The enormity of the destruction COVID-19 has wrought across many parts of the UK economy is becoming increasingly apparent. At some point in the near future, the pandemic crisis will force all company leaders to ask, “What sort of business do we want to be?”.
Previously fast-growing companies are cutting back drastically as plans for sales growth have been washed away by the virus. Companies that have been sitting on cash for years could look to spend their way to high growth in 2021 as they take advantage of weakened rivals to consolidate their position in their key markets.
The answer to that question, “What sort of business do we want to be?”, can be broken down into 4 key questions that companies must answer:
What short-term strategy will get us through to the other side of the crisis?
As Virgin Atlantic announced another 1500 job losses it stated “…it is imperative that every sector the airline operates in is cash positive”. For an airline so reliant on the cash cow routes, Virgin is slashing its staff and routes after its recent recapitalisation. With 2021 traffic predicted to, at best, reach 50% of its 2019 peak, they have decided that for now they will be a much smaller airline and look to fill the gap left by the US travel ban.
It is not just airlines, retailers and the other main victims of the virus making these tough but necessary decisions. All companies, irrespective of their size, heritage and ambitions have to take stock.
For strong, cash rich companies, the current crisis is an opportunity to consolidate their position in the market through buying a weakened competitor at the bottom of the economic dip.
Are we going for profit or growth?
COVID-19 has seen many companies merely holding on. Once the tide goes out on the crisis, companies are left with a stark choice - growth or profit. Many companies need to rebuild their financial health and balance sheets.
Some companies will come back smaller or reconfigured, with a sharper focus on the parts of their business making any profit. The continued shift to online retailing and the mothballing of stores is the most obvious strategic shift as home working changes the shape of retailing.
At the other end of the spectrum, companies such as in the quest to supplement their main, declining market (high-end bars) with another (retail).
How many staff do we need to bring back?
The furlough scheme has shielded many people from job losses and calls are growing on the government to extend it, but eventually companies have to decide how many people they need to execute their strategy.
Airlines, retailers and other COVID-19 compromised markets are slashing headcount by tens of thousands. However, no sector or company is immune to the need to find the right balance for their post-virus future.
Companies need to downsize to fix productivity issues, rather than just becoming a smaller version of its previous selves. Rolls Royce is an obvious example of a company that has not gone far enough. The engineering giant remains very unproductive; despite shedding thousands of jobs so far, it has still yet to fix its productivity issues. Burning through a projected £4bn of cash by the end of the year and with demand unlikely to improve until 2022, further hard decisions are needed.
Elsewhere, the “new normal” is seeing a surge in headcount at companies servicing the remote working boom. Amazon, Very and Iceland have added thousands of roles as the migration to remote working has seen demand soar. It is imperative that these companies avoid the same pitfalls as others in the gold rush and not add too many roles while demand is high.
Should we invest or divest?
Diversify or focus on what you know? This is the final piece of the puzzle. If your market remains buoyant, how do you capture market share? Do you use this period of buoyancy to open new revenue streams? If your core market is in decline, how do you diversify quickly?
There are so many variants to those questions. Knowing when and how to diversify your business is key. Apple, buying a company every 2-3 weeks, is diversifying into new markets while expanding its footprint into existing markets. Google, while similarly looking to increase its dominance in core markets, appears more focused on entirely new markets such as autonomous transport.
As we have seen with many other companies, disposals are increasingly seen as an easy means of shoring up battered balance sheets. Capita, Aspen, Pendragon and Deloitte are just some of the major companies reported to be planning on selling parts of their business in 2020.
The decision to invest or divest will form part of all corporate strategies heading into 2021.
The examples used here are all large companies. If you are running a much smaller operation, the need to make these four decisions is even more pressing. Remember, these major businesses have longer credit lines and access to resources than you do as a small to medium sized companies. Their size buys them time to make the decisions that companies further down the pyramid do not have.
At Plimsoll we can help you to assess your own performance, compare your position in your key markets, monitor competitor health and spot the looming opportunities. Whether that’s within your current core markets or in a completely different sector, we have the intelligence tools to help you make the right decisions quickly.
Visit www.plimsoll.co.uk for more information on the industries and companies that matter to you.