The business to business (B2B) sector is likely to face an acceleration of pre-existing and new trends

In a world of uncertainty, deciding what to plan for, is a challenge in itself. The business to business (B2B) sector, in particular, will need to act decisively and develop a rapid response to address disruptions as well as to repurpose and reshape for the future, by increasing resilience and responsibility.

Industries such as professional services, hospitality and travel, have experienced a cash flow crunch due to declining revenue and high costs, uncertain demand and supply, and the shortfall in cyclical consumption. In the long term, the impact of supply chain obstructions, changes in consumer and client behaviour and difficulty in recovering production due to the delayed return of workforces and travel restrictions are likely to be significant.

Businesses have had to apply an extraordinary focus on cost control, cash conservation and debt reduction or deleveraging. For example, hotel businesses are realigning their arrangements with financial partners to address the impact of the pandemic. Forty seven per cent of hotel respondents in our hotel sentiment survey are modifying their loan terms and deferring payments, 43 per cent are considering reorganisation and restructuring and 30 per cent are refinancing and consolidating existing debt.¹

The impact of the COVID-19 pandemic also includes an acceleration of existing and new trends in the B2B space. These include re-examination of business and delivery models; automation and digital transformation; reassessment of supply chain networks; customer experience management and a shift to flexible and agile practises. Almost 90 per cent of CFOs in our recent quarterly survey expect COVID-19 to drive long-term changes, including more home working, pandemic planning and supply chain diversification.²

Managing fluctuating demand and supply patterns

Demand and supply management become difficult when patterns are irregular and in the case of COVID-19, there are no sufficiently comparable historical data. The supply chain network faces demand fluctuations, the need for greater transparency, safety protocols and greater cooperation with suppliers among other challenges.

For example, the logistics and shipping industries face demand and supply contradictions, upsetting the balance between revenue and the operational costs. The lockdown saw a drop in demand for shipping services from manufacturers, but an increased reliance on delivery services from retailers. Closed borders resulted in the air and ground freight capacity being limited to the available cargo aircraft and passenger flights carrying only cargo. While low demand leaves the shipping lines underutilised, the severe shortage of manpower in the trucking sector increased. Businesses are trying to adjust capacity, but it is challenging to do this at sufficient pace while safeguarding profits when demand increases again.

Similarly, recruitment and staffing firms are also facing the pressure of fluctuating demand and supply, and the resulting impact on revenue. While some industries are focusing on furlough and redundancies, others, such as healthcare, are facing workforce shortages in roles ranging from janitorial to nonclinical administrative staff. Thirty six per cent of UK consumers are concerned about losing their jobs.³ On the flip side, employed job seekers are hesitant to enter the recruitment process, perhaps held back by the desire to stay in the security of their current job. Contract and freelance roles are likely to increase, as hiring companies concerned about a second wave, look to keep their options open, further driving the gig economy and flexible working trend.

Catering services serving offices, schools, sporting events, etc. have temporarily closed, which has caused a ripple effect across suppliers such as food processing units, alcohol, fishing and farming. This in turn has caused supply chain disruption and food price instability. For example, with meat processing plants closed, cattle farmers are at full capacity and may have to consider reducing their stock. On the supply side, this could result in meat shortages for consumers. The shift from intensive farming to locally produced, may be another trend set to impact the supply chain. Thirty five per cent of UK consumers are planning to buy more locally sourced items going forward, even if they cost a little more.

Companies intend to increase efforts in supply chain diversification and pandemic planning. Eighty nine per cent of CFOs expect to diversify and strengthen supply chains levels in the longer term and 97 per cent plan to invest in pandemic planning as a result of COVID-19.⁴ This may include, for example, steps to preserve contractual rights and fulfil contractual obligations that are tied to disruptions that were caused by COVID-19 such as defaults and materially adverse events clauses. Companies are also likely to review their suppliers and prepare contingency plans for disruptions.
 

Revisiting operating models and partner relationships

Many businesses were already in the midst of a transition, focused on reducing operational spend, digital transformation and restructuring. The pandemic is expected to accelerate these market disruptions. Services organisations are now considering how to emerge from lockdown profitably, while meeting the new health and safety rules.

The pandemic has shaken up the employment services industry, leaving many to deal with a maze of requirements put in place to manage the disruption faced by their partners. Assistance is required across the board, on matters such as worker representation, hiring, retraining and termination, updating sick-leave polices, workforce wellbeing, furlough schemes and dispute resolution. As per ONS data in March, the highest proportion of furloughed staff across businesses that continued trading was 40 per cent, recorded in responding businesses in the accommodation and food service activities industry, followed by the construction industry at 32 per cent and transportation storage at 24 per cent. The equivalent figure was much higher for the workforce of businesses that had ceased trading, at 87 per cent for the workforce in the accommodation and food service activities industry, followed by the administrative and support service activities industry at 86 per cent.⁵ Going forward, workforce needs are also expected to change and organisations will be expected to protect and support employees as they move back into the workplace, mitigate the financial impact and plan for ‘a new normal’.

Another sector impacted is facilities management, which has had to manage the evolving workplace requirements. The sudden increase in online working is likely to have huge implications on system stability, network robustness, data security and infrastructure. Our recent survey on working from home, found that among those who had never worked from home before lockdown, 54 per cent of respondents would prefer to work from home more, once lockdown ends. Two in five employees would like their employers to allow more flexible working in the future.⁶

As companies increase remote work policies and flexible workforce arrangements, physical and virtual security systems and support will need to be aligned. Fifty nine per cent of workers have used at least one new type of technology for work since the start of lockdown. This is even higher among desk-based workers with 73 per cent having used at least one new type of technology for work. Fifty eight per cent of those who worked from home, have experienced connectivity issues at least once a week.⁷ Companies will want to be pro-active, conduct regular tests and preventive measures, to ensure their partners and providers have the systems and support in place, to ensure smooth, flexible and safe operation, as the workplace and workforce evolve.

For many B2B businesses, the very foundations of their business models and operations may have to adapt. With the changes to come, such as more workers working from home, some businesses may even need to pivot, for example, move from a B2B to B2B2E - business to business to (the clients’) employees. In the long term the lockdown could be a catalyst that fast-tracks technology adoption and the necessary reorganisation of business models and relationships.
 

Managing the customer experience

The pandemic drove the rapid acceleration of growth in digital channels as companies have had little choice other than to shift online, and both sales and customer services now are being pitched, sold and contracted digitally. In our recent consumer sentiment survey in June, only 35 per cent of UK respondents feel safe to return to their workplace.8 B2B companies will need to continue to support employees and customers using hybrid interactions and policies.

B2B companies, in particular, rely on the annual circuit of trade shows and exhibitions to network and build customer relations. With only 13 per cent of UK respondents stating they feel safe to attend in-person events, such events are being shifted online to virtual platforms. This in turn will likely impact the related travel and hospitality industry with less than 13 per cent of UK respondents intending to travel for business in the next three months. 9 Clients have had little choice other than to shop, research, collaborate and contract online, which means ensuring the customer experience is seamless will be critical.

The challenges posed by the COVID-19 pandemic to the legal services industry have been significant, and hastened many existing trends, from working from home to the increasingly pervasive use of technology. Digital courts have been established and law firms have enabled business continuity with whole workforces remaining at home. The impact of the outbreak has changed client circumstances and business practice profoundly. Law firms are expected to have a deep understanding of client challenges and personalise the experience through tailored responses. Digital engagement and urgent decisions on sensitive topics such as security, data privacy, and service obligations may be required. Coupled with financial challenges and more volatile markets, legal practices will need to transform rapidly.

Clearly there is a great deal of uncertainty, but there is an expectation that pre-existing trends such as tech-enabled interactions will accelerate. Leaders in the B2B sector may need to ensure that a digital strategy is incorporated with the overall strategy of the firm. The focus is likely to be concentrated on agile practices, business continuity strategies, supply chain diversification and risk management. Companies will need to build stronger relationships with key suppliers and customers and improve visibility across their network to better prepare for risks. Businesses are being forced to think outside the box in order to manage a rapidly evolving situation, hence reinforcing the value of the B2B sector contributions.

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Endnote:

¹ Hotel Sentiment Survey, Deloitte, released April 2020
^{2 & 4} CFO Survey Q1 2020, Deloitte, released March 2020
^{3 & 8 & 9} Global state of the consumer tracker, Deloitte, accessed 18 June 2020
⁵ Furloughing of workers 23 March to 5 April 2020, ONS data, accessed 18 June 2020
^{6 & 7} Working during lockdown Survey, Deloitte, released May 2020