Time for a Recovery Plan – what's different about this one?

For the past eight weeks we’ve been analysing where Britain’s 5 million businesses find themselves as a result of Covid 19. Our research found four segments – which I’ve explored in more detail in a previous article - Hibernators, which have closed their business and furloughed most staff; Survivors have seen dramatic falls in turnover or the temporary suspension of parts of their business; Pivoters responded rapidly to the pandemic, redeploying staff, adjusting services or transforming production to meet the needs of a new customer base; and Thrivers, by luck or good judgment, have been able to ramp up production of existing products or services.  

Now with restart underway, attention turns to how to drive recovery with a likely Budget on the way in a month’s time. We’ve been reviewing previous recessions and recoveries to identify what’s familiar (cash conserved, innovation attempted) and what’s different (technology imperative, fear of future shocks). But we’ve also been thinking hard about the weaknesses of the British economy during the now 12 years of flatlining productivity since the last recession in 2008. Here, the old mantra of “never waste a crisis” really applies.

If any economic policymaker had been told 3 months ago that British business would make a step change in innovation, technology and efficiency they would have bitten your hand off

Tragically it has taken a horrific global pandemic to spark this. So how, now, can we put these themes at the heart of the recovery? 

Here’s four imperatives: 

   1) Innovation for the many not the few 

There has been widespread business model innovation in the last eight weeks with over a quarter of firms (and rising) making major moves. Innovation on customers (such as B2B providers going direct to customer); innovation on products and services (from video shoots to animation; baked goods to home baking); and innovation on channels (huge shift to online; growth in delivery). This is really important. The innovation agenda is usually focused on a small cluster of firms or inventions. But Britain’s problem is making this more mainstream. According to Andy Haldane, the UK is top 5 in the Global Innovation Index but 38th in Europe for diffusion. The innovation playing field has been levelled, but probably only for a small window of time. How do we ride the wave? 

  2) Zoom is not enough – time to realise the true operational horsepower of technology 

We are all on Zoom now. Decades after we could have been and decades before we were predicted to be. But online video conferencing does not get close to the potential productivity opportunity of business technologies; those come from everyday business systems and processes being enhanced online such as customer relationship management (CRM); cloud-based finance and HR; and the growing role of data and AI in core business strategy and operations. These make up the “productivity tech” where Britain, by the way, lies near the bottom of the European league tables. All our insight in recent years tells us that confidence and capability in technology is a precursor to adoption. Perhaps the most interesting development of the past six weeks is that tech laggards have had a Eureka moment; they have had to use tech and have got pretty good at it. Now’s the chance to turn believers into adopters, if we can just get the market to work better than before. 

  3) Resilience can't just mean Risk Aversion 

Resilience is probably the most popular word in management literature right now! But rightly so. Firms have told us of their fears of second waves, a no-deal Brexit and prolonged basin-shaped recoveries. They felt exposed at the moment of lockdown when “the music stopped” and they felt weaknesses in their model – and they don’t want to feel that again. To meet this challenge, firms want to become more resilient – in terms of their finances (cashflow and debt management), their operations (premises and processes) and their staff (physical and mental wellbeing). But firms have also felt strategically vulnerable because of undiversified business models and technological weaknesses. This is an important clue: the best way to foster innovation and technology adoption may be through the lens of resilience, not growth.  

  4) Productivity? So near but yet so far... 

We now face a new kind of productivity paradox. At the very moment when both innovation and technology are in highest vogue, investment is likely to nose-dive, as firms may not have the cash flow to facilitate these projects. They are also likely to relentlessly drive efficiency which on the one hand could free up some capacity but also means losing scarce resources for growth. It is both the best of times and the worst of times to change the productivity and competitiveness of our business sector. And you either have to believe that firms can realise a lot of cost-free innovation or that policymakers find ways to incentivise these behaviours, knowing it could be a unique but time-bound moment of opportunity. Let’s hope both.