Transformation and reinvention are the buzzwords for business in 2022.
On a webinar titled “The Outlook for 2022” hosted by business advisory Deloitte, Richard Houston, Deloitte's CEO for North and South Europe, said technology investment will underpin businesses’ appetite for transformation.
The rethinking of business fundamentals also will mean more emphasis on investment in employee skill development, which likely will result in increased staff retention.
Ian Stewart, Deloitte's chief economist for the United Kingdom, said that it is not invention that makes the difference but how that invention is deployed.
“That is about culture and people,” he said.
Houston said the omicron variant of COVID-19 has adversely affected hospitality, leisure and travel, but businesses in general are increasingly learning how to “get on” with the pandemic.
“What you are seeing now is larger organizations moving into more strategic considerations," Houston said. "Where should they look for growth, and what do they need to put in place to get that?
According to Deloitte’s latest survey of company chief financial officers published this month, executives are more optimistic about what 2022 holds.
"I am not that surprised about the optimistic attitude we’ve heard from CFOs,” he said.
Houston added following the global financial crisis in 2007 and 2008, opportunities for investment were not as numerous as they are now amid a pandemic.
“The pandemic has made businesses look at every aspect of their strategy,” he said.
Pressures do remain, including inflation, which among European countries is the highest it has been in 25 years, Stewart said.
In the U.K., Brexit rules regarding imports and exports, which started in full earnest this month, have added pressure on costs, pricing and inflation, but inflation is a global phenomenon Stewart believes will start to fall across 2022.
Natural gas prices, shipping costs and U.S. manufacturing delivery times are three examples of costs that have fallen in the past few months following record increases in many cases.
Interest rates might continue to rise, Stewart said.
“Maybe by 75 to 100 basis points in the U.K., probably less in the U.S., and these are manageable,” he said.
Stewart said there three things business leaders should keep an eye on.
“The first is geopolitical risk, with defense spending rising again, [which] speaks to a more uncertain world. Second is China, which has an aging population … third is Brexit," he said.
Stewart added the pandemic has caused “extraordinarily less damage than we initially thought. Global trade has snapped back very quickly.”
That growth in China, which has been 25 years in the making, was fueled by rural populations entering cities, but right now, it is an indebted country, Stewart said.
“Yes, real estate is prone to booms and busts, but there is a concern about the accumulation of debt and bad debts [in China],” he said.
Houston mentioned climate change as another consideration for company strategy.
Labored Points
Labor pressures in the hotel industry and other sectors rarely are far from the top of the agenda, Stewart said. These pressures need to be prioritized in terms of investment and operational strategy.
“This time last year, we were very concerned as to what would happen when furlough schemes stopped — that we would see a spike in unemployment, but that has not happened," he said. "In most countries, unemployment is pretty close to pre-pandemic numbers, but the paradox is that inactivity has risen. There are people on the sidelines who could be in the jobs market but have decided not to be in it."
Stewart said globally some of this population will be increasingly tempted back to work. But he added in the U.S. the so-called “quit rate” is “through the roof” and that “Brexit has thrown a spanner in the works, with [European Union]-born employees going back to their homes.”
“Attracting and retraining workers is about the whole offer, not just pay,” he said.
Stewart said many employees have rethought their work-life balances and have been vocal about the need for choice and flexibility in the workplace.
“Incomes could stay flat this year, but the balance sheets of consumers are strong. It is the lower incomes that are going to face far more acute squeezes on spending power,” he said.
Expansion
Another potential change for businesses is that after more than a decade of chief financial officers saying capital allocation would be defensive in nature, that is no longer the case, Stewart said.
“CFO strategy had been pretty focused on bullet-proofing their balance sheets, but what we’ve seen in the past 12 months is a big shift to expansionary strategies, most clearly in terms of corporate capital expenditure," he said.
“Over the next three years, CFOs said they wanted to increase investment in all things digital and technological, for faster growth in productivity and a big focus on skills. This is important as it suggest corporates are thinking about growing their businesses. Productivity is very dependent on investment in technology and skills."
Businesses are improving their IT strategies, a requirement that is essentially about survival, Stewart said. He added that the winners will be more agile, permit a greater degree of remote working and drive more innovation.
“And you do not have to innovate alone anymore. There are plenty of partnership models. IT does not eliminate skills; it adds new ones,” Stewart said. “What has amazed me is how quickly staff have adapted to the new environment, which speaks to change in social norms, around forms of employment and flexibility of employers."
Speaking of 2022, Stewart said it would be “a strong year, with some material risks, notably anything around a new variant, as well as around inflation.”
Houston agreed “we’re in a growth market, and this will continue."