To recession-proof their businesses, companies need to prioritise innovation and improve their financial health.
The wealth sector is usually the first to get hit in a recession, which is why finance leaders need to have a crisis management plan in place before the actual crisis begins. To improve their finance operations, CFOs should make the most of the new technologies. But gaining your competitive edge in the finance world goes beyond automation. It requires stepping outside the box and prioritising new business ideas over profitability.
Preparing finance for the upcoming recession
As the global economy slides into recession, concerns are rising across the finance sector. While the economic downturn was triggered by a pandemic this time, its impact is expected to be equally or even more severe than past recessions. To survive these difficult times, finance leaders are trying to recession-proof their businesses by implementing a range of measures aimed at improving their companies’ financial health and to reduce the impact of current and future economic crises.
Banks are especially vulnerable to a recession as it can cause serious damage through credit losses, reductions in business revenue, and declines in investments. The Banking Perspectives journal suggests there are many things finance leaders and banks can do to prepare for and survive the next recession. Among other things, they can develop a cost management plan, incorporate a recession scenario, and modernise their recovery function.
In times of economic uncertainty, many businesses are unable to maintain their spending, which is why cutting costs is typically the first thing on their to-do list. A recent Gartner survey, which included 317 Chief Financial Officers (CFOs), reveals that 62 per cent of respondents are planning budget cuts due to the coronavirus outbreak, while 38 per cent don’t plan to make any cost reductions in 2020.
There are a couple of strategies CFOs can use to effectively lead their companies through a recession. According to CFO Dive, the most valuable asset for any company is its workforce. Therefore, finance leaders need to make sure to put people first in their crisis management plans. This is why many companies have embraced remote working as a safer alternative to traditional work arrangements.
The future of finance
As the finance sector looks ahead at another disruption, this creates new challenges for CFOs, who will need to find a way to cope with changing business models, evolving workforce, and increased business competition. Implementing emerging technologies is one of the most effective ways for an organisation to adapt to new trends, something CFOs are very much aware of. In fact, a 2019 PwC report reveals that 61 per cent of finance leaders believe that technology can help them improve their finance operations. Basic automation tools, for instance, could enable finance leaders to better handle time-consuming, repetitive processes like reporting and reconciliation. Robotic process automation (RPA), on the other hand, could be used to convert broker statements into a data format that can be later processed automatically.
While new technologies play a key role in business transformation, CFOs play a critical role in a company’s survival. So, what will the CFO of the future look like? Moving beyond traditional finance operations and developing a new and more innovative mindset is what makes for a successful future CFO. CFOs will need to adopt a broader view of industry disruption to be able to make more strategic decisions, which is why the CFO of the future will come from different backgrounds, rather than exclusively from the field of finance. The future CFO will also need to possess leadership and team-building skills, which are seen as critical for this profession.
While digitisation is helping many companies manage the crisis successfully, tech implementation shouldn’t be seen as a one-time event. This means that even when the crisis is long behind us, CFOs should advocate for the use of digital technologies to maintain resilience in their organisations.
Impact of a recession on innovation
Through innovation, enterprises can gain a competitive edge and weather the coming storm. This is a proven strategy, with a recent Gartner study showing that companies that invested in innovation and new growth options were able to grow during the 2008 recession.
The COVID-19 pandemic has forced many organisations to rethink their business strategies. Some had no other choice than to shut down their operations, others decided it was time to step outside the box and change their product offering while maintaining their social responsibility. For instance, many food and beverage establishments pivoted to curb side pick-up or delivery services, while others used their manufacturing capacity to create hygiene products like hand sanitisers, masks, or face shields. Some even started experimenting with digital tools for learning, development, and collaboration.
It’s important that companies prioritise purpose-driven innovation, rather than just focusing on return on investment. Having a purpose is what makes organisations more innovative. In support of this claim, Grant Thornton reports that 63 per cent of CEOs claim that having a sense of purpose has made their enterprises more innovative during a disruption.
The future of innovation
Many factors can impact a company’s innovation process, but ultimately, it’s the organisational structure that helps determine its innovation success. A poor organisational structure can seriously inhibit the implementation process, as opposed to a carefully designed organisational structure that can help any business achieve its innovation goals. There are three main types of organisational structures for innovation. The most traditional form is the centralised structure, which is suitable for companies whose departments share similar innovation needs. Decentralised innovation structure, on the other hand, works for companies with very different divisions. A combination of centralised and decentralised structures is known as the hybrid innovation model, which is the most adaptive and gives companies more flexibility.
Creating a culture of innovation within a company starts by giving employees more autonomy. Though leaders should be able to make smart decisions, they should also encourage their workers to think independently and creatively, which brings new perspectives to the company. Even the most innovative ideas can fail, regardless of a company’s size and market reach. However, failure is necessary and therefore should be accepted as a natural part of the innovation strategy.
The COVID-19 pandemic has spread across the world at an alarming rate and brought dramatic changes to the world of business in a very short period. As we’re getting used to the new normal, now is the time to re-evaluate our traditional business models and strategies, and explore new directions. Recession isn’t all bad, and for savvy businesses, it presents perfect timing to outshine the competition. The pandemic-induced disruption will certainly alter the future of business, and though no one asked for this change, it’s a great opportunity for companies to reset and come back stronger than before.