COVID-19 was one of the greatest disruptors in modern times. From making businesses change how they interact with their customers, to pushing people to work from home and, most seriously, the overwhelming stress placed upon our health services and the urgency of which we all needed to react to the crisis and the threat placed on the lives of our loved ones.
While we’re still not entirely sure of the long-term implications of COVID to individuals and towards the economy overall, at Profit Impact we believe in learning from a bad situation and doing our best to adapt and overcome it. If businesses aren't willing to learn and grow from situations like these, we will be doomed to repeat them until we are eventually forced by governments or customers to take account for our actions.
SMEs and Employees
If you’ve seen the news at all in the past year, there will be no surprise that SMEs have been hit the hardest by COVID, while larger companies have thrived and even made gains in the global market. This is typically due to the fact that they can't afford to hold large cash reserves and so economic shocks have a bigger impact.
The Beauhurst Report tracks the activity of 28,499 UK SMEs, and analysed their performance during the COVID pandemic. Most notably, they discovered;
- 22% of UK’s scaleups were in severe or critical risk after COVID.
- 43% were at moderate risk after COVID.
- 22% of jobs were under immediate threat.
- 39% of jobs were at moderate risk.
- £320 billion of turnover in the high-growth economy is at moderate to critical risk.
Given the threat to employees and their security, there has been a scramble to maintain loyalty and to avoid further risk and potentially losing those who keep the lights on. While flexible and remote working presents its own challenges, businesses that were quick to adapt were also quick to succeed. But, the SMEs that seemed to succeed the most were those who were thinking ahead and had safety measures in place anyway. According to recent findings from Gartner, 45% of well-being budgets were already being placed in mental health support before COVID, and 68% introduced new benefits in March 2020.
This could prove perhaps that sustainable focus on employees and their safety allows a lot more leeway in regards to strategic improvisation and a businesses ability to react to a crisis, allowing safety measures to work much more effectively and smoother than businesses who didn’t lay the groundwork in the first place. For example, Deloitte's workplace strategy of Reflect, Recommit, Re-engage, Rethink and Reboot rely on a strong HR model to begin with, otherwise your business will need to invest continuous amounts of time, resources and finances into reacting to each crisis that appears, instead of that initial proactive investment which will cut those costs in the long-term.
How did consumers react?
Purchasing habits have obviously changed in the past decade alone, but COVID only heightened the trends that we’ve seen in regards to online shopping and the interactions with individual products.
McKinsey recently reported that there has been a huge decline in consumer optimism towards the economy in line with COVID statistics, with 63% admitting to changing their behaviour with 81-88% stating they will commit to this new behaviour. The only retail sectors seemingly less impacted are footwear and apparel, consumer electronics and books, magazines and newspapers.
Consumers are also becoming more keenly aware of the products and services they purchase, with sustainable practises being a deciding factor for many customers.
In a 2019 study, a Morgan Stanley survey of investors found that 90% of millennials express an interest in sustainable investing, but so did 85% of the general population. And, with the emergence of Gen Z and their domination of the marketplace, 49% admitted to considering boycotting businesses who don’t align with values, while 40% already had boycotted.
Another key thing to note is the unfortunate fact that many people throughout this crisis have lost jobs, and their economic stability overall has taken quite a dramatic hit. According to the BBC, young people in particular have been impacted the most with the number of under-25s on company payrolls falling by 289,000. Record numbers of young people are also choosing to stay in education, and are not looking for work, meaning the purchasing power of these demographics is due to become even more calculated and considered.
While the rates of employment are due to rise later into 2021, these statistics may remain relevant for years to come, especially when considering the generational rates of advocacy and potential for boycotting brands who may be slow on the mark.
Government and Business Strategy
Continuing to look to the future, in order to resolve a crisis as major as we’ve seen, support and assistance from the government is necessary, and initiatives are being produced on a daily basis in reaction to what we’ve been seeing.
The actual schemes, grants and tax-breaks are varied and entirely dependent on the business, but while it might seem overwhelming, the funding and support is there. For example, through the British Business Bank, the Coronavirus Business Interruption Loan Scheme supports SMEs which carry an 80% guarantee for loans up to £5 million. In addition, the government put in place the Bounce Bank loan scheme for SMEs with a 100% guarantee for loan amounts up to £50,000. It also deferred VAT payments for the second quarter of 2020 until the end of the financial year and income tax payments of the self-employed by six months.
While these funding opportunities can be great and do a lot for individual SMEs, the long term implications also can’t be ignored, and we seem to be in for a crippling deficit and austerity in the coming years which will have a hold on our economy if we don’t begin to plan for and implement holistic sustainable approaches such as ESG investing.
ESG investing strategies already seems to be bearing fruit, with the average ESG fund reporting around half the losses incurred by the wider S&P 500 benchmark during the COVID-19 pandemic, with notably less volatility.
Instead, sustainable funding options are recommended due to the active planning and preparation required with long-term goals that are communicated between teams, with active transparency to customers and clients for accountability. The symbiosis between robust financial management and the understanding of funding and income opportunities will only lead to a more solid position where you can thrive and succeed, without needing to rely on the aforementioned government loans and the potential risks that come with them.
Sustainability isn’t just about the environment, it’s about the longevity of businesses and ensuring they are able to survive long into the future and built to withstand spontaneous risks. If businesses, with help from the government, had planned more sustainably it would have resulted in a more organic and positive recovery after the COVID crisis. Instead, companies have been supported in thinking more about short-term gains, which often results in severe and negative government intervention which leads to moral hazards, artificial market conditions and public disgrace and backlash.
The COVID-19 social and economic disruptions illustrate the importance of nimbleness. Companies that quickly pivoted to rework their supply chains, retool factories, and modify how they deliver goods and services profited during this crisis. Those that were too rigid have suffered.
The sooner that sustainability is considered in a business, the more it is likely to survive difficult economic conditions. Poor reporting and lack of transparency means that SMEs are often forced into taking loans that they probably wouldn’t have needed if they had taken these considerations into account earlier on in their processes. However, that doesn’t mean things can’t change today. We are living in a unique period of time where the opportunity to shift should be taken advantage of before it’s too late, but it needs to be done right away.
If you’d like to learn more about how you can begin to implement conscious business performance today, feel free to contact Sarah directly at email@example.com and see where we can help you on your sustainability journey.