenticeships and training. But in the long-run, taxes are likely to rise whilst business support measures will have to compete with other priorities for funding as government looks to pay back record levels of borrowing.
Social attitudes may also change, with the experience of the pandemic perhaps leading to a greater expectation of enterprises to behave more ethically as well as sustainably. How businesses treat their workforce may also come under increased focus, and be important for reputation with customers as well as within the retained workforce if restructuring and redundancies become widespread.
Alongside all of these COVID-19 factors, it will be important for businesses not to lose sight of the long-term shifts in our economy that we know are coming. Climate change, automation, the growth of new markets, an ageing population and our productivity puzzle haven’t gone away.
In short, it seems likely that as the dust settles on the biggest economic shock many businesses will have ever faced, the ‘new normal’ will be a further period of significant structural change.
Strong leadership and management will be crucial to navigating through all this and to seek out the opportunities that will undoubtedly emerge. Whilst policymakers will no doubt continue to talk about their vision of a future economy, businesses will be at the frontline of the boring but essential job of actually building it.
Dean of External Engagement in the College of Social Sciences at Glasgow University and previously director of the Fraser of Allander Institute.