Geographic insights

Many organizations have made changes to their operating models, workforce strategies, products, portfolios, and more. The pandemic has created massive uncertainty, but also an unprecedented opportunity to learn and reshape parts of an organization, building resilience for future shocks. Trends are emerging in priorities and reshaping actions at the regional level, reflecting the different ways geographies have been affected by the pandemic and other risks. New product development is the main priority in EMEA, APAC and LATAM, reflecting a realization that companies will need to innovate to survive in these markets. In North America, the focus is more on workforce planning, possibly because the region typically has higher employee numbers and wage rolls, coupled with more onerous workers’ compensation regulations. Respondents across regions ranked economic disruption and a potential health crisis as top potential shocks, but region-specific shocks are also on the radar. North American companies ranked concerns over geopolitical tension above another pandemic, reflecting ongoing trade disputes with China as well as domestic political unrest.

North American companies are also more attuned to the potential impact of a major cyber event, rating this their third most significant concern. This supports our most recent Global Risk Management Survey’s finding that cyber is seen as the top risk in the U.S. and reflects the higher volumes of breaches and costs we see in North America. APAC and LATAM both see business-model disruption as a top-three major shock. Both regions are large exporters, and any major disruption to supply chains, for example, could impact these economies significantly; this could also be part of the reason that new product development is a major priority for companies in APAC and LATAM. Companies in EMEA are most concerned about climate change as a major shock, which may be a function of concern over the impact on their supply chains as well as increased regulations and corporate scrutiny from consumers and investors.

Protecting people and assets

The pandemic response was predominantly about people, including employees, customers and others who are linked to commercial activities. It is unsurprising that this was ranked highest by respondents across all industries and regions. However, organizations differ in how they manage people and assets. Organizations identified three specific reasons for protecting people and assets. The main reason, which was consistent across all sectors, was wellbeing. This is not unexpected given immediate concerns about employees contracting the disease within the workplace. The definition of wellbeing has evolved as COVID-19 prevention measures were put in place and is increasingly linked to mental and emotional wellbeing. Operational resilience also ranked high, particularly for organizations that have provided essential services during the pandemic. This includes manufacturers, distributors and life sciences organizations, all of which had to ensure that employees and assets could service continuing demand during the pandemic. Retention of key people was another top consideration. This was initially linked to ensuring people’s safety and their ability to perform business-critical roles, but increasingly we see sectors concerned about the longer-term impact on employees. Some sectors are concerned about emotional and other wellbeing issues impacting key colleague performance and productivity, raising its importance. These three issues took top priority across all regions, followed by maintaining reputation in all regions other than LATAM. How companies are perceived to have managed COVID-19 and how they retain the trust and confidence of their stakeholders — including employees, customers and investors — will be an important component of their recovery.

Considering protecting people and assets, what are your company’s priorities in reshaping your business? (Ranked in order of importance from 1-10, with 1 being the most important)

Considering maintaining/increasing revenue, what are your priorities in reshaping your business? (Ranked in order of importance from 1-7, with 1 being the most important)

Maintaining/increasing revenue

There was a strong digital theme to responses about priorities for maintaining and increasing revenue. New and accelerated use of technology was the most significant opportunity, with new products and digitization also featuring prominently. Asset investment was the second most significant overall opportunity. This may be linked to the need to invest in assets to make them COVID-19 secure, reconfigure to allow activity in compliance with local regulations, or add digital technologies to promote agile working. The imperative to keep operations resilient and to gain the trust of employees and customers is likely to be a key factor driving decision-making here. While these four main themes were common across all regions, new use of technology topped the list of priorities for companies in EMEA and LATAM. New product development was the priority for companies in APAC, presumably to respond to the increase in demand for digitization and automation. This may also reflect the fact that more APAC companies were thriving during the pandemic and appear better positioned coming out of it. This may enable them to think about how they can further capitalize by deploying products that remain relevant. In North America, asset investment opportunities/risks topped the list. This may be because organizations that were more likely to be impacted also considered disposing of unprofitable assets to reduce exposure. It is also likely to reflect the scale of investment needed to keep large working populations safe from COVID-19 and to provide assurance to customers across their supply chains. From a turnover perspective, there was little difference between the views of smaller and larger companies in the survey sample, demonstrating that all companies have the opportunity and the need to embrace digital ways of working to maintain or increase revenue.

Protecting balance sheets

The two most significant balance sheet priorities for respondents across regions and industries were expense rationalization and liquidity planning. While many companies are not yet at the point of deciding on significant cost-cutting measures, most are looking to manage a low level of expense to offset volatility in their revenue lines while optimizing their free cash-flow position. Some of these decisions have likely been delayed by government responses to the pandemic. While individual country responses have differed, governments have resorted to fiscal stimuli, state-backed support and other schemes to help organizations weather the most severe phases of the pandemic. As these schemes are rolled back, reduced and phased out, we expect to see increased focus on cost cutting as a longer-term solution beyond expense rationalization. Respondents also cited credit protection and contingent capital as areas of focus. Longer-term balance sheet planning initiatives, such as the review of pension plans to reduce liabilities, are a lower priority at this stage, as companies continue to focus on short-term recovery measures. When we look at results from a turnover perspective, liquidity planning is the priority for companies with turnover of less than USD 1 billion. For these companies, cash is critical to resilience. Even in normal trading circumstances, liquidity is a focus when there are issues with debtors. The macroeconomic impact of COVID-19, its longevity and its impact on demand have increased the significance of this factor for these organizations. Larger companies (over USD 1 billion in turnover) are focused on expense rationalization, which offers more options for variable costs to be reviewed and reduced in the short term. This is likely to change as we move into the medium term and they consider longer-term solutions that impact efficiency and profitability.

Considering balance sheet protection, what are your priorities in reshaping your business? (Ranked in order of importance from 1-7, with 1 being the most important)

Considering cost management, what are your priorities in reshaping your business? (Ranked in order of importance from 1-6, with 1 being the most important)

Managing costs

Respondents had three standout priorities when it comes to cost management: redeploying resources, reengineering business processes and reorganizing the workforce. While all of these priorities represent valuable long-term reshaping strategies, they also play an important role in retaining performance during the recovery phase of COVID-19. These priorities are likely to be strongly linked to decisions taken to protect people and assets. Organizations have had to undertake prioritization exercises to identify critical assets and organize capital and resources to support this activity. In doing so they have chosen to redeploy resources, which suggests an increasingly agile philosophy toward employees and their skills. These steps are done in conjunction with the need to maintain efficiency. Redeploying resources was a priority in all regions other than APAC, which is mostly focused on business process re-engineering. This could reflect the higher percentage of manufacturing and trade sectors operating in APAC’s economy. It may also suggest that these organizations have identified the value of further efficiencies through redesigning operating processes. While priorities for companies with lower turnover were very similar to those with higher turnovers, companies with revenues of over USD 1 billion focused on wider business process re-engineering, whereas smaller companies looked to redeploy resources.

Revisiting business strategy

Revisiting business strategy was the most important objective for most geographies and sectors, save for some industries where the pandemic has created an opportunity to retain competitive advantage. Priorities for respondents in this area were both strategic (new product development and capital investment planning) and focused on human capital (workforce planning and future of work). The results show that organizations are thinking about how they can deploy capital and resources efficiently through new products and services that meet future demands. Responses are largely comparable regardless of an organization's turnover. This reflects a realization among smaller businesses that everyone will need to reinvent themselves in the aftermath of the pandemic.

Considering revisiting business strategy, what are your priorities in reshaping your business? (Ranked in order of importance from 1-10, with 1 being the most important)

Reshaping risk management

for future shocks

Because traditional ERM processes did not identify the pandemic as a threat, and organizations’ existing risk infrastructures exposed gaps as the pandemic unfolded, many organizations are now seeking to reshape risk management, especially as they prepare for the next major shocks. Respondents were most likely to cite economic disruption, another health crisis and geopolitical tension as the major shocks they expect to see in the future. The majority of survey respondents (83%) either agreed or partially agreed that COVID-19 has accelerated planning for future shocks. This will likely involve reshaping their ERM function, starting with better integrating risk management and developing strategy at the executive and C-suite level. Twenty-nine percent of respondents agreed that COVID-19 has accelerated their boards’ review of ERM. Three-quarters of respondents expect their boards to review the ERM program as part of normal business processes. This suggests ERM will form part of the normal business cycle in reviewing changes and applying lessons learned.

This shows that organizations have been quick to consider the impact of the pandemic and are already considering the longer-term implications for their organization. The global reach of the pandemic has provided a stark, tangible example of not only the scope of these shocks, but also the opportunity that exists for companies that are prepared. The results support the view that even the best-prepared regions, sectors and businesses recognize the need to apply the lessons learned to the future. They clearly understand that their ERM and BCM strategies must continue to evolve if they are to maintain resilience and seize opportunities to successfully navigate future shocks. Organizations around the globe will face significant macroeconomic challenges in the post-pandemic era. The impact of the pandemic on demand, the risks of bad debt and insolvency across supply chains present challenges for all organizations as they look to rebuild.

Future shocks (Ranked in order of likelihood from 1-10, with 1 being the least likely and 10 being the most likely)

An additional barrier to growth is linked to political uncertainty. Trade tensions between major trading blocs have the potential to add complexity through increased costs associated with tariffs, delays in exports and regulatory compliance creating additional hurdles to accessing markets. It is surprising that a major cyber event ranked only sixth in priority. Organizations’ increasing reliance on digital solutions and remote work increases their vulnerability by making cybersecurity a more concentrated possible point of failure. Climate change remains important, but this may be viewed as a longer-term risk that can be managed at an enterprise level. It is already taking on increased prominence as consumer attitudes change and investors seek assurance that companies have identified and put in place plans to mitigate the risks. Responses in regard to future shocks were closely aligned, but companies with annual revenues under USD 1 billion are more concerned about another health crisis, given the fragility of many smaller companies during the pandemic. Companies with annual revenues above USD 1 billion are more concerned about a major cyberattack, presumably because they believe their brand prominence makes them a more likely target. This may also reflect an understanding that their global operations rely on technology, and while this has allowed them to successfully invest in and accelerate digital plans, it nonetheless creates potential vulnerability if not managed effectively.