The ramifications of the credit crunch and the recession could have a profound impact on how UK businesses operate in the future.
That is the view of the CBI, which published its report, ‘The Shape of Business – the Next 10 Years’, ahead of its annual conference this week.
According to the report, businesses will experience significant shifts in emphasis and practice across almost every area of their operations, from raising finance to working patterns.
The four key issues that are most likely to be re-shaped in the aftermath of the economic downturn are credit, inter-business alliances, sustainability and ethics, and more flexibility in the workforce.
Businesses, the CBI reported, do not envisage credit terms returning to the generous levels that prevailed before the credit crunch. Firms, too, are now much more wary of incurring high levels of debt and will have to investigate alternatives to debt-driven growth as a means of protecting investment and innovation.
Companies will also re-examine their approach to working with partners, the CBI continued, whether they are suppliers, competitors or universities.
Worries over the possible consequences of domino effect failures in supply chains and over trade credit insurance will force firms to adopt more collaborative relationships.
Sustainable, ethical policies will likewise become more central to business plans, the CBI predicted. Firms will need to make greater efforts to improve accountability and corporate citizenship in order to attract and retain customers.
And employment patterns will undergo a radical overhaul. Flexible workforces will become increasingly familiar, a trend that will be encouraged by developments in technology and training. For some employers that might mean a smaller core workforce and a larger ‘flexiforce’.
Richard Lambert, the CBI’s director-general, said: “We may be at the start of a new era for businesses, in which attitudes to finance and to corporate leadership are changed for a generation by the shock of the past two years.
“What we now need is a more balanced, less risky pathway to growth – one in which the short-term returns may be lower, but the long-term rewards for management success will be a lot more sustainable and secure.
“There are important questions around how businesses are going to finance growth and investment in the future. And in a more collaborative, less transactional world, closer relationships with customers, suppliers, employees and shareholders look like becoming the new norm.”
Many of the report’s forecasts are backed up by a CBI-sponsored survey of business leaders.
Two thirds (68 per cent) predicted that there would be no improvement in credit availability next year and reported that they are implementing new methods of securing finance. A half plan to cut their debts to the banks, 44 per cent aim to place greater reliance on equity finance, while a quarter (26 per cent) said they would make more use of bond issuance.
When asked about supply chain fragilities, just 24 per cent registered no concern. Businesses were most worried about a unique, specialist supplier going under, about suppliers’ own chains collapsing, and about suppliers’ loss of working capital.
As a result, two thirds of firms polled said they would be strengthening the level of partnerships with suppliers in the coming years, with around a fifth considering the possibility of offering finance to key suppliers, reducing dependency on ‘just in time’ processes, and choosing suppliers closer to their own base.
Mr Lambert added: “Firms looking to reduce risk and acknowledge their interdependence are seeking more collaborative ways of working through partnerships and joint ventures. Perhaps we will see a flourishing of supply chain finance – in which firms with the largest, most solid balance sheets help finance their smaller suppliers or customers.”
He also proposed new lending models for businesses.
“Why not encourage new forms of institutions to finance the growth of small and medium-sized enterprises through equity and debt? And why not make it easier for companies to raise money locally, perhaps through new regional banking and investment institutions, rather than having to rely on a few very big players in London and Edinburgh?” Mr Lambert suggested.
