Tuesday, September 28

KPMG: Companies’ pace of recovery depend on transition


An employee of a company sticks a standard operating procedure (SOP) poster at the entrance of the store. KPMG says each company’s pathway to recovery will vary according to the sector they operate in, where some companies may experience a slower pace of recovery compared to others, depending to their degree of risk exposure to Covid 19-driven shifts. — Bernama photo

PETALING JAYA: The easing of restrictions under the Conditional Movement Control Order (CMCO), which came into effect on May 4 and has been expended to June 9, 2020, has provided welcomed reprieve to most companies.

Even as business leaders and owners are mobilised to re-open, the realisation that companies will be operating in a new normal has been evident while the Coronavirus Disease 2019 (Covid-19) infections continue to permeate the community.

Chan Siew Mei

KPMG’s head of Advisory in Malaysia, Chan Siew Mei, advises business leaders to first conduct a triage and then prepare for the best business recovery plan befitting their situation, explaining: “Given the unprecedented impact this global pandemic has had on the bottom line, companies are driven to reset quickly to address immediate cash burn and attain a minimum viable business model within the shortest time possible.

“This attempt at immediate gain is understandable, but it should also be noted that Covid-19 has introduced new challenges to the business environment that calls for a measured, practical and informed approach. The key to business survival is agility and flexibility throughout the entire enterprise,” Chan advised.

She added that each company’s pathway to recovery will vary according to the sector they operate in, where some companies may experience a slower pace of recovery compared to others, depending to their degree of risk exposure to Covid 19-driven shifts.

Chan said this citing KPMG’s Post MCO Reset guide that was published recently.

Based on KPMG’s insights, there are four possible paths to business recovery.

These include, a hard reset which applies to companies that struggle to recover from Covid-19 due to permanently lowered demand for offerings, insufficient capital to ride out extended recession, and/or poor execution of digital transformation.

The obvious sectors likely requiring a hard reset would be the airlines (carriers and manufacturers), hotels, restaurants, entertainment, brick and mortar retail, energy, and higher education.

KPMG also identified transform to re-emerge scenario of recovery which applies to companies that would recover but along a protracted path requiring reserves of capital to endure, and transform operating models to emerge stronger and more in line with changed consumer priorities.

This scenario would apply to companies specialising in professional services, insurance, healthcare, travel and leisure, automotive, durable goods, industrial manufacturing, real estate or construction.

Aside from that, businesses could recover via a modified business-as-usual system. It noted that within the banking, consumer goods, agriculture, and transportation sectors, companies seen as daily essentials will suffer effects of the consumer shutdown/recession but would recover more quickly as consumer demand returns in similar volumes.

“For these sectors, crises provide the opportunity for companies to innovate offerings to capture consumers who will be breaking their ‘auto pilot’ purchasing behaviour,” KPMG explained.

Aside from that, there are companies whose consumer behaviour was altered in their favour during the crisis will find this to be their recovery pathway.

“Hence, this pathway applies to those in online retail, technology, media & telecommunications, food delivery, asset management/private equity, life sciences/pharmaceuticals, and interaction platforms.

“Companies that manage their business strategies and operations well and can demonstrate business sustainability will attract investors to provide the capital to scale aggressively towards quick recovery,” it added.

According to KPMG, irrespective of the recovery pathway that applies, the key to a quick reset is to focus efforts towards the organisations’ financial, operational, and technology & data pillars.

“Without financial resilience, operational and commercial resilience cannot be maintained. Keeping this pillar strong requires companies to adapt existing financial frameworks to a more hostile and volatile environment in which profitability, cash flow and access to finance are coming under simultaneous pressure.

“In the same vein, the maturity of a company’s operational resilience has the potential to determine whether it will survive. Under severe operational stress, business leaders will need to make important priority calls to decide which products, services and processes should be kept operational. This requires a good understanding of their prioritisation criteria and what constitutes the minimum viable business model, which enables the development of a viable recovery strategy,” it said.

All in, it highlighted: “Technology will be the key enabler for companies to reduce redundancy and operate efficiently. It can be leveraged to provide business leaders with invaluable data such as customer purchasing behaviours, cash flows, operational effectiveness, and revenue pipelines.

“At the same time, companies should be cognisant to protect their assets by ensuring their IT infrastructure is secure and resilient to cyberattacks.”

Chan concluded, “Businesses were already working hard to maintain resilience in the face of fast-moving trends, including relentless technology innovation, extended supply chains and managing shifting customer expectations and behaviors. In the face of Covid-19, businesses must now urgently assess all aspects of their resilience, hone in on the key issues and keep them under review for continued survival and future success.

“Hopefully once this crisis story stabilises into some form of norm, we will see more companies being able to move beyond recovery towards profitability and growth.”