2023 was a challenging and uncertain year for UK businesses. High levels of inflation, stubborn energy prices, high interest rates and forecasts of a contracting economy all created investment caution. An inflation rate of around 9% created a gloomy start. Consensus forecasts of the economy contracting by ¾% added to the supply chain problems resulting from the war in Ukraine, creating a cost-of-living crisis that restricted consumer spending. For an economy still in recovery from a major pandemic, it seemed that recession was inevitable. However our in-house economist, Darren Winder, was consistent throughout 2023 that we would not enter a recession. For a period of time he felt like a lonely voice in the wilderness!
“Throughout 2023, inflation fell sharply, energy prices eased and costs came down, giving hope for better investment opportunities in 2024. Inflation came down dramatically, ending the year around the 4% mark, in line with our expectations, as outlined in January of last year. The likelihood of inflation hitting the government’s target of 2% have increased for 2024, with the reduction in the energy price cap in April a significant factor. National Insurance cuts have also lowered the tax burden, with more coming for the self-employed in April.”Darren Winder – Lazarus Economics, a McLean Advisory company
Despite these green shoots, the cautious reaction to uncertainty often encourages businesses to shelve intended modernisation or value creation. This can mean they miss out on opportunities to grow faster and more efficiently had they had, with benefit of hindsight, the real economic outlook data. Either way, growth is likely to be somewhat anaemic overall for at least the next two years, so we have picked out six activities that should be in every business leader’s plan if they want to build value and take advantage of cautious recovery and market opportunities in 2024.
- Focus your value creation plan on the priorities which will deliver the best return on investment in a cash restricted environment
- Go heavy on workforce communication to build a resilient, high morale and productive workforce
- Become customer obsessed with your transformation to build long term value in your products/services
- Focus on cultural transformation now when adoption will be more swift to build the most productive and engaged workforce for the long term
- Adopt prudent financial disciplines and be ready to invest at the early signs of recovery
- Harness new technology to drive efficiencies and product/service development.
Focus and prioritisation
Whether you are an investor looking at your portfolio or board looking at value creation levers; momentum, growth and agility are key for a modern business. Even in an economic downturn, focussed investment spend will help a business stay competitive and enable it to grow, but choosing what to prioritise can be tricky.
Liquidity is the fuel that powers a value creation plan, but companies are having trouble managing their operational demands to find the liquidity to fund change. Now is the time to focus in on where you see the greatest opportunity for a return. You cannot do everything at once so break change down into deliverable chunks, be more sensitive to the current commercial reality, budget, and pursue a narrower, more focussed, programme of investment to ensure you can maintain momentum.
In the absence of the right leadership capability or capacity you could seek out an experienced executive leader available for rapid deployment on an interim basis to ensure cost is minimized and focus is retained. This approach also means when things improve you can scale up to address a broader scope without having lost the essence of ‘new ways of doing things’ alongside the optimism and improved morale that you had begun creating before things got tough. The right leaders will know where to focus your business transformation to unlock the most value.
Communication, communication, communication
Uncertainty within an organisation can be infectious. When people don’t know the direction their business is headed, they can think the worst, become unsettled and jump to conclusions. In the end, this will create poor business decisions.
People are the key to company performance. A resilient, high morale and productive workforce comes from everyone being kept informed and feeling they are an important part of the whole. Good organisations always communicate with people, both good and bad messages, in a way that keeps them aware of everything necessary and ensures they are not guessing.
Great people leaders will ensure there is an effective platform to keep people informed, that managers communicate in both directions up and down the chain, and that leaders go out of their way to make the people on the floor feel part of decision-making and strategy.
Customer obsessed transformation
Wherever you focus your transformation, ensure you are doing so with a strong focus on your customers. In a time where consumer spending is tightening, it is very important to stay close to your customer base. When things are uncertain, people are more accepting of change and are more likely to be active in looking for better value from their spending power.
This may mean that brand loyalty is not as strong, and even long-term customers may prioritise getting a better deal over the knowledge that your product or service already delivers what they want. Companies should look at their product and/or service propositions with an eye on creating differentiations that help their customers with their own challenges.
By understanding where you are providing value for your customers you can offer them a better deal through enhancing your offer, or by solving their problems. Cutting the marketing budget might be relatively straight forward, versus other functions but inhibits granular analysis of opportunities and prevents those companies from identifying the up-swing when it arrives and optimising their sales strategy accordingly.
Again, good communication is important. Understanding your customers requires a conversation to optimise the value proposition. Asking your customers questions, listening to the answer, and reacting in a positive way sounds simple, but often is the most effective thing to do. The best customer obsessed leaders know how to do this and will ensure your business transformation builds value through long term customer loyalty.
In challenging economic times, working harder to deliver better results is a challenging reality. Great business leaders who can motivate employees to increase productivity is an effective way of growing a business without the need for large scale spending. Ensuring employees feel engaged in the success of the business will mean they are motivated towards its success and will work harder during difficult periods to ensure the business, and consequently their own position, is stable.
When things get tough – there is a greater acceptance for change and so now is the best time to focus on the cultural transformation that underpins a productive workforce. Building a great culture is one of the best ways to ensure revenue stability and business growth in an uncertain economic period. And although cultural transformation takes time and requires the right leadership; The best business leaders will cultivate a culture that embraces change and swift adaptation. They will communicate a compelling vision, motivate their teams, and lead by example during challenging times. Being transparent, empathetic, and decisive can inspire confidence and drive the organisation forward amidst uncertainty.
A hard working, productive and engaged workforce should be prioritised alongside building resilient teams. Whilst business and sector expertise are important, businesses should also focus on recruiting resilient people, those who have the right mindset and those who have scenario expertise and can evidence their capabilities for managing through challenging circumstances. Recruitment and retention is key to ensuring the right culture is in place, but leading by example with the right behaviours will cascade them down.
It goes without saying that challenging trading environments call for a close eye on the fundamental financials of any company. Scale and scenario dependent, for many CFOs (and even CEOs) cash flow should be a daily obsession – knowing what you have going out compared to income will ensure the proper focus is given to internal initiatives that naturally improve the cash position of your business.
In addition to bottom up Opex management, finance leaders should be forensically reviewing the capex programme, inventory cycle, all receivables and payables to ensure cashflow is optimised, capital returns can be met and covenants are protected. Cost optimisation should be a core focus.
Growth will recover and with effective cash management you will be ready to invest when the market indicates renewed optimism and new opportunities.
Technology is a proven value creation lever and one that can be harnessed in all facets of a business, and to improve the performance of the activities discussed so far. Technology transformation has radically changed in the past few years and implementing a system now can be done in months or even weeks rather than years and at a much lower cost. A great CTO appointment could be the big difference for businesses seeking recovery and business growth through 2024.
Technology can be a great enabler for both driving efficiencies in business but also for product and service development to gain market share. New technology and new business processes can potentially reduce and eliminate waste within business operations. AI particularly should be part of every business’ strategy as it has the potential to streamline operations whilst simultaneously improving product quality.
To sum up
Whilst navigating a challenging market presents obstacles, it also presents opportunities for innovation, growth, and market leadership. Businesses that remain agile, customer-focused, innovative, and adaptable are better positioned not only to survive but to thrive in an ever-changing business environment. Strong leadership that fosters resilience, embraces change, and champions innovation is pivotal in steering businesses towards success in challenging times.
McLean Advisory is a professional services platform of companies operating in research, HR and executive recruitment. Together, we offer market-leading strategic advice to people and companies within Commerce, Industry, Financial Services, Government & Public Enterprise and Real Estate.
The interconnected nature of our subsidiaries and the sectors within which they work enables us to provide clients with the insights they need to successfully shape companies, promote innovation and deploy capital.
McLean Partnership is the recruitment arm of our professional services firm. We support organisations with their people strategy through our core services. Together, they offer market-leading strategic advice to people and companies within Commerce, Industry, Financial Services, Government & Public Enterprise.
Executive search – recruiting highly effective teams and individuals.
Board Practice – delivering high impact, diverse experts to public and private companies.
Interim & Consulting – providing rapid access to senior talent to deliver turnaround, transformation and growth agendas.
Our clients include; institutional investors and advisors, sources of private capital, public and private companies, academia and innovation.
Lazarus Economics & Strategy provides a rigorous and detailed statistical analysis of a broad range of indicators across the major economic geographies. We maintain comprehensive databases which have been developed over many years to cater for the evolving needs of our clients.
Nick Hart leads The McLean Partnership Executive Interim and Consulting business and has over fifteen years’ experience providing boards, investors and management teams with rapid access to leadership Talent. Prior to joining McLean, Nick held Partner roles at number of executive recruitment businesses most recently at The Savannah Group where he led their work in Commercial Interim Management and Private Equity.
Darren Winder is a Partner for the Lazarus Partnership and has over 30 years of experience in the financial markets working as an Economist and Strategist within the Bank of England, SG Warburg/UBS and J.P. Morgan Cazenove.