What’s next for Finnish firms?
As Finland braces for a second wave of corona, business leaders are taking stock of what their firms went through over the last six months, where they stand now, and the risks and opportunities ahead.
Overall, large and small companies alike lost over 12 percent of revenue in the second quarter. Some sectors, such as accommodation and catering, were nearly dealt a death blow (down 58 percent), while others scarcely felt the change.
But although the financial impact of COVID-19 varied dramatically depending on each company’s sector and size, most Finnish firms have experienced, directly or indirectly, a number of other important trends triggered by the pandemic.
Three key trends
Based on what we are seeing now, we think that three in particular are likely to have the greatest long-term social and economic consequences—and will raise some difficult questions:
The Amazon life. Before the pandemic, consumer preferences were leaning toward urban life and international travel. Now, people are buying more online, staying put and refurbishing homes, and taking a second look at larger houses in greener areas. Eating at home, dressing down, buying less — for consumer-related companies, the future looks tougher now than before. How can consumer businesses address the new minimalism?
The home guard. Pre-pandemic, working from home was an occasional treat for most white-collar workers. Today, many people are working from home all the time — and by and large, they like it. With less time wasted commuting and in meetings, productivity and worker satisfaction appears to be up. But there are many unresolved challenges: how do we accommodate people whose family obligations make working from home difficult? Can companies stay innovative if people aren’t having informal and random encounters? And how will they maintain loyalty and a sense of camaraderie without physical proximity?
An enhanced reputation. The Finnish government’s early, decisive response spared Finland the level of devastation suffered by many other countries while earning the country new respect abroad. The impact of COVID-19 has been unusually low, just six fatalities per 100,000 people, compared to 12 in Germany, and a whopping 54 in the US, according to the Johns Hopkins Coronavirus Research Center in Baltimore, Maryland. Decisive action and a shorter disruption meant that the Finnish economy suffered much less than many markets, and foreign investors can look at Finland now with new respect, seeing it more than ever as a country with powerful, enviable externalities, including science-driven policymakers and an educated population. But how can leaders use the enhanced reputation to attract more investments to Finland and their business?
How to play this hand
How should you play this new hand? What should you do to prepare for the future?
Close observation of consumers may offer some clues, as will keeping up with evolving trends in work practices. But the most significant risk factors to watch may be abroad. A number of major markets, including the United Kingdom, the United States, Brazil, and India, have yet to bring the virus under control. Geopolitical tensions, too, have been on the rise in the past few years, particularly between the US and China. And climate change keeps driving more extreme weather.
It is possible, of course, that none of these risk categories will lead to a major economic disruption for Finnish companies in the near future, or that something completely unforeseen by almost everyone now will strike. If there is one lesson we have learned this past year, it’s that serious disruptions are possible, and it pays to shape your company in ways that will make it flexible and capable of decisive action.
To plan and prepare for the future under these uncertainties, we suggest that you:
1. Master the new scenario planning. Ultimately, the future is singular, but as lived experience, it’s always plural. So why should we pretend to know how everything will turn out? Instead of having just one plan and preparing for a future that may or may not happen, we advise that companies plan for multiple contingencies. People have talked about scenarios for a long time, but now, smart companies are applying them in a pragmatic way. Creating your own playbook, and taking action as events develop, provides you with a much greater ability to steer your firm quickly to a novel direction (see August’s Voice here). This can be a tremendous advantage to a company facing difficult events.
2. Trim your costs. Second quarter’s revenue may have fallen by just 12% but profits fell by triple that. Finnish public companies reported a drop in total operating profit of more than 30%. Margin decline was cushioned by companies’ rapid cost cutting measures, including mainly temporary layoffs and spend reductions in non-urgent external services, but those were just temporary measures. Now companies need to make the harder, permanent choices that involve structural change and resource reallocation. But it won’t be easy: lack of a clear direction and organizational inertia often prevents companies from cutting costs from yesterday’s winners, and reinvesting that money in their growing businesses. Effective leadership needs to take a strategic view on cost and resource allocation, allowing the company to bet on its future, not its past.
3. Keep your financial forecasts current. The traditional, laborious approach to annual budgeting and planning might have had its role in the past, but today, the old ways no longer make much sense. Annual budget exercises can be expensive to prepare and even more expensive to fulfill, in that it’s easy to train managers to try to meet goals that turn out to be either too optimistic or too pessimistic, and either way, to accidentally incentivize them to withold information about actual conditions. Modern tools using data on demand drivers and agile planning practices can eliminate this risk of focusing on out-of-date goals. A system where Finance keeps up with the business and business returns the favor leaves the company with more accurate forward-looking numbers and smarter ideas about how to grow.
Place your bets
Scientists say that we should expect to live with coronavirus until herd immunity is achieved, hopefully accelerated by vaccination. This will take time, and probably not before new outbreaks. On the other hand, people are better equipped now to deal with this particular kind of challenge than they were last year, and we are all more aware than ever that dramatic changes can happen with very little warning. In the end, this may be the most valuable insight of all: you need to be ready for anything. Although we don’t know what the next disaster might be, much less whether it will happen soon or a long time from now, we do know that we are going to be safer if we are prepared to act before it arrives.
Olli Lehtonen, Partner +358 50 371 4110 firstname.lastname@example.org