Our research shows that 88% of mid-market businesses made fundamental changes to their business model during lockdown. Dave Munton looks at how the UK mid-market is rising to current challenges and building resilience for the road ahead.
The coronavirus pandemic has meant businesses around the world are continuing to face a myriad of issues affecting every aspect of their company, from their people, to their customers and suppliers, and their fundamental business operations.
The UK mid-market is no exception. In the initial phase this engine room of the economy had to quickly assess the situation and act to protect internal and external business interests. According to the latest figures released this week in our International Business Report (IBR), the vast majority (88%) of UK mid-market companies surveyed have made fundamental changes to their business model. What is more surprising is that this is likely to be a permanent change for 50% of respondents, who are planning to continue with the new model as they work to restore their business and revise plans for the future.
The findings from our bi-annual global survey of mid-market businesses – those with revenue of £15 million to £1 billion – show a wide-ranging response to the impact of COVID-19 on the trading environment, and we’ve outlined the key highlights below.
While the pandemic’s impact has been significant, the UK mid-market has reacted quickly and decisively, taking strong steps to deal with the situation and the economic effects.
Of the 278 UK respondents, which included CEOs, managing directors and other senior executives from all industry sectors, the changes they have made have been wide-ranging.
Given the nature of the pandemic, it’s little surprise that changes have been profound. But our research suggests that the ‘new normal’ will also show that the UK mid-market has been permanently impacted by pandemic upheaval as business models undergo a fundamental shift.
One in four will need further financial support
The package of support made available to companies over the last few months has been critical to keeping the economy and many companies afloat. More than a third (35%) of the UK mid-market leaders surveyed said they were either using or planning to use a form of government support.
They ranked the biggest lifeline as the Coronavirus Job Retention Scheme (CJRS) – the option of paid furlough for some or all of their employees. This is due to end by October 2020, with the new Job Retention Bonus only set to provide support until January 2021. We know this level of support can’t last forever. But it is worrying that one in four UK mid-market companies will still need to access new funding, and also cut costs and restructure, in order to continue trading.
New measures announced by the chancellor last week in his economic update may provide further temporary support for those affected by furlough, and hard-hit businesses in the hospitality and tourism sectors, but questions remain around the longer-term impact and how much further support will be needed.
The impact of the pandemic has been stark and with so many continued unknowns, combined with Brexit, it is unsurprising to see that business optimism and growth expectations have dropped significantly.
Less than a third (31%) of UK mid-market companies now feel optimistic about the domestic economy over the next 12 months – much lower than the global average of 43%. Economic uncertainty was also cited as the biggest constraint to growth for the UK mid-market, followed by a shortage of orders and a shortage of finance. These worries are reflected in revenue expectations, which are down to the lowest level recorded by the IBR survey since it launched in 2011. On average, UK mid-market firms expect revenues to fall by a significant 11% in 2020.
Change is coming
But while there is challenge there is also opportunity. In times of crisis, innovation is rife and many organisations have seen rapid change during the pandemic, as necessity has removed barriers to transformation efforts. Our research found that many companies are looking to make specific changes to their business strategies as the pandemic has highlighted areas for improvement.
The importance of embracing technology in particular has proved paramount in enabling businesses to remain connected with their people and their stakeholders, and in opening up new commercial opportunities. And it’s no surprise that digital transformation was ranked top of the changes required, with nearly half (48%) of UK companies anticipating they will need to make more use of technology in future. The crisis has also alerted businesses to the need to improve their organisational flexibility, crisis management processes and supply chain resilience.
Looking ahead, many UK mid-market businesses are starting to prepare for market recovery, with just over half planning for their workplace safety in the future and a third scenario planning for the scale-up of their company operations. Now is a critical moment for businesses – to decide how they want their business and their people to operate and work moving forward.
For many, this may not be a return to the ‘old normal’, as our research has found a continued, fundamental shift in the business models of the UK mid-market.
What next for UK mid-market leaders?
Volatile times call for real-time understanding of where your business is at. Leaders will need to focus on building business resilience and find the courage to take action, supported by clear and informed decision-making.
While businesses still need to focus on the immediate pressures of today, it is encouraging to see that many are also starting to plan for tomorrow by: considering how to safely return to the workplace, updating their business strategy to ensure it reflects their new priorities, and determining how best to scale up their company operations.
Agility, financing and resilience will be critical to success as we move into the next few months. Businesses will need to continue to be open to doing things differently and embedding any new, successful workplace practices, to ensure survival and growth post-COVID-19.