Uncertainty has been a recurring theme over the last few years. From the global pandemic and conflict in Ukraine to the energy cost crisis and rampant inflation, businesses have faced their fair share of what many have labelled ‘once-in-a-lifetime’ challenges.
At what point, however, do we begin to accept the reality of the geopolitical and economic landscape around us? We need only look to history to see that we have been in similar situations before. In the 1970s the price of oil skyrocketed and, among other things, severely jolted the stock market, triggered soaring inflation and led to high unemployment. We also had the three-day week and widespread industrial action – the latter becoming increasingly familiar today.
There are valuable lessons to take from past experiences. In particular, the steps that companies took to boost resilience and secure their position. What history suggests is that the most important factor in these situations is to be proactive. So, whether or not you believe that times are ‘unprecedented’, the answer is not to bury your head in the sand.
The first area to concentrate on is people. Employee engagement and retention have never been more important in the current labour market and all businesses want to make sure that talented, skilled professionals stay where they are instead of moving over to a competitor.
Everyone is feeling the pinch, so while it may not be possible to increase salaries or offer bonuses, there are other ways to motivate your teams. Consider incentives such as an employee share options scheme, which could increase staff loyalty. Also look at your ways of working and company culture. A more formal hybrid or return-to-work policy can be an attractive prospect, particularly for people who thrive on the opportunities for collaboration and learning that come with being office-based.
Second, consider your current costs of finance. Interest rates have gone from historic lows up to 15-year highs. While those who have been around longer might accept this as a return to normal, for others it is an entirely new prospect.
Either way, businesses will need to adjust. It could be a case of restructuring their finances or shopping around to find the best options. Switching is not just for consumers – another lender could offer a better rate. Should you take up a loan rather than operate in overdraft, or offer security to get a better deal? Also consider whether you could refinance and consolidate debts to manage costs.
Third, look at any existing contracts with suppliers and customers. In cases where terms were agreed prior to recent events, these agreements might need to be renegotiated to reflect the reality of price pressure. Contracts from just a few years ago might have automatic price increases linked to inflation, or fixed costs that are simply unviable. While the automatic reaction might be to try to hold suppliers to the original prices as far as possible, you risk being left without materials or products if they cannot deliver, as well as potentially damaging long-term relationships.
In most cases, changing contract terms is a commercial issue, which can be resolved with good communication. Contracts may be the starting-point for negotiation, particularly force majeure clauses, but ultimately it’s about agreeing what still stands and what needs to change. Can a purchaser insist that a supplier honours the price originally agreed and, conversely, is a supplier obliged to accept the order under those terms?
For industries like manufacturing and engineering, companies of all sizes are involved in critical supply chains that are dependent on one another to ensure projects are delivered as required. If one piece of that sequence breaks, it will have a knock-on effect for other firms involved and completion of the overall work. Everyone is in the same market, and sensible discussion is needed to avoid problems.
The pressures businesses are facing are unlikely to disappear overnight. While they are affecting different sectors in different ways, there is a common need to do as much as possible to tackle them head-on. History shows that companies which made it through tough periods are the ones that took the bull by the horns, even in a bear market.
To view the full article in The Scotsman, click here.
If you would like to discuss anything in this blog, please contact Derek Hamill: DHamill@gilsongray.co.uk