Beyond the Pandemic: 5 Trends That Will Redefine Business

September, 30/2022 - 20:59
The road to recovery is a long one. Business leaders have no choice but to insulate their companies through the strength of their core values

By Shubham Mukherjee

If there is anything that we have learnt from the pandemic and its impact on business, it is that forecasts are fraught with risk. Several economists saw the financial meltdown of 2008 coming. Similarly, many analysts predict a 10-year boom and bust cycle for financial markets with some accuracy. But no one was really able to predict just how a black swan event such as Covid-19 could upend businesses and lives.

Covid-19 brought in its wake severe human, economic, sociological and geopolitical consequences. Besides the loss of lives and livelihoods, the several waves of the virus transformed the way we live, work and interact. At the same time, it also brought to the fore man’s resilience and a never-die attitude. What gives us hope is that the resilience we witnessed, can rewire individuals, businesses, economies and society and transform a threat into an opportunity.

As nations primed their economies to deal with deceleration, it initially resulted in faster growth in most global markets, albeit at a lower base. This was seen in countries like China, India, UK and the US. However, this period also saw increasing inequalities with the rich getting richer and the poor getting poorer due to displacement, job losses, lockdown-related obstructions.

Deal values on the other hand also surged with superabundant capital chasing down opportunities for growth. According to McKinsey, there was a significant shift in value creation, with the top quintile of companies gaining $240 billion of economic profit while the bottom 20 percent lost $400 billion. That is now being reflected in how portfolios are shifting and deal volumes are at record levels.

Currently, of course, the situation has changed. According to the IMF, global growth prospects have weakened significantly due to the Ukraine war, rising energy, food and commodity prices, soaring inflation and tightening monetary policy stances by major central banks. The world economy is projected to grow by 3.1 per cent in 2022, marking a downward revision of 0.9 percentage points from the previous forecast in January 2022.

With all the fast-paced changes around the world and the pandemic slowly receding (albeit not completely), a few emerging business trends have been observed. Here are some of them that are expected to dominate the economic landscape as we look towards the end of 2022.

  • Sustainability Will be a Key Differentiator:

Climate change is one of the biggest risks for companies globally. While Covid-19 brought care, compassion and commitment for employee wellness and safety to the fore, last year’s COP26 Summit also reminded companies about the climate crisis and the need for immediate action. For many sectors, climate change is also one of the biggest threats.

Thankfully, there is now a constructive dialogue across governments, corporates and the social sector on Environment Social and Governance (ESG) issues - key to tackling the impending climate crisis. Companies are increasingly taking steps to adhere to guidelines to reduce their carbon footprint and improve governance standards that leave the world a better place to live in for the next generation.

Investors now take an active interest in companies that have taken cognizance of issues around people and planet, valuing ESG-compliant companies better than their peers. According to an Accenture study, organisations with excellent ESG performance have 3.7 times higher operating margins and 2.6 times higher annual returns than those with lower ratings.

Trends in sustainable investment are also accelerating and have crossed $4 trillion. This is expected to grow as equity investors could pay more attention to investing responsibly and align to the theme of net zero emissions.

Many companies used Covid-19 as an opportunity to accelerate digital preparedness and fortify balance sheets with fresh capital raises to make them stronger for the long-term. Climate change also brings forth similar opportunities to reimagine businesses with the bigger purpose of protecting the environment. This will fire innovation and value creation for companies over the next few decades. The arduous trek to ‘Mount Net Zero’ will again disrupt businesses and it would be up to business leaders to seize the initiative, innovate and lead.

Take mobility for instance. It promises to be completely transformed as automobile makers have already articulated their intent to go electric. Efforts are also being made to decarbonise cement, steel, shipping, aviation and construction. Similarly, those dependent on fossil fuels are looking at renewables.

Oil rich Gulf nations such as Saudi Arabia and the UAE have already embarked on that roadmap as part of their net-zero commitment. Similarly, Indian behemoths like Reliance and Adani have announced their ambition to generate a substantial portion of their revenues from greener businesses.

South East Asia, according to a report by Bain & Company, has fallen behind on the global sustainability agenda but advancements in this space could be a $1 trillion economic opportunity for the region by 2030.

As these examples suggest, businesses would get transformed as the world aspires to achieve net-zero and it's important to be able to lead it.

This brings us to the larger need for businesses to move towards stakeholder capitalism, which is really to think beyond just the shareholders of the company. The writing is on the wall and companies need to do more than just fall in line. Digital savvy millennials like to work in purpose-driven companies which go beyond just making profits. Similarly, consumer attitudes too are changing and they are likely to gravitate towards brands which are seen to be more in tune with social issues, benefiting the society.

Blackrock CEO Larry Fink couldn’t be more direct. In a letter to business leaders sometime back, he said that in today's globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. "It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long term. Innovative companies looking to adapt to this environment have easier access to capital to realise their visions than ever before. And the relationship between a company, its employees, and society is being redefined," he said.

  • Geopolitical Risks Will Have to be Navigated:

Geopolitical tensions are escalating across the world including Europe, West Asia, South Asia, South China Sea and the Indian Ocean Region. Businesses will have to plan, anticipate and act on potential government action across these regions. As frictions rise, the potential disruptions it could cause would have major consequences for businesses.

Take for instance, the heat being generated with the war in Ukraine. It led to hardening of oil prices which had implications on both inflation and future profitability of companies. Besides oil, the disturbances have turned the screws on automobile makers in the region already suffering due to supply chain-related bottlenecks caused by Covid-19 and chip shortages. Sanctions from the US and its allies on Russia caused further disruptions in global trade, supply chain and pricing of commodities. Needless to say, this war will leave behind a major long-term economic and social impact.

In light of such fractional tensions, countries are developing new geo-economic partnerships with friendly nations and trade blocks to navigate uncertainties. This is expected to gather pace as manufacturers seek to bring ancillaries closer to production or at dependable sites globally to manage risks and potential supply shocks better.

With constant geo-political tensions causing an impact on all aspects of business, leaders would have to look for strategic autonomy to avoid getting caught in any regulatory or reputational cross fire.

Besides broader issues of regulation, such run-ins impact exports of key commodities, impacting their availability and pricing globally.

These political tensions and the unease and mistrust it sows was visible during the border skirmishes between India and China. These can often upset the most carefully planned business strategies. As the nationalism fervour spreads globally, it exposes companies to the risk of unknowingly taking a stand on burning national issues without fully comprehending its political impact.

Companies need to be mindful of such geopolitical minefields. According to a McKinsey report, companies need to make it a boardroom agenda to discuss implications and solutions and have a tri-focal lens of short, medium, and long-term approaches to dealing with, and preparing for such incidents. "Part of managing geopolitical risk is considering the ramification on a company's core narrative. Consider the trade-offs of framing how a company talks about itself, if that narrative could create conflict with stakeholders and what could be the potential remedies," it said.

  • Labour Gains Prominence:

Covid-19 changed the labour dynamics with work-life balance taking centre stage across markets. A record number of employees have therefore either quit or plan to do so across geographies, upsetting business projections and forcing companies to reassess risks arising out of a labour shortage.

According to a Bain & Company report, between February 2020 and February 2021, more than a quarter of American workers, most in frontline roles, changed jobs in the most rapid reshuffling on record. "While much of this churn was involuntary, recent surging attrition rates suggest that many workers are using the pandemic-induced job disruption as an opportunity to reevaluate what they want from their work. As a result, many companies are struggling to fill shortages in key frontline roles, threatening their ability to return to full capacity when the crisis subsides,” the report said.

With labour growth reducing, and finance availability increasing, the balance of power has been gradually shifting from capital to labour. But Covid-19 has increased this pace of change. The ensuing war for talent will make human capital an even more prized resource for companies. Businesses will therefore have to focus differentially on its talent base, and find ways to balance investment in developing, retaining and further training them to increase productivity.

Labour is no longer a mere factor of production. As the Bain report points out, "Today’s firm requires a new mental model, one that re-humanizes the way we think about work. More than simply inputs, workers are the atomic building blocks of the modern firm." To win the war for talent, firms now need to pivot from being talent takers to makers, support workers to create careers that match their idea of a meaningful life and offer a sense of belonging through shared visions and values.

It's therefore not difficult to understand why companies are doing so much more since the pandemic to engage with this key constituent, taking measures to cushion them from the poundings of uncertainty and providing them a safe, secure and meaningful work experience. This needs to continue.

  • Innovation and Digital Technologies Lead the Way:

Innovation has been a key element of every CEO’s business strategy for decades now but technology-led disruptions, and the advent of digital has now made it the most critical influencer. While companies were already navigating the pathways to thrive in the fourth industrial revolution, recent disruptions only accelerated digital adoption and CEOs quickly realised its potential to deliver productive growth.

Kevin Sneader of McKinsey likens the current set of innovations to the 'incredible period' of advancement in the 17th century starting with the concept of gravity and other theories that the world put into application. "The number of new patents being granted in the US is running at twice the levels we saw in 2019, and many other countries have also seen significant increases," he said in a podcast.

Incumbents which do not have that capability are ensuring that they are partnering or acquiring Insurgents which can provide them that edge. The pink papers are replete with such examples almost every day. The growth of Insurgents itself is linked to the easy availability of capital combined with their passion to offer consumers the best service possible, often disrupting established ways of doing business. Both these trends would continue as innovation fires the imagination of corporates in the post Coronavirus world.

The pandemic also led to a change in consumer behaviour with contactless businesses finding favour and e-commerce adoption multiplying across the world. Companies responded by strengthening backend processes and innovating on delivery mechanisms. We will continue to see investments on healthcare as companies take advantage of innovations in tele-health, health tech and look at newer therapies.

Meanwhile, companies will need to use digital tools and data analytics to address the problems arising out of the massive supply chain disruptions. Digital technologies such as Internet of Things (IoT) and automation will enhance productivity, efficiency and even minimise yield loss for manufacturers. Similarly, augmented reality (AR), virtual reality (VR) and the metaverse will deepen engagement levels and open up new opportunities for blending the physical and the virtual worlds with premium experiences. Adoption of 5G and digital technologies would be a great leveller allowing even smaller companies to expand rapidly at scale.

At a time when companies put customer-centricity at the core of their business strategy, automation will enable companies to do more, with fewer people at a faster pace making the experience of its customers safer, simpler and quicker. Agile technologies and ways of working would put such innovators on the fast track.

  • Bourgeoning Inflation is a Potential Risk:

As central banks opened up their purse strings to calm markets and drive growth post Covid-19, it led to sharp escalations in asset prices globally and a subsequent rise in inflationary trends. The post Covid-19 world has also witnessed a sharp increase in commodity prices including a gradual increase in energy prices. While it helps natural resource and oil rich nations of the Middle East and Russia, the economies of the rest of Asia, which is import-dependent, would be impacted.

While managing current market volatility, McKinsey projects that leaders must prepare for the energy transition. "It brings forth additional risks: growth investments might get crowded out, consumers may not be able to foot the bill, and the grid infrastructure could be vulnerable."

In the US, inflation is the highest ever in the last 40 years. Most central banks in developed markets have taken a hawkish stand and others are expected to follow suit. An aggressive tapering is bound to make stock markets in emerging markets volatile as capital gets sucked out. This is an emerging risk and companies need to navigate these scenarios effectively by leveraging procurement, pricing and balance sheet strategies to ensure they continue to gain market share.

The Edelman Trust Barometer, which tracks people’s trust in institutions, released at the World Economic Forum, revealed that people's trust in Businesses has improved while those in Government and the Media have reduced during the same period. A fractious society, rapid polarisation and geopolitical risks could hurl curve balls at companies without any warning. Business leaders therefore have to insulate their companies through the strength of their core values, purpose, and the difference it's making for the community. Building reputation and serving the society was never more critical.

(Shubham is a Mumbai- based Communication strategist and Reputation architect who tracks business, media and public policy closely. A former media leader, he was previously National Business Editor at The Times of India and Editor of The Sunday Economic Times. Besides, he has also served as India Marketing head at Bain & Company.)

In syndication with Asian Business Leadership Forum (ABLF)

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