Accenture: Have a growth mindset when managing liquidity
By Dzof Azmi November 30, 2020
- Going digital means becoming more agile, responsive, flexible
- The “never normal” future means companies need to tap into the ecosystem to survive
"The main word of the year is 'unprecedented'. How many times I heard that over the past couple of months, it's amazing."
Sven Ruytinx, Accenture Strategy & Consulting, Managing Director, is of course talking about Covid-19 and the impact that it has had on businesses this year. Companies saw their revenues plummet almost overnight, sometimes to practically zero, and scrambled to right the ship - with various results. "In hindsight, it's always easy to understand if you could have reacted better but, when COVID happened, it was a shock," he observes.
Bank Negara, the central bank of Malaysia, has already projected negative growth this year of -3.5 to -5.5 percent, fuelled by gloomy forecasts. "That's across every almost every industry: automotive, consumer goods, freight, high tech, travel."
Businesses were forced to quickly change their business model, usually by going digital. But the 'D' word means different things to different people.
"Digital should be really the means to go to a true new way of working, becoming much more agile, much more nimble, much more flexible and fundamentally drive a different mind-set in your company," asserts Ruytinx.
He says it's not about a large monolithic project where you put all your bits in a single basket. Rather it's moving to structures like creating a minimum viable product that brings returns early on. "It's really making sure that you have those quick wins and that it almost becomes a self-funding program."
"Every three months you need to have that benefit so that you can reinvest that into the next sprint," he elaborates. "That should be the way that companies look at their digital transformations"
Ruytinx points out that some major corporations already have created such structures. "We've seen that, even before COVID actually."
However, one problem many companies facing Covid-19 had was how to start up/catch up quickly. “To keep afloat they had to find the investments required to do that, and that was the biggest hurdle I think.”
Ruytinx is talking about liquidity, and the struggle that companies had to have funds on hand.
"A lot of companies (also) re-examined what capital investments they had planned for in the year," he added, giving as an example the slowdown in 5G rollouts by telco companies.
To a certain extent, this was recognised as an issue by policy makers. "A lot of governments, including Malaysia, stepped in to provide support," says Ruytinx, pointing to examples like loan moratoriums and SME-specific support.
"(Ultimately) there are different sources of liquidity and financing that companies can go after and the key is to really take a holistic view on all the sources that are there, and make sure that you capture them all," he said.
Instead, he advised to look at external spends on materials and services, which contains what he calls trapped value. He isn't simply saying you must renegotiate prices with vendors: "That's typically only probably 25-30% of the benefits that you can get from your external spends," he said.
"That's also not a sustainable situation, because in the end, that vendor also needs to survive."
Rather, he suggests looking at managing consumption, like how frequently you use a service, or how stringent do the standards really need to be? Vendors should be looped into the conversation, because they usually know better where savings can be had. "You need to make sure that your entire ecosystem around you is actually collectively lowering that cost base, so that you can all benefit and survive."
He likens it to a virtuous circle where the unlocked value becomes fuel for further growth. "And that's not just during COVID, that should be a position you have throughout," he adds. "The only thing is that COVID has further strengthened that."
The ‘never normal’
Ruytinx is reluctant to say "the new normal", and instead believes that crises will continue to happen, in shorter timeframes, with greater impact. "You need to prepare for this ‘never normal’ era."
"With the world being much more globally connected, whenever something happens in the world, it immediately has an impact across the entire globe," he observes.
As a result, companies will have to continually look for that trapped value in their costs and identify new areas to leverage. "That's an almost virtuous circle that you constantly need to drive."
"This is a capability that companies will have to build for the long run, managing and outmanoeuvring the uncertainty that is there."
How do you remain agile, and ensure you have the talent to cope with whatever that may come? Not everybody is a large multinational company with endless resources. Most will have to outsource skills and services where necessary, instead of purely relying on yourself.
"A company that still works in the traditional way, (in a silo), they will have problems. But if you really tap into the ecosystem and take advantage of all the established channels that are already present, I don't think they will have a problem to survive."
One advantage of working with third-parties is that it creates variability in your cost structure, which helps to cope with future shocks.
This flexible inter-connected way of working that can quickly adapt requires efficient communication within the organization, which was also key for companies that reacted effectively to Covid-19. In particular, companies with a central organisational structure would see benefits.
"I had a conversation with one of the procurement leads at a major global bank, and they actually highlighted that as one of their key success factors," says Ruytinx.
"They started somewhere in March, and by now in August, they already had a double-digit cost savings that they could report."
Reinvesting quick wins to fuel growth, identifying trapped value, and creating variable cost structures, all do their part in creating an agile, nimble company, especially crucial for next year. “Companies that can create that capability and have that DNA in their culture, they have a very good chance of tapping into that growth which everybody is expecting to come in 2021.”