Results

The Hackett Group Inc.

07/10/2020 | News release | Distributed by Public on 07/10/2020 13:24

Five Challenges to Finance’s Re-emergence Scenario and how to Overcome Them

By Nilly Essaides - Senior Research Director, Finance/EPM/FinOps

The Covid-19 pandemic continues to threaten populations and economies, and already-complex recovery scenarios are now compounded by surging infection rates across the globe. We are in a deep recession that may be prolonged; many companies, hard hit by plunging growth, are reporting sinking revenues for Q1 of 2020 and market experts anticipate a steeper decline for Q2.

In The Hackett Group's recent Covid-19 Finance Poll, we asked senior executives about the challenges they face to a return to steady-state operations (see chart below); 86% cited expectations of an uneven recovery as the biggest obstacle. Regions, countries, and even areas within each country, exhibit a different path forward, driven by the combination of the effectiveness of their public health response and prevailing and expected economic conditions.

We also see significant (66%) concern about deteriorating customer credit quality, driven by continued pressures on revenue and therefore the financial health of different companies.. In addition, 63% of participants highlighted difficulties caused by ongoing work-from-home requirements and travel restrictions. Nearly half are worried about the long-term effects of required cost-reduction measures, such as discontinuing investment in critical improvement projects.

How to Overcome Obstacles

Finance respondents to our poll listed the following actions they plan to take in order to overcome these challenges:

#1 Uneven recovery levels at country region and industry levels

Because different countries have adopted different public health measures to combat the virus (and some had 'preexisting' economic conditions), the recovery trajectory is bound to vary by country and region. To accommodate disparate scenarios, finance executives plan to:

  • Provide autonomy to local finance/business leaders to manage unique situations, such economic growth and local employee safety considerations.
  • Leverage quickly recovering businesses to support ones that are recovering more slowly.
  • Ensure adequate focus on regions/countries that require the most support.
  • Provide clear and careful communication to share the inputs and outputs of ongoing scenario modeling.

#2 Ongoing customer credit-quality issues

Recessionary pressures will continue to strain companies' credit worthiness. Some organizations have already begun to slow-down payments or even default. Meanwhile, many US companies are smarting from a decade-long borrowing binge, especially in the leveraged loan market, and may not be able to meet their debt obligations, leading to a wave of bankruptcies. According to our poll, finance executives plan to:

  • Continuously monitor customer credit status.
  • Offer flexible terms (discount for early payment, etc.).
  • Tighten credit policies and focus on strategic customers through enhanced risk models.
  • Develop new global credit policies to support customers into the future.

#3. Ongoing remote work and travel restrictions

No one knows when we will be able to get back to the office. HR respondents to our poll predicated a 3X rise in the percentage of employees working from home post-crisis. And there are no signs the pandemic is subsiding; if anything, we're experiencing soaring infection rates, as states began to scale-back shelter-at-home restrictions. While some companies have reported increased productivity levels, there is growing concern that employees will soon tire of this new way of work, especially as they gain greater freedom to engage in other activities. Other organizations cited productivity declines. To overcome the challenges of continued restrictions, finance executives plan to:

  • Utilize and improve video conferencing and collaboration tools.
  • Prepare a formal work-from-home plan.
  • Transition to working in shifts to reduce chances of contagion.
  • Implement stringent health regulations, such as contact tracing, frequent tests and temperature taking.

#4. Lack of investment in necessary improvement projects

Covid-19 devastated many parts of the economy and forced companies to reduce costs to protect their margins, ahead of a potentially prolonged recession. CFOs and senior management had no choice but revisit Capex and OpEx investments, in some cases having to cut funding to critical improvement initiatives. But as the economy reboots, these decisions may sabotage companies' ability to prevail in the new normal. To avoid inflicting long-term damage on corporate performance, finance executives plan to:

  • Identify and reprioritize projects that demonstrate same-year payback.
  • Implement digital automation and robotic processes.
  • Keep projects moving as much as possible without additional investments, proving the case for change.

#5 Resistance to abandoning remote work

Only 38% of respondents ranked resistance to returning to the office as a major obstacle to getting back to steady-state operations. In many cases, employers are very aware of the potential risks and are not demanding staff to stop working remotely. In the case of one of our clients, the company decided it will not mandate a return to the office until January 2021, at the earliest. Still, other organizations, depending on industry or specific employee roles, may need to move faster. To ensure staff is comfortable coming back, CFOs plan to:

  • Adjust policies to provide employees with more flexibility beyond current policy.
  • Ensure the office work environment is safe to return to.
  • Consider employees' personal levels of risk tolerance and specific health considerations.

Conclusion

For a short while, the prospects of a return to some kind of normalcy seemed near. However, the events of the past couple of weeks have darkened the outlook. The resurgence of the pandemic - globally and especially in the U.S. - is threatening a nascent economic recovery. Some states have already had to roll-back actions designed to open their economies, exacerbating the challenges for the return to steady-state operations. It's imperative that CFOs revisit their contingency plans and run new scenario analysis to determine the potential effects of the worsening environment on their own chances for recovery.