As if things were not bad enough, with the U.K.’s government announcing fresh restrictions in an effort to stem the advance of the long-anticipated second wave of the coronavirus, research published this week reveals many of the country’s businesses to be in pretty bad shape. The report by Goldsmiths, University of London in partnership with the technology company Microsoft finds that more than half of organizations surveyed have seen a decrease in revenue this year compared to last year, with more than one in five experiencing a drop greater than 15%. The same proportion had to scrap an existing business model within days of entering the lockdown announced in March, with 45% of leaders questioned expecting their current business model to cease to exist in five years.
Nor is this the only study supporting what many must suspect to be true. Just-published results from a study commissioned by the comparison platform KnowYourMoney.co.uk indicate that three in 10 business leaders in the U.K. fear their organizations will close within the next year. The research also suggests that more than two-fifths of businesses are likely to make redundancies in the year ahead, despite the Government’s new job support scheme. Moreover, nearly half of decision-makers said their company planned to reduce the amount it was spending on office space next year. Among larger businesses, this proportion rose to 61%.
Of course, monumental as it is, the virus is not the only issue looming over the U.K.’s economy. Britain’s exit from the European Union has been a significant cause of uncertainty ever since the vote four years ago and, with just a few months to go until the process — with or without a deal — is due to be complete, anxiety would be high even if there were not another threat. In the words of Clare Barclay, who earlier this month took over as chief executive of Microsoft UK: “UK organizations face a unique moment. Buffeted by the headwinds of pandemic and Brexit, the nation’s collective competitiveness is being put to the test like never before. But can they thrive? Today, we are ringing the alarm bell, as our research reveals that half of organisations will struggle to adapt. The tech intensity that was starting to gather pace before the pandemic struck has become turbocharged – to keep up, leaders must act decisively and quickly.”
The research, led by academics at Goldsmiths, but also including input from experts on competitiveness from Harvard University, the CBI, PwC and the Tech Talent Charter, uncovered two distinct strategies for responding to the twin threat emerging. These were Hollow Growth and Sustainable Growth and they could have “alarmingly different outcomes” that could impact the UK’s future prosperity.
Firms pursuing a Hollow Growth strategy typically extract as much value as possible from people to reduce costs; offer little support to employees to adapt to new conditions; focus technology investments in siloed areas of the business to solve individual challenges; and benchmark future readiness by traditional productivity measures. Organizations pursuing Sustainable Growth on the other hand, strive to maintain resilience and have a capacity to adapt; adopt leadership defined by empathy and decisiveness; nurture a culture of trust, empowerment and inclusivity; and consider the impact of technology across their organisations as part of their wider strategic approach.
The researchers identified a clear correlation between the strategy adopted by organisations and their current competitiveness levels:
- Frontrunners: 15% of UK organizations, currently enjoying turnover growth of 5% to more than 15% in the current climate. This group is most likely to be pursuing a Sustainable Growth strategy, have a solid digital infrastructure and be faster to adopt new technologies. It is also more likely to do business overseas, invest strongly in R&D, have a diverse workforce and feature empathetic leaders.
- Challengers: 27% of firms, these organizations have started to adopt many of the basic characteristics of Sustainable Growth. Their turnover has remained steady or increased by up to 5%.
- Survivors: 12% of organizations, showing signs of Hollow Growth, experiencing small turnover declines — up to 5% down on last year.
- Endangered: 46% of UK organizations, demonstrating strong Hollow Growth characteristics and turnover falling at a rate of from 5% to 15%. This group is likely to have less diverse talent and take too long to integrate new technology. IT appears financially vulnerable and not prepared to face the future.
The good news, however, is that businesses need not be stuck in the categories to which they are currently assigned. Dr Chris Brauer, Director of Innovation, Goldsmiths, University of London, leading a team of economists, psychologists, data scientists and social scientists, has devised a model of competitiveness that if adopted could provide a £48.25bn boost to the U.K.’s economy. The model assumes that every leader takes just a few basic and low-investment steps to move towards sustainable growth practices. If they drive further investment towards the sustainable growth model even bigger prizes are at stake.
Even so, that is a pretty big assumption. As has often been related here, much management practice is rather old-fashioned (Microsoft’s Barclay herself pointed out in an interview that a lot of the competitiveness and productivity benchmarking practices were little changed since the eighteenth century) and organizations can be inclined to tackle individual problems rather than plan strategically.
Nevertheless, she and her colleagues take comfort from the finding that two-thirds of leaders have confidence in their ability to navigate the crisis. And, to be fair, there is encouragement in the agility shown by many businesses in swiftly switching from having their employees working in large offices to seeing them scattered to their own homes and elsewhere.
Barclay argues that technology is going to play a huge part. And to back this up, Microsoft has — simultaneously with the release of the research — announced a five-year campaign to help 1.5 million people build careers in technology and help 300,000 connect to tech job opportunities. Just as those who have done best in recent months are those who have managed the migration to digital, so those who will emerge as winners in the months and years ahead will be the ones who take this even further. Roxanne Morison, head of digital policy, CBI, which represents employers, said of the research findings: “The UK has a long tail of low-productivity firms which face challenging times ahead without changing their business model to suit the digital age. If we got those companies confident in using cloud, confident in using digital marketing systems, confident in using data, the positive impact on our productivity would be significant.” But she added that technology could not be viewed in isolation. Building a sustainable competitive advantage depended on progressive leadership, fair and inclusive talent development and adaptability for future change.
Nic Redfern, finance director at KnowYourMoney, added that cost-cutting was “the order of the day” for many with financial planning difficult and many fearing the worst for the next 12 months. “But remaining positive and proactive is extremely important in the current climate. While the ongoing challenges posed by the pandemic can make business leaders feel out of control, they must remember that there are still steps that can be taken to safeguard their futures.”
The problem is that — as any general knows — fighting a battle with limited resources on one front is hard enough. Where there are two, it is something else again. Add to that the fact that the stakes are even higher than normal. Even with simple interventions to boost productivity, a government that has used huge amounts of cash to see off the worst of the coronavirus crisis is going to be even more reliant on business to produce improved prosperity.