Wednesday, 20 October 2021

Many Australian businesses are facing an uncertain future, brought about by the winding back of widespread government support.

How and where they land will depend on their ability to navigate and adapt quickly to an unstable business environment where reliance on the ‘old normal’ will not be an option. 

For nearly two years, survival has been the main game for many companies. Government funding such as last year’s JobKeeper and JobSeeker, and this year’s Commonwealth COVID-19 Disaster Payment, together with individual state government support packages, has helped many keep the wolf from the door. As stimulus is wound back, recovery and growth will depend on management’s approach to the ‘next normal’. 

Interestingly, a number of companies we’ve spoken to recently report reasonable bottom lines, despite the lockdowns. This feedback mirrors results from Westpac’s recent survey of 1,000 SMEs. CEO of consumer and business banking, Chris de Bruin reported ‘two-thirds were optimistic about the business environment, and around 70 per cent expect their business and sales to grow in the next 12 months.’ 

But late-2021’s emergence from lockdown will be very different to mid-2020’s recovery. Back then, confidence was also high that business and consumer spending would bounce back quickly from lockdowns. And it did, thanks largely to the federal government’s support packages. As the economy reopened, those who had maintained incomes suddenly had money burning a hole in their pocket. But as ABC business reporter Gareth Hutchens reminded us last month, ‘the key was returning to some type of normalcy in a zero-COVID environment’. 

The new reality of ‘living with COVID’ is likely to usher in a very different consumer mindset, particularly with the dawn of Delta. Once restrictions lift and government stimulus is withdrawn, businesses and consumers will be spending again, but it’s not going to be a return to business as normal. This will be a time of high risk when businesses need to maximise opportunities, in a country where localised lockdowns, varying vaccination rates, continued supply chain issues and staff recruitment problems continue to impact recovery.  

Even the success of Australia’s vaccination program is a double-edged sword for the economy; what the Treasurer giveth, the Treasurer also taketh away. The Commonwealth announced its 2021 COVID-19 Disaster Payment will be withdrawn two weeks after 80% of a state or territory’s population is double-vaccinated. Notwithstanding political squabbling about the 80% target, the end of federal government support means there is a massive reckoning coming for businesses which are underperforming and aren’t prepared to radically reassess strategic and operational priorities.  

And while many of our clients have undergone considerable operational change in the last 18 months - ‘pivot’ wasn’t 2020’s word-of-the-year for nothing – businesses need to be putting rubber on the road, developing business plans that include operational optionality.  

As the all-consuming task of managing in a pandemic recedes, companies will need to re-appraise the external environment in which they are operating. The pandemic accelerated many pre-existing disruptive social, political, technological, and environmental trends. Senior executives now need to identify their key risks, analyse the outlook for their respective markets and build these insights into their forward plans. It is paramount that businesses realise that existing strategies need to be rethought or accelerated.  

Four focus areas when preparing for a post-stimulus world  

Cash has been king during the pandemic as many businesses focused on survival – freeing up the cash and resources required to keep the lights on. With stimulus easing, businesses will need to remain adaptable to thrive in what will still be an uncertain landscape. Cash flow and other financial reports should be regularly monitored to identify potential issues, opportunities and risks. 

COVID has rightfully been the top priority for management teams over the last 18 months. As the economy begins to emerge from the pandemic, businesses need to rethink how they operate, and even why they exist. We see three key priorities businesses should adopt as they navigate the trends that are moulding the future – ensure sustainability is more than a buzz word, harbour your talent and build cybersecurity into products and processes. 

Companies will need to rigorously interrogate their core business and ensure it still aligns with the needs, expectations and behaviours of consumers. Will consumer wariness impact your business? Without pre-COVID volumes, will products remain profitable? Businesses must right-size their core business and future-proof their operating model if needed. 

Deal making during the pandemic focused on recalibrating strategy and accelerating technology adoption. Our clients have a clearer vision of where opportunities exist and a sharper focus on M&A strategies to accelerate growth. Identifying inorganic ways to grow, acquiring new capabilities, and gaining access to innovative technologies will help businesses expand market reach and better engage with consumers. 

Our experience is that businesses tend to under plan, exposing themselves and allowing competitors to take advantage of their complacency. The end of government support means companies will face increasing threats to their business models, meaning a return to business as usual won’t be sufficient. Now is the time to act.