K2's Business Update | Edition 7

Welcome to our latest update for businesses

Given the theme of one of this month’s articles, we thought it would be appropriate to let Chat GPT write the introduction for this newsletter.

We wrote a few sentences of what the articles were about and asked the program to write a ‘engaging introduction to our newsletter’.

The first results were good and would have been perfectly fine to use as they were.?

After this we started playing around a bit more and asked it to make it ‘wittier’.?

For some reason the system took that to mean make it sound more American.?

We asked it to change this and make it sound more like it was coming from someone English.?

The results are quite funny so that’s the version we decided to go with!

Here is Chat GPT with a very English introduction to this week’s newsletter…

Great news, chaps! Recent reports from the BCC and FSB suggest that the future is starting to look a bit brighter for businesses. However, let's not get ahead of ourselves, as there are still plenty of obstacles to overcome. One of the most pressing challenges that companies face is the difficulty in finding and recruiting enough skilled workers. That's precisely what we'll be delving into in this edition of our newsletter. We'll be sharing short-term solutions and our thoughts on how new AI tools might lend a hand. Speaking of AI, we've been having a jolly good time exploring its potential, and we're thrilled to announce that parts of this newsletter have been written and edited by our AI chums. Who knows, perhaps they'll take over completely one day? Keep your eyes peeled to find out, and be sure to grab a cuppa and enjoy our latest newsletter!

In this newsletter:

• What can SMEs do to protect themselves from skills shortages???
• Where businesses should and should NOT be adopting AI for their processes ???
• Is CEO pay a fair reflection of what they do? ??

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What can SMEs do to protect themselves from skills shortages? ?

BCC’s most recent update on the difficulties to find workers highlights shortages in several key areas.

The February 2023 update said:

“Attempted recruitment in Q4 remained virtually unchanged from the previous quarter, with 61% of firms looking to find staff (62% in Q3 2022).?

“Overall, over eight in ten firms (82%) attempting to recruit reported recruitment difficulties, up from 76% in Q3.?

“While the problem is persistent across all sectors, firms in the hospitality sector are most likely to face challenges when recruiting, with 87% reporting difficulties. This is closely followed by the manufacturing sector on 85%, and the construction sector; professional services; and public, education, health sector all on 83%.”?

According to research from fintech provider Nucleus Commercial Finance, 68% of SMES with up to 150 employees are concerned about staffing in 2023.

So what can SMEs that are already strapped for cash do to help themselves in the short and medium term?

1. Are you using existing staff as effectively as possible? Many companies have discovered that they already have the people they need but are not using all their available skill sets, paying close attention to skills that could be transferable.
2. Use contingent workers, such as freelancers, consultants and contractors to fill gaps.
3. Encourage older workers to consider working on a consultancy or part time basis instead of retiring.
4. Be more open-minded when recruiting: New staff members don’t have to be perfect from the start. Businesses could hire applicants with 70 to 80 percent of the right requirements and help them grow into the role.
5. Make sure the business is an attractive place to work by ensuring there are opportunities for staff to progress their careers with additional training.?

In the medium term if you partner with nearby educational facilities you can offer work experience to their students and create relationships with them so that they are motivated to work for you when they complete their courses.

Where businesses should and should NOT be adopting AI for their processes ???

Almost 80% of UK companies report difficulty filling jobs according to analysis by the Manpower Group.

So is using AI the answer to the skills shortage?

In some instances it may be.

The best examples of AI streamlining operations include automating CRM (Customer Relationship Management) systems, machine learning for data processing, and in cybersecurity in defending computer defences.?

Most of the above will be familiar to businesses and have already proven their worth but there is a new and much-hyped piece of AI which has been the focus of attention, and that is ChatGPT.

Many businesses are finding it useful for generating creative ideas, providing summaries and writing first drafts. It can also produce large amounts of text with a quick response time. So it can arguably automate routine tasks, provide personalised customer service and it’s particularly beneficial for those in creative roles who spend a lot of time researching and creating content.

We also want to highlight some of the issues to be aware of when using it though.

One of these is that it has been shown to make up factually inaccurate answers.

Therefore, if a piece of business writing depends on being accurate, factually correct and able to demonstrate its sources ChatGPT, is not going to be useful and indeed its use may damage a business’ reputation.

Another problem that may be relevant in CRM situations that require a degree of empathy is that it doesn’t necessarily understand the nuances of conversation, which can lead to misunderstandings.

So while AI can be useful in helping a business to cope with large amounts of data, with routine operations and the like, in situations where integrity of information, trackable sources, and emotional intelligence are needed then AI such as ChatGPT needs to be used with caution.

Is CEO pay a fair reflection of what they do? ??

With the cost of living rising and more ordinary workers struggling to make ends meet, this is a question people will be asking write now.

FTSE 100 data shows CEO pay and bonus packages average ￡3.4m each which equates to 103 times the ￡33,000 average salary for full-time UK workers.

But according to a recent survey by the High Pay Centre, more than 60 per cent of people think that chief executives should be paid only 10 times the average salary.

So it is fair to ask what makes them worth such enormous sums when Britain’s productivity, judged by output per worker, is 20% to 30% lower than most other industrialised economies?

CEO remuneration packages are made up of a combination of salaries, bonuses, and stock option packages.

In theory the package is designed to align executives’ actions with company success, in other words, to make it performance related.

However, this only works if the package is reduced when the company is doing less well.

Performance can be gauged by any number of things such as profit or revenue growth,?return on equity,?or share price?appreciation.?

But, arguably, using financial?metrics?and annual share price gains is not always a fair measure of how well an executive is doing their job.?

Perceived fair pay depends on many factors, with an important one being company value. If value has increased due to CEO effort, directors and investors believe it is fair to reward the CEO for this increase. Arguably the converse should be true.

But this suggests that company value is entirely within the CEO’s control when in fact other factors such as interest rate rises for example may come into play.

According to the independent Centre for Economic Policy Research (CEPR), however, “intrinsic motivation and personal reputation are the primary drivers of CEO effort. CEOs are intrinsically motivated to do a good job or to be seen by their colleagues, their peers, and wider society as having done a good job”.

CEO remuneration is a complex issue and the concept of fairness is likely to arouse considerable passion on all sides of the debate.

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About the Author?

Tony Groom ?is a turnaround and?restructuring professional with?K2 Business Partners ,?a firm that invests in companies that have committed boards and assets that others find difficult to value.???

“As a turnaround investor, I back Directors of industrial and manufacturing companies who are facing a crisis. I bring an understanding of business as a Director and Shareholder of the many businesses and turnarounds that I have helped make successful.”

About K2 Business Partners??

K2 Business Partners ?are a small team of turnaround investors who put their money where their mouth is by backing directors and companies with ￡3m-￡20m turnover with assets that other investors find difficult to value.??

K2 don’t generally sell out and are in it for the long haul!?

Contact us if you’d like to know more about our investment process and to book a?free strategy and viability review .