How Covid-19 is shifting priorities in the boardroom

03 August 2020 Consultancy.uk

The forecast of hundreds of global managing directors and board members remain negative for the duration of 2020, while sales figures in 2021 are anticipated to be lower than pre-Covid-19 levels. According to a new study into the economic effects of the pandemic, pre-crisis performance is unlikely to be recovered before 2022.

With the world already teetering on the brink of a recession before 2020, the emergence of the coronavirus crisis has not only shunted the economy into what some might argue is an over-due recession, but delivered a downturn the likes of which has not been seen in modern history. According to World Bank forecasts, the global economy will shrink by 5.2% this year, representing the deepest recession since the Second World War.

In order to assess how long this crisis may continue for, as well as reveal which business trends it is set to slow or accelerate, consulting firm Horváth Partners has engaged with 212 managing directors and board members of globally active companies, for the firm’s CxO 2020 survey. In May and June of 2020, 50% of the respondents worked in large companies with 1,000 to 10,000 employees, and the results suggest that no company of any size expects things to rapidly return to the way they were before the pandemic.

Average Sales Forecast - All industries

In most industries, top decision-makers are preparing to operate in crisis mode for even longer. Horváth found that sales in 2021 are still expected to be below pre-crisis levels, with the automotive industry, mechanical and plant engineering, the oil and chemical sectors, as well as the transport, travel and logistics industries, among the hardest hit. Focusing on the automotive sector, decision-makers expect a year-on-year drop in sales of around one third in the first half of 2020. In mechanical and plant engineering, oil and chemicals as well as transport and logistics, managers are forecasting a minus of between 15% and 20%.

While most business expect sales figures to improve somewhat in the second half of the year, board members and managing directors of almost all industries expect a year-on-year decline for the year as a whole, and in the automotive industry a minus of 17%. Things will not fully recover by the end of 2021, either, with sales forecasts confirming that most firms believe the economy is in the grip of a long-term, U-shaped recovery.

A U-shaped recession is longer than a V-shaped recession (as seen with the recession of 1953 in the United States) and has a less-clearly defined trough. GDP may shrink for several quarters, and only slowly return to trend growth. Overall, forecast figures support the idea this is a U-shaped recession, as in 2021, businesses expect sales will remain 2% lower than pre-Covid-19 levels,

According to Horváth’s research, while the economic situation will naturally see cost-reduction exercises move up the corporate agenda – 42% attach very high importance to improving liquidity, as firms tighten their belts to compensate for falling sales – digitalisation will remain the most important priority for most entities. Even in crisis mode, 62% of board members and managing directors interviewed considered digitalisation to be "very important", with another 30% labelling as "important" – something which was found to be homogeneous across all industries. This is likely due to the potential savings digitalisation apparently provides.

A closer look at study results shows different prioritization among participants

Commenting on the findings, Ralf Sauter, Industrial Goods and High Tech Partner at Horváth, said, "The long-term strategic view of the opportunities offered by digitalisation outweighs short-term crisis reactions. This is also due to the fact that in the acute crisis situation, the advantages of digitalisation became even more tangible in many places… However, it is becoming apparent that the focus of digitalisation projects is shifting to the cost-benefit ratio and the portfolio of digitalization projects is being completely reprioritised."

At the same time, despite the tense economic situation, companies are still focused on talent retention. Before the crisis, many firms were facing a ‘talent crisis’, and many seem to believe that retaining top performers through the recession can help give them a head start in the recovery. Around 35% of bosses said that their employees were very important, with the topic reaching third place in the list of priorities as the crisis has also led to the gain of new knowledge and experience. This means their long-term anchoring in the firm offers great potential.

On the other hand, some topics have fallen rapidly down the corporate agenda. Sustainability looks to have become one of the major pieces of collateral damage from the coronavirus. Sauter explained that sustainability is now at the top of the list of priorities for only a quarter of corporate leaders. The distortions of the coronavirus crisis and the uncertain outlook have pushed the issue to the side. He concluded that the economic challenges mean that “less investment is currently being made here. During the crisis, the priority is to protect the company and jobs."


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