The COVID-19 crisis has the potential to fundamentally change the way businesses operate and organise themselves for the future, but its economic impact may not be quite as devastating as feared by many. These were among the key points made by the expert panel at a KPMG-hosted webinar “Getting Beyond the Crisis” held recently. Barry McCall reports.
At the webinar, Ibec CEO, Danny McCoy, was joined by KPMG partners David O’Kelly and Owen Lewis to consider issues such as debt and funding strategies, changed business models, changing customer behaviour, and policy measures needed to drive growth and bring stability back into the economy in a conversation moderated by KPMG partner Michele Conolly.
Cause for optimism?
According to Danny McCoy that world may be a lot better off than many people think. “This could be a very shallow recession for Ireland,” he commented. “Before the crisis, I thought 2020 could be another 2015 when we had 33% growth. I expect a real surge in the second half of the year if we can get consumer confidence back.”
And the damage to the public finances is not as bad as it may seem either. “The deficit is illusory, it won’t be the horror show that people think,” McCoy added.
It won’t all be plain sailing, of course and the damage to consumer confidence has yet to be assessed. “I am pretty confident the demand side will come back quite quickly,” Mr McCoy added. “But there are supply side issues and the manufacturing sector may have difficulties with a labour market which is quite dysfunctional due to the large numbers of people who effectively got a pay rise from the COVID-19 payment.”
This optimism was reflected in the attitudes of webinar participants. When surveyed during the seminar, the majority (64%) said they expect their businesses to recover within one year with a further 31% saying the expected recovery within two years. Just 5% of respondents said they expect it to take more than two years. The participants also opted for zero rated VAT as the preferred measure to assist those businesses heavily impacted by COVID-19 restrictions.
The majority of those surveyed, 67%, also believe their business model will be permanently changed as a result of the pandemic and 88% of said they plan to increase investment in digitalisation as a result of the COVID-19 experience, with 36% saying they expect this investment to increase significantly.
Access to capital
Access to capital is critically important for any recovery, particularly in light of these investment intentions, according to David O’Kelly, Deal Advisory Partner, KPMG. Looking back over the first three months of the crisis, he said businesses which had found themselves in the eye of the storm moved quickly to minimise the cash drain. “They furloughed staff, made temporary redundancies and took other steps,” he said.
“The government schemes were very helpful in that regard and kept a lot of businesses afloat. The banks also reacted very well as responsible counterparties,” O’Kelly continued. “I don’t know where we’re going to be in six months’ time. There are no perfect forecasts and all we can do is plan for as many scenarios as possible, but the big issue is access to capital. Business needs to source more capital to deal with the challenges that lie ahead. It won’t be the survival of the fittest, it will be the survival of the most adaptable.”
There are sources of capital available and the banks will definitely play a role, according to O’Kelly. “There are government measures such as the SBCI and people shouldn’t ignore the role of the private finance sector which is eager to play its part. There is a trillion dollars in private equity funding that can be deployed. There is definitely more room for government support. There is clearly a role for an expanded EIIS.”
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Funding our recovery
Ibec has proposed €20 billion government supports to help reboot the economy but Danny McCoy says this figure needs to be seen in context. “The amount we are talking about is not that big. It works out at about €10,000 per household and that’s just the deposit on a wedding these days. And it’s regenerative spending which will be used to kick-start the economy. We need to see consumers coming back.
The money is to be used to put forward what McCoy described as a menu of deferrals, grants, loans, equity and other supports.
“You have to open up first and see what the situation is and then see what support business might need. Let’s not make the mistake of saying the pandemic has destroyed the economy.”
A New Reality?
The changes wrought by COVID-19 extend beyond the financial, according to Owen Lewis, Head of Management Consulting at KPMG. “We’ve seen a real shift in thinking of late,” he pointed out. “On a personal level people are asking what work feels like for them while organisations are looking at a whole range of issues such as the new cohort of digital customers to serve, new business models and challenges to the way businesses are set up, and new workforce models which could perhaps see 40 percent of people based in the office and 50 percent or more working remotely. The rebalancing of our cities could be really exciting.”
New leadership models are also emerging. “Leaders are trying to find ways of capturing the pace and drive shown by their organisations in recent months were we have seen things done in five days that a lot of people said would take five years to achieve.”
Danny McCoy had a different perspective. “We have been more suppressed than fundamentally changed. We tend to need a shock or a particular event to change our adoption of new ways of work or new technologies. We may know that it is possible for us to work at home but that’s not the same as wanting to work at home. I am sceptical about the extent to which COVID-19 will change us.”
The opportunity still exists to take advantage of the opportunities for lasting change created by the crisis, however, said Lewis. “I would urge business leaders to take advantage of this moment to look at better business models, to examine how they have benefited from the COVID-19 experience and see how they can retain that value.”
Workplace organisation is just one area to address. “Why should teams all meet in the same location with people getting into traffic to be there at the same time. What if just 60 percent of them would be in the room and the other 40 per cent participate remotely? I wonder whether it’s peer pressure that’s driving us to lose that benefit.
What is the culture that takes us back to a way that prevents us from realising productivity and other gains? Businesses need to learn how to bottle those benefits. COVID-19 is potentially the biggest digitally disruptive event we have ever seen, and business leaders need to make sure that the opportunities it presents don’t slip through our fingers.”
McCoy remained resolutely optimistic for the future. “Ireland has been generationally involved in globalisation over the years and I don’t fear the future at all. We will be able to double down on our existing advantages. People aren’t here because they like us, they are here because it’s a good business proposition and they will stay as long as that continues.”