2022 – Strategic Considerations

What a truly fantastic summer it has been so far!  However, as we settle into 2022 and focus back on work, the following are strategic considerations that we think deserve consideration by all organisations.

Prepare for ongoing disruption

Significant disruption to BAU (business as usual) has been a key feature of the past few years. While by far the greatest and most immediate disruption has come from the response to the COVID-19 pandemic, there have also been other disruptors. We think all organisations need to:

  • Be aware of likely disruptions and, as much as possible, implications from these;
  • Consider the threats and opportunities these present to your business model; and
  • Prepare and mitigate where possible.

We expect the following to be disruptors of many organisations in NZ over 2022:

COVID-19

It is sobering to think that the “19” in the name relates to 2019 when this virus emerged onto the world stage, yet here we are in 2022 and still finding our lives extremely disrupted by COVID-19.  However, with changing variants and countries in different states around the world keeping the pandemic alive we can expect ongoing disruption in Aotearoa.

Omicron looks set to be a new challenge given it is significantly more infectious than Delta.  International data shows it appears less severe as regards fatality rates. While this is good news, widespread community outbreak still has the capacity to overwhelm our health system as well as significantly impacting the available workforce if people are sick and need to isolate.  

Available staff

Having and retaining enough workforce will be a key strategic challenge for all organisations for the immediate to medium-term future.  No staff = no organisation.

While this staff capacity threat is largely a direct and immediate flow-on from the pandemic, there are also other factors impacting availability of workforce including generational changes and lifestyle desires, cost of living (think house prices driving people to places where there may be more affordable housing), and immigration settings.

There is also the term you may have heard in the media; “the great resignation” – a threat of pent-up demand from lockdown to change jobs.  Whether this happens or not remains to be seen but what we do know is that high staff churn is very expensive both financially as well as operationally in terms or delivery and quality.

  • How many of the roles in your organisation can be temporarily covered by others? 
  • Do you have a plan to be able to still operate your business with 30%-40% less staff?
  • What are your strategies for attracting and retaining a sustainable workforce?

Supply chain disruption

We live in a world characterised largely by global supply chains based largely on a financially lean, ‘just in time’ model. What is interesting is that this has over the past few decades become so efficient that many people have very little appreciation of how globally dependent and distributed supply chains we all rely on are. While this is generally great for financial efficiency, when it is all working well, its weakness is being significantly more exposed and less resilient to disruptions.

Impacts will be delays, price increases and complete outages for some goods. 

Inability to deliver is a significant strategic threat to any organisation.

  • What are your exposures to key supply chains in your organisation’s business model?
  • What mitigations or alternatives are possible?   

The Economy

Inflation

Looming large is rising inflation.  Both in NZ and internationally. While we are unlikely to see a return to the levels some of us recall in the 1980’s any increase will have a generally negative impact on the broader economy and prices and profitability. 

Given how cheap debt has been in recent years and the level of borrowings held at both a country and individual level, any continued increase in inflation could cause a significant financial squeeze.

Asset values

Very low interest rates have also led to very high asset prices – think houses and shares. This then begs the question as to whether headwinds in the economy, such as supply chain issues and inflation, will lead to the risk of falls in these asset values.

While many invested in the share market have had a great ride in recent years, cheap debt has undoubtably pushed up share prices.  In many cases these are now valued well above traditional market fundamentals for shares which presents a risk of a correction.

Trading partners

The New Zealand economy is sometimes referred to overseas as “a pretty farm” – the “pretty” relating to our tourism sector and the “farm” relating to our primary produce. These being the two main economic drivers of our economy.

We all know how inbound tourism has fared over the past 2 years.   Sadly, the forecasts are for this to not recover internationally until at least 2024 – but those forecasts are very much COVID uncertainty impacted.

Thankfully the farm side of our economy has continued to perform and earn well for our country.  However, looking ahead there are risks with the economic health of our largest trading partner China. 

  • What are your exposures to a downturn in the economy?   Debt levels?  Reliance on asset values? Reliance on key markets for your sustainability?
  • Is your business model well placed to thrive in a period of possible economic downturn?

Climate risk

Responding to COVID-19 has been a very immediate and all-consuming issue for organisations.  However, our pick for the most significant longer term strategic issue for organisations remains the impact of climate change. And more specifically; the significant and fundamental changes to many aspects of our way of life that responding to climate change will have in the coming decades.

Whatever your views of climate change, there is no question that climate risk to organisations exists.  Impacts include:

  • More extreme weather events
  • Direct regulation – to assist Governments meet various agreed targets
  • Public consumer pressure regarding social licence to operate – amplified by social media reactions
  • Supply chain requirements – suppliers, funders, insurers and customers demanding certain standards and harm mitigation activity

What are the likely climate impacts on your business model?

What needs to change?

But don’t get freaked out by all this!

While the factors above may seem concerning it is important to remember that they actually all present as much opportunity as they do threat. 

Keys to sustainable success of any entity remain:

  • Awareness – of changes and the wider environment
  • Being open minded to change and opportunities
  • Keeping things in perspective
  • Taking action
  • Running your own race and not someone elses

And really importantly; don’t get sucked into the daily media temptation of catastrophising. Concentrate on the things that you can impact and don’t get sucked into using your precious time and energy worrying about those outside your control.

Stay positive and carry on!

Would you like to discuss this topic further?

Please email us to submit a question or click on the author below to directly discuss this article

CONTACT us

Authors

Charles Worth
Chairman, Partner
Craig Fisher
Consultant