While delivering the government’s spending review for 2020, UK chancellor Rishi Sunak cautioned that the “economic emergency” caused by the COVID-19 pandemic was just beginning.
“Our health emergency is not yet over and our economic emergency has only just begun,” he said, adding that his priority was to “protect people’s lives and livelihood”.
The chancellor’s warning came as the Office for Budget Responsibility estimated that the UK economy will contract by 11.3% by the end of 2020, the country’s largest recorded fall in output for 300 years. Unemployment is also expected to peak at 2.6 million in 2021 and remain above pre-pandemic levels until 2024 at the earliest.
Chancellor Sunak said that departmental spending would be £540 billion next year, up 3.8%. He also promised a “once in a generation investment in infrastructure” towards schools, hospitals and roads, which the government would spend £100 billion on next year. £3 billion in additional funding will be earmarked for the NHS. Government borrowing will rise to almost £400 billion, reaching its highest level outside of wartime, to finance these projects.
The government’s foreign aid budget will also be cut, and there will be a “targeted” pay freeze on public sector workers, the chancellor said, from which the NHS and lowest paid workers will be exempted.
In other news of note from the spending review, the chancellor said that he had accepted the Low Pay Commission’s recommendation that the minimum wage – now rebranded as the National Living Wage – be increased by 2.2% up to £8.91 per hour. It will also be extended to those aged 23 and over, down from the current age of 25, and the minimum age for younger workers will be increased as well.
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"The chancellor will need to find £20 billion to £30 billion in spending cuts or tax rises if he wants to balance revenues and day-to-day spending, and stop debt rising by the end of this parliament,” noted Richard Hughes, chairman of the Office for Budget Responsibility, following the spending review.
Paul Naha-Biswas, founder and CEO of Sixley, shares some of the outcomes of the 2008 recession and how a similar economic downturn could lead to greater innovation and success in UK businesses.
On 12 August, the worst-kept secret in the country came out, and the UK entered a recession for the first time in eleven years.
Few were surprised by the news. In the months preceding the announcement, the economy went through a period of unprecedented disruption due to the COVID-19 pandemic and the subsequent lockdown, culminating in GDP plummeting by 20.4% within the first three months of the year.
But, while the ‘R’ word might send a shiver down the spine of most businesses, it may surprise you to learn that many of the household brands we use today were formed in the last global financial crisis (GFC). Uber and Airbnb were just two businesses founded during the 2008 crash and used the recession as an opportunity to innovate within their sector.
So, with this in mind, what lessons can businesses learn from the last financial crash and where are the opportunities for innovation this time around?
Lessons from the 2008 financial crash
In the last recession, the consumer businesses that did well were those that offered services or goods at a far lower cost than pre-GFC.
As budgets tightened, people were increasingly prepared to change their consumer behaviour and explore new digital-first businesses to save money. As a result, we saw a significant rise in casual dining and low-cost retail – such as Boohoo – and also a spike in digital businesses, such as Airbnb and Uber that, through their use of lateral business models, brought quality services to people at a much lower price than competitors. Who could have imagined before 2008 that you could book a whole apartment for less than a hotel room or get driven around town for half the cost of a black cab?
In the last recession, the consumer businesses that did well were those that offered services or goods at a far lower cost than pre-GFC.
How COVID-19 is changing consumer behaviour
A similar trend is emerging during the COVID-19 recession, with Britons cutting back hard on their spending – both out of worry and due to a lack of spending opportunities.
Consumer spending fell by 36.5% in April compared with the same month last year, which followed a 6% drop in March. During the same period, spending on travel nearly halved, and outlay on pubs, clubs, and bars dropped by 97%.
However, the unique circumstances of COVID-19 have created a new trend in consumer behaviour that wasn’t apparent in the GFC. The Government lockdowns actioned around the world has shown businesses how much of our economy can shift online. And the longer restrictions go on for, the less likely it is that businesses will return completely to their post-COVID-19 setup.
With more people staying at home, there will be increased demand for digital, online services and more opportunities for businesses to innovate. Take Hopin, a virtual events company, for example, the brand spotted a gap in the market created by everyone staying inside during the pandemic and raised over $170 million from investors and built up a $2 billion+ valuation since lockdown began, despite only being founded in 2019.
Hopin isn’t the only business success story from COVID-19 and with the pandemic likely to bring about permanent changes in consumer behaviour, there are plenty of opportunities for entrepreneurs to establish businesses that will disrupt their sector in a similar way to how Uber and Airbnb did in 2008.
The availability of excellent talent
However, increased consumer demand for digital services, isn’t the only reason why now is an opportune moment for innovation.
In the GFC, labour turnover fell significantly – from 18% of the workforce in 2006 to a low of 10% in 2013 – as workers looked to hold onto secure jobs and employers put a pause on recruitment.
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Once again, a similar trend is emerging, with employment opportunities falling by 62% across the UK in the three months to June compared to the same quarter last year.
While this isn’t the ideal situation for jobseekers, businesses now have a huge and diverse talent pool to choose from. For example, start-up founders can bring in highly experienced, motivated employees without having to poach or hire on full-time contracts, something that many start-ups may otherwise struggle to afford.
And there’s promising signs that current prospects for jobseekers will change soon. Following news that two potentially effective vaccines will be rolled out in the new year, shares in businesses skyrocketed on newfound optimism suggesting they will bounce back. Similarly, in the aftermath of the GFC, spend on recruitment agencies bottomed out at 75% of pre-2008 levels before eventually exceeding pre-recession levels by 2013/14.
The great American writer Mark Twain once said that history doesn’t repeat itself, but it often rhymes, and, in this instance, the saying rings true. Although the circumstances may be different, the COVID-19 recession, like the GFC, has opened new markets that businesses, if they are fast enough, can take advantage of. With a swell of excellent, experienced candidates available and changing consumer behaviour, the environment is perfect for new start-ups to emerge and become this decade’s Airbnb and Uber.
European markets and US futures were boosted on Tuesday as promising COVID-19 vaccine news and the beginning of a formal transition towards the incoming Joe Biden administration after weeks of delays helped to increase investor confidence.
In the UK, the FTSE 100 gained 0.9%, while France’s CAC 40 and Germany’s DAX both rose by 1%. The pan-European Stoxx 600 also climbed 0.7% and oil and gas stocks bounced by 3%, with almost all sectors and major bourses heading into positive territory.
Nasdaq, S&P 500 and Dow Jones futures saw gains of their own, rising 0.5%, 0.7% and 0.8% respectively.
By comparison, Asian markets saw mixed results overnight. South Korea’s KOSPI was up 0.6% while the Hong Kong Hang Seng rose by 0.3%, but China’s Shanghai Composite and Shenzhen Component slid by 0.3% and 0.4% respectively. Australia’s S&P/ASX 200 and Japan’s Nikkei saw the greatest gains, respectively surging by 1.8% and 1.11%.
On Monday, US General Services Administration head Emily Murphy wrote a letter to President-elect Joe Biden confirming that the formal transition process could begin. Also, on Twitter, President Donald Trump wrote that he had told his team to “do what needs to be done with regard to initial protocols,” though he gave no indication of abandoning his earlier claims that massive voter fraud had been perpetrated against him during the election.
Markets were also cheered by Biden’s reported plans to take on former Federal Reserve Chair Janet Yellen as the next US Treasury Secretary.
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Risk appetite was further strengthened by ongoing progress on COVID-19 vaccines. Most recently, AstraZeneca announced that its vaccine candidate could have an efficacy of as much as 90% in addition to being cheaper to make, faster to scale up and easier to distribute than vaccines produced by rivals Pfizer and Moderna.
Alpa Bhakta, CEO of Butterfield Mortgages Limited, explores the current landscape of London property investment and how it may soon shift.
During the last five years, the prime central London (PCL) property market has witnessed significant shifts and spikes in demand and supply. However, nothing could have prepared the market for the immense impact of the COVID-19 pandemic and the consequential UK-wide lockdowns.
The economic ramifications of the novel coronavirus pandemic will undoubtedly be felt across the global economy for some time. But, when it comes to the UK prime property market, there is more than one reason to be optimistic about the future.
Alongside numerous other measures introduced to encourage consumer spending and investment activity, the UK government announced a series of measures to support transactional activity across the real estate market.
And, in this, the government has been successful. Recently, the property market witnessed its fastest rate of house price growth in over four years. This is very much a result of the Stamp Duty Land Tax (SDLT) holiday. No wonder, given that the tax relief policy allows anyone – from first time buyers to seasoned buy-to-let (BTL) investors – to save up to £15,000 on British property purchases.
Based on experience helping clients navigate the PCL property market, I’ve noticed multiple trends that potential PCL investors should keep abreast of over the coming months. As England navigates its second nationwide lockdown, the precise nature of the capital’s property market remains uncertain. Nonetheless there are certainly things for those interested in prime property in the capital to be on the lookout for.
Recently, the property market witnessed its fastest rate of house price growth in over four years.
London: the jewel of UK property?
With remote working set to remain a reality for many of London’s professionals, some property commentators feared a collapse of the PCL market as newly homebound workers fled to the countryside. This has demonstrably not occurred.
Although some shift in buyer demand away from central London and towards quieter, more suburban areas was recorded by Rightmove, this trend’s impact on the PCL market is seemingly minimal.
Despite the so-called working-from-home revolution, the market for properties in central London worth in excess of £5 million has been one of the most active sectors of the UK’s real estate market throughout 2020. The number of transactions involving such properties was 13% higher during Q1 2020 than during the same period in 2019; and Q3 saw more PCL housing sold than during any other quarter since 2015.
Even within the £5 million + London property market, over half of all such sales are located in just five postcodes, according to Savills.
The driving force behind this spike in activity is multi-faceted. Yes, the previously mentioned government initiatives to support the UK property market are partially responsible. But, given that the SDLT holiday only protects the first £500,000 of a purchased property’s cost from the tax, there must be other underlying forces at play.
One such force is the SDLT foreign buyer surcharge. Due to be implemented on April 1, 2021, this added 2% tax for those purchasing British property from abroad represents a massive intervention into the PCL market. In H2 2019, such buyers represented 55% of all PCL transactions.
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A motivating factor for many foreign buyers at present, then, will be to avoid this added cost. This trend will likely continue until the currently scheduled end of the SDLT holiday on March 31, 2021, with international investors keen to complete on transactions before this key date. Reportedly, 22% of such buyers are so keen that they’ve purchased property without a single viewing, according to London Central Portfolio.
With such an impressive year for transactions numbers then, I believe that the PCL property market’s prospects should only improve as COVID-19 is brought under control. At the moment, that could be sooner rather than later based on recent vaccine announcements.
As it currently stands, the PCL property market looks set to remain strong for the foreseeable future. Buyer demand from domestic and non-UK residents is increasing the number of transactions taking place, demonstrating the underlining attractiveness of prime property as an investment venture.
A Clutch study shows that 44% of workers in the United States are working remotely at least five days a week due to the pandemic. This is an increase of 17% before the outbreak of COVID-19. While remote working offers excellent benefits like eliminating unnecessary physical contact, it also presents several challenges like lack of work-life balance and routine, increased distractions, slow internet in certain areas, and remaining productive.
Fortunately, SaaS companies are working to offer solutions to alleviate the stresses encountered by remote workers, including finance teams.
Cloud-based lending
Cloud-based loan servicing software allows organizations to create, collect, and service loans online. In contrast with antiquated paper-based systems that have been completely stymied by COVID-related shutdowns, SaaS loan servicing doesn’t require any face-to-face interactions and it isn’t hampered by snail mail. That means finance teams in real estate, sales, and banking can close loans in significantly less time, even if the local office is temporarily closed.
Of course, the job’s not done when a loan is signed and accepted. SaaS companies are also helping finance teams to manage these e-loans efficiently by building time-saving automations into the software. Think of it like cruise control for banking, so you can focus more time on other parts of your business that require human interaction.
Team communication
Slack serves as a virtual office for remote teams, enabling group or one-on-one communication between colleagues and facilitating immediate access to news and feedback.
Slack is best known for its communication service. However, it also allows you to produce alerts about feedback or new product reviews and automate progress and business activity reports with added plug-in apps.
A Clutch study shows that 44% of workers in the United States are working remotely at least five days a week due to the pandemic.
The features promote engagement and focus among employees in everything they do and allows them to also focus on the company’s collective goal. Slack allows users to create chat groups called channels. Individuals can use GIFs or emojis to convey their emotions to their colleagues, which is vital, especially in these difficult times.
Cloud-Based Storage
You can get work done from the comfort of your home by utilising cloud-based storage solutions like Google Drive, Microsoft OneDrive, DropBox, and more.
Some of the best features offered by Google Drive for remote work on its free version include 15GB cloud storage, 10GB email for large files, and working on spreadsheets and documents offline. It also offers optical character recognition, professional templates, control access to files, and customisable sharing settings.
Google Drive is compatible with nearly everything, including Microsoft Office, so you do not have to convert files. While you can use the free version comfortably, upgrading to your desired package offers more cloud storage, which is vital for professionals who work with large files.
Project Management
Managing a project can be a daunting task that may become much harder if your team works remotely. However, project management solutions like Monday allow you to manage your work and team in one workplace, ensuring effortless tracking, delivering, and planning. While it offers hundreds of customisable and visual templates, you can also develop your own to suit your preferences and needs.
Through automation, you can avoid repetition and minimise human error, allowing you to focus more time on handling essential tasks rather than correcting avoidable mistakes. Monday lets you visualise your work with views in the form of a calendar, map, kanban, timeline, and many more. You can reach the company customer support team at any time and even watch their tutorials, join every day live webinars, or go through the knowledge base.
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Video Conferencing
Zoom became a popular mode of communication when the pandemic became widespread. People had to stay home, so they started using Zoom because it offers an easy and reliable cloud-based platform for audio and video conferencing. You can use it to host an online meeting or as an instructional webinar tool.
While a free account accommodates 25 participants in a single meeting, you can add more people depending on your subscription. It comes with screen sharing, which aids in resolving issues and makes it easier to show and discuss different processes visually.
Conclusion
Since the pandemic thrust many people into remote working, workers have learned to rely on SaaS solutions to perform their duties. These tools have made the transition to remote working less challenging.
Multinational cinema chain Cineworld saw the value of its shares surge on Monday following an announcement that it had secured new loans worth $450 million and waivers for its debt covenants until January 2022.
In addition, Cineworld announced that it will issue equity warrants worth around 11% of its share capital, and that its new debt measures have given it over $750 million in extra liquidity and allowed its monthly cash spend to be reduced to around $60 million.
The company also extended the maturity of its $111 million incremental revolving credit facility from December 2020 to May 2024.
“Over the long term, the operational improvements we have put in place since the start of the pandemic will further enhance Cineworld's profitability and resilience,” said Mooky Greidinger, CEO of Cineworld Group.
“The group continues to monitor developments in the relevant markets in which we operate and our entire team is focused on managing our cost base.”
Cineworld has been struck hard by the COVID-19 pandemic, with government-imposed restrictions on public gatherings forcing it to close its theatres and make heavy layoffs.
The news of its new debt relief elevated Cineworld shares by 19.5% in early trading, reaching 55.08 pence per share. Last year saw a high of £2.27 per share, having since fallen by 77% since the onset of the COVID-19 pandemic.
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Cineworld has also emerged as the UK’s most shorted stock, with around 9.51% of its shares held short by 10 investment firms, according to analysis from GraniteShares.
US Treasury Secretary Steven Mnuchin said on Thursday that several key pandemic lending programmes at the Federal Reserve would not be renewed, putting the outgoing Trump administration at odds with the central bank.
In a letter to Federal Reserve Chair Jerome Powell, Mnuchin asked the Fed to return $455 billion allocated to the Treasury under the CARES Act in March, much of which was earmarked as funds for pandemic relief lending to businesses, non-profits and local governments. The Fed has deemed these programmes vital to the continued stability of the US economy through the winter.
“I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020,” Mnuchin wrote. “As such, I am requesting that the Federal Reserve return the unused funds to the Treasury.”
The move came as a surprise to the Fed, who said in an emailed statement that it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”
S&P 500 futures fell by 0.75% following Mnuchin’s request, and benchmark US Treasury yields also slipped.
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In addition to the request for the money’s return, Mnuchin did extend for 90 days three separate programmes which did not make use of CARES Act Funds, including measures acting as backstops for commercial paper and money markets.
Recent data has shown that an expected early recovery from the historic economic downturn caused by the COVID-19 pandemic has begun to fade. 10 million US citizens who have lost jobs since January remain out of work.
However, Pfizer wasn’t the only company to benefit from a successful trial. Shortly after the announcement, we saw a stock market boom. The Dow Jones Industrial Average in America was up by more than 1,000 points on Monday and the FTSE 100 in the UK ended the day 276 points higher, a rise of 4.67%. So, with news emerging that a working vaccine is on the horizon, what will the next six months look like for hedge fund managers and investors? Let’s take a look.
How do Hedge Fund Managers View the Pandemic?
Although news of the Pfizer vaccine is positive, it does not signal an end to the current ways of working and living. After all, this is only one trial, and even if the vaccine continues to be successful, the distribution of the vaccine will still take around a year. As a result, it’s unsurprising that many hedge fund managers still expect that the coronavirus pandemic will still negatively affect their investments. Overall, 86% believe that the pandemic will have either a ‘negative’ or ‘very negative’ impact.
That being said, the vaccine news is still a huge positive. Due to this, if the successful trials continue, the vaccine may change the outlook of hedge fund managers as long as they adapt their strategy in order to take advantage of opportunities that emerge in a post-COVID world.
What Sectors will be Popular Investment Options?
Due to the fact that the vaccine will first be given to vulnerable people over the pension age, it seems likely that the ‘new normal’ work from home dynamic will continue for at least the first half of next year. As a result, expect tech stocks to receive significant investment. The vaccine news actually caused Zoom stock to plummet by 15%, but this may be short-sighted given that the vast majority of us will still rely heavily on this form of tech in the next 6-12 months. Plus, if the virus fundamentally changes the way that we conduct business, and working from home becomes the norm in some industries, then this technology may be here to stay.
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Similarly, for many people, the coronavirus pandemic has changed our relationship with our bodies and our minds; particularly because self-isolation and lockdown have made us think more about how we look after ourselves without gym access. As a result, expect well-being providers such as Peloton to build on the 350% growth they’ve seen this year.
Finally, it’s important to remember that the Pfizer vaccine is just one of the options available, and we’re still waiting to hear trial results from other vaccine providers such as AstraZeneca, Janssen, and Valneva. Should their trials also be successful, expect their stock prices to skyrocket on the announcement.
In summary, although hedge fund managers still believe that the pandemic will have a negative impact on their funds, the Pfizer vaccine provides us with a glimmer of hope that life may return to normal by the spring. As a result, for hedge fund managers and investors, this hope presents an opportunity. By adapting their strategy to purchase stocks in areas likely to see growth such as tech and well-being, proactive hedge fund managers may be able to overcome at least some losses and could potentially come out of the pandemic unscathed.
Saudi Aramco, the world’s largest oil company, has hired a group of major cash in an effort to raise cash as the price of oil slumps further.
A bourse filing from Aramco revealed that the company has contracted Goldman Sachs, JPMorgan, Morgan Stanley, HSBC and NCB Capital to arrange investor calls ahead of a multi-tranche US dollar-denominated bond issuance. The calls will begin today.
A host of other banks are also involved in the deal, including BNP Paribas, BOC International, BofA Securities, Credit Agricole, First Abu Dhabi Bank, Mizuho, MUFG, SMBC Nikko and Societe Generale, as shown by a document issued by one of the banks.
Aramco did not share details on the size of its latest proposed issuance, though its benchmark multi-tranche offering is planned to consist of tranches for three-, five-, 10-, 30- and/or 50-year tranches, subject to market conditions. Benchmark bonds generally see a minimum value of around $500 million per tranche.
The move comes as ratings agency Fitch revised its outlook on Aramco from stable to negative last week. Earlier this month, the company posted a 44.6% dive in third-quarter net profit compared to Q3 2019 as the COVID-19 pandemic continued to drag oil prices down.
Aramco has already raised a $10 billion loan this year and requires $37.5 billion to pay dividends for the second half of 2020. It also requires cash to fund its $69.1 billion purchase of a 70% stake in Saudi Basic Industries (SABIC), which is set to be paid by instalments until 2028.
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Oil prices fell to historically low levels in March and April in the initial onset of the pandemic, with West Texas Intermediate even falling into negative value for the first time ever. Though WTI and Brent crude made a comeback in August, prices have since dropped again on fears of a highly damaging “second wave”.
Big Four accountancy firm PricewaterhouseCoopers (PwC) plans to sell its fintech unit amid mounting scrutiny on its potential conflicts of interest within the sector.
The unit, eBAM, uses PwC-developed technology to automate regulatory risk analysis for around 10 major London-based finance firms. It is set to be acquired by its management and rebranded as LikeZero in a deal backed by UK-based private equity firms Souter Investments and Manfield Partners.
Michael Lines, PwC’s former head of contract solutions, will become CEO of LikeZero. Speaking with Financial News, he said that the unit’s sale was prompted by regulations limiting the services that Big Four firms could provide to the financial institutions and listed companies they audit.
Specifically, restrictions introduced by the Financial Reporting Council – the UK audit watchdog – prohibit PwC from selling its own technology to their audit clients. The FRC also prohibits non-audit PwC clients from continuing to use PwC-developed technology if they become customers of the firm’s audit business.
“In the current environment, PwC [is]... not really the right home to turn LikeZero into a proper global business,” Lines said.
In 2016, the FRC introduced measures restricting Big Four firms from providing audit clients with fintech solutions as part of an initiative to reduce conflicts of interest in the financial services sector. It built on these measures in 2019 by banning auditing firms from providing certain clients, including banks and insurers, with advisory services such as remuneration and tax advice. The move was intended to strengthen auditor independence following a number of scandals, including the collapse of department store chain BHS and outsourcer Carillion.
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Chris Biggs, Partner at Theta Global Advisors, commented on the announcement: "This announcement is another move by a Big Four firm to realign its business model with the FRC regulations to prevent a conflict of interest with its auditing clients.”
“The global pandemic has shone a light on the practices of the Big Four and their interests in the auditing and non-auditing space. Now, they are beginning to sell-off businesses that could be deemed to go against regulations and this is unlikely to be the final announcement in the space.”
eBAM’s technology allows financial institutions to automatically search complex legal documents potentially thousands of pages long for risks that could arise from significant regulatory events, such as Brexit.
The value of the deal is not yet known, and is set to be announced later today.
Global stocks slid back on Friday as a surge in European and US COVID-19 hospitalisations dampened investor enthusiasm after a week of vaccine-spurred optimism.
However, news from Edison Research that President-elect Biden was set to cement his election victory in Arizona looked to give the US market a firm opening. S&P 500 and Nasdaq futures were both up 0.9%, while Dow Jones futures rose 1%.
European stocks fared worse as COVID-19 hospitalisaions rose to a record level in France, while the daily infection rate in the UK surged more than 50% to over 33,000. The UK’s FTSE 100 was down 0.1% as trading opened, while Germany’s DAX was up 0.4% and France’s CAC 40 gained 0.6%, with analysts reporting that investors were torn between fears over rising COVID-19 cases and optimism over Pfizer and BioNTech’s COVID-19 vaccine candidate.
Michael Hewson, chief market analyst at CMC Markets, linked dwindling investor enthusiasm in Europe directly to the ongoing COVID-19 pandemic. “With both France and the UK already in the midst of a temporary lockdown, there is a concern that unless the case rate slows, any relaxation of restrictions could take longer to unfold, and increase the longer term potential for economic damage along with that,” he said.
Elsewhere, Asian stocks fell overnight, with Japan’s Nikkei shedding 0.5% while the Hong Kong Hang Seng and the Shanghai Composite fell by 0.3% and 0.8% respectively. With Australia’s ASX 200 also falling 0.2%, the only major Australasian index trending positively was South Korea’s KOSPI, which rose 0.7%.
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While global stocks have seen a boom week following the announcement of Pfizer’s effective vaccine candidate, the heads of the Federal Reserve, ECB and Bank of England all warned late on Thursday that even an effective vaccine would not immediately end the social and economic impact of the pandemic.
Andy Campbell, global solution evangelist at FinancialForce, analyses current trends in the financial services industry and how firms can keep pace with customer demand.
In the digital age, the finance function of old is no longer sufficient. Whilst generating reports, budgets, and plans will still remain core to finance’s day-to-day activities, the modern business landscape moves quickly, and the finance team needs to be similarly agile to keep up.
Digital transformation across businesses and whole industries requires finance departments which can support new business models, plan for agility, create outcome-based versus product-based offerings, and identify new joint venture opportunities. In short, finance needs to move away from bean counting and work more closely with internal stakeholders and customers to provide innovative experiences and organisation-wide value.
This is a radical transformation of what has come before, and requires a similarly radical shift in long-established mindsets both within the finance department as well as the rest of the organisation. If this change in mindset can be achieved, finance teams can start to take advantage of the data analytics solutions now more widely available. With a new level of visibility offered through rich, timely data and advanced analytical tools, businesses are making changes to embrace new models. The finance function is having to increase its agility in order to deliver and support the overall business.
The COVID-19 pandemic has played a significant role in this transformation. It has shone a light on business inefficiencies, and as a result, has acted as a catalyst for digital transformation, speeding up digital initiatives. We have seen more change in the last six months than we have in the previous six years. Additionally, the focus on managing cash more effectively to ensure survival has meant that the transformation focus that was typically centred around the front office - the way we deal with our customers - has changed. We are now seeing a growing interest in transforming the back office.
The finance function is having to increase its agility in order to deliver and support the overall business.
This will not happen overnight, and there are five key shifts that a business needs to make to transition from the traditional finance department to a digital office of finance.
Shifting from financial-only proficiency to enterprise-wide know-how
Financial metrics will always be important, but the modern finance leader needs to broaden and develop an understanding of KPIs in other areas of the business too. They should have knowledge of both customer experience and satisfaction, in addition to conversion rate optimisation and employee retention to round out existing analysis. This presents a massive contrast to accounting teams from years gone by, with the modern finance leader having evolved into a major business stakeholder. The focus is no longer just on the finance element, but also on creating and continuously strengthening healthy customer relationships and customer lifetime value.
Shifting from monthly reporting, to real-time decision-making
Today, monthly closes or quarterly reviews are too slow. Decisions need to be made using real-time data every time. Accuracy and speed are paramount when it comes to making sure that a business is successful. Understanding what is involved in creating and delivering a new offering - and being able to course-correct to maximise profitability or customer satisfaction - can no longer wait until the end of the month or quarter. As such, a business must invest in business intelligence (BI) and artificial intelligence (AI) solutions, so as to quickly derive insights about how the business is performing, and to subsequently act on said insights.
Shifting from static forecasts to rolling forecasts
If finance departments are to switch to a weekly or even daily forecasting schedule they’ll need technology to support their endeavours. Modern forecasts must account for several different models, constantly shifting sets of variables and the use of new technology like AI. This requires organisations to build agility across a number of business risk scenarios, such as price wars, natural disasters, or the current COVID-19 pandemic.
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Shifting from financial analyst to business model strategist
For businesses to remain one step ahead of the competition, they need to be constantly searching for new revenue streams. This could be considering how to turn services into products (or vice versa), or creating new offers or bundles for customers and presenting them in a different and unique manner. Central to enabling these new approaches is real-time data, as it provides visibility into both what sells, and what deliveries the highest margin. From this, they can then pinpoint the top performers and double down on them.
Shifting focus from product to customer success
Many sectors of the economy have already transitioned to a services and subscription renewals model. With this change comes a renewed need for businesses to redouble their focus on customer experience. Finance leaders need full visibility over each and every account in order to enable smarter decision making. This means becoming more engaged with their customers, so as to ensure satisfaction and retention. Customer onboarding, service delivery, support, or other post-sales functions: finance leaders must get closer to all of them. Only then can those deep insights into customer behaviour, as well as service and product quality, be uncovered so as to make sure that the needs of the customer are fully met.
