Professor Arif Khurshed, Professor of Finance at the Alliance Manchester Business School: Can finance professionals take the lessons of Covid-19 into the future
The Covid-19 pandemic and its associated lockdowns have put businesses and their finances under significant strain this past year. For most, the priority has not been growth, investment, and opportunity – it has been simply to survive. It is a challenge that has rested heavy on the shoulder of financial decision-makers.
Data from the ONS highlights the magnitude of the task at hand for finance professionals. In Q4 2020, businesses closures were up 37% compared with last recorded pre-pandemic quarter (Q4 2019). While there are encouraging signs of emerging stability in the latest figures, there remains a great deal of economic uncertainty, which will require careful navigation – 111,145 business ceased trading in Q1 2021 alone, 30% up on the same quarter in 2019.
Even the most astute financial management may not have been enough to save many of these businesses, though it is certain it will have been influential in the preservation of those still operating. The past year has been typified in business by streamlining and concentration of resources on critical operations, leaving little margin for error as the balance of revenues and costs became less predictable than ever.
Looking forward to a fully reopened economy, financial management teams must consider what the circumstances of the pandemic have taught them, and where these learnings can be implemented in future decision-making.
Financial challenges
The UK was restricted by national lockdowns and social distancing measures for large swathes of 2020 and 2021 to date. Within businesses, as the landscape evolved at pace, financial decision-makers were forced to adapt to short-term thinking. For instance, they needed to remain abreast of both national and regional lockdown rules; they had to monitor the various financial support schemes that were unveiled and then routinely reconfigured; and manage the bigger picture of the national economic prospects and guarding against ongoing policy reviews.
There were also internal operational challenges to contend with. For instance, the closure of non-essential retail spaces forced both business and consumer to turn to online retail. Naturally, a bubble of demand formed around eCommerce. Given that this was uncharted territory, nobody could credibly say with certainty that this would be sustainable. As such, finance professionals had to continually assess areas where their business could continue to reach customers, while not over-extending resources into a bubble which may burst in the short- or medium-term.
Supply was another troublesome area. International shipping was constrained by lengthy delays and volatile price responses, affecting both the delivery of goods and customer relations. This led to uncertainty around the fundamental costs of producing a product or service as there were no guarantees that prices or timings would be remotely comparable week-by-week, making planning operations a headache – and that is without considering the protracted lack of information or certainty around the detail of the Brexit deal. In this case, many finance professionals had to be across the detail on a number of rapidly-evolving supply chain issues, ensuring they could strike a reasonable balance between productivity and the ongoing financial viability of production.
Core skills at the fore
In the UK, the success of the vaccine rollout is edging society towards something more resembling normality. However, as many financial managers will be aware, the economic damage of the pandemic will continue to be felt for months and years to come.
With the long-term picture still looking challenging, it is crucial that financial managers consider their pandemic response to date, and assess where gaps in their skillset have been exposed. For me, the pandemic has shown that core skills are the single critical factor in ensuring finance professionals are capable of responding to any future economic disruption.
The University of Manchester’s MSc in Financial Management concentrates on these fundamental skills. The pandemic has distorted a great deal of what we considered ‘conventional wisdom’ – yet the basis of this academic course has only been emboldened in light of the pandemic.
It must be noted that core skills are not limited to just the foundational financial mechanisms; indeed, soft skills are equally important to a rounded professional. For instance, the ability to compassionately communicate the necessary yet difficult decisions such as redundancy or restructuring will have been vital. Handling such matters with care will likely ensure improved organisation alignment behind the efficacy of a longer-term plan while easing internal anxieties about the health of the business.
With the majority of businesses facing a lengthy and difficult process of recovery, decision-makers should seize the opportunity to review and address areas where their skillset was found wanting over the past year. Ensuring a productive equilibrium between hard and soft skills will be of great importance not only in protecting businesses from further crises down the line, but in the operational management of their business once conditions have returned to a state of renewed certainty.
