The future is bright but challenging for SMEs
With things to celebrate alongside serious concerns, the future looks bright but challenging for business. Get the lowdown on the situation SMEs face in 2022.
Directors and executives. Staff and clients. Policymakers and business groups. All have pulled together and adapted to the ‘new normal’ to help business recover from the pandemic and start 2022 on a positive footing.
The past year has seen hybrid working models reinvent company structures, employment rates steadily increasing, and the jobs market continue to grow. Supporting this, a recent Institute of Directors (IoD) survey found its members are optimistic about the future, with 60% expecting continued revenue growth this year.
But many challenges remain, with directors concerned about the impact of Brexit, rising inflation and the war in Ukraine. We explore the green shoots to emerge for business in recent months and examine the challenges directors face going into the second half of 2022.
Post-pandemic economic recovery
The pandemic and its associated lockdowns shut businesses and led to a catastrophic 9.4% drop in GDP in 2020, official statistics show. But today, in spring 2022, things look healthier. Official figures, released in February, revealed the UK economy had bounced back to grow 7.5% in 2021, the fastest growth since 1941.
The world opened back up in the second half of 2021, delivering the bumper GDP boost. Although the Covid-19 Omicron variant arrived towards the end of the year, the economy still grew by 1% in the final quarter of 2021.
As for what’s next, the British Chambers of Commerce predicts economic growth of 3.6% in 2022.
Of course, while any growth is good for the economy it’s worth recognising that it might not always be plain sailing. As an individual business, it’s easy to feel lost within news of grand-scale economic recovery, peaks and troughs. With fluctuations continuing, where does that leave business confidence in the economy and individual investment assets?
Rising investment numbers balanced with caution
Business investment has been a mixed picture so far this year. Initially, the Institute of Directors found more organisations planned to invest than not this year.
Some 31% of members (when asked in December 2021) expected investment to keep rising over the next 12 months, in comparison to 18% who predict the opposite. Omicron was a cause for some uncertainty at the end of last year, though the number was still a marked increase on 2020.
However, by April things had changed. Soaring inflation, which reached 7% in the year to March, and increased stock market volatility began to make their presence felt. Investment intentions among firms fell significantly between February and March 2022, according to the IoD’s Directors’ Economic Confidence Index.
The changing face of hybrid and remote working
Remote working, and later hybrid, has triggered a revolution. These models, powered by technology and collaboration, enabled businesses to work on through lockdowns and gifted staff the flexibility many believed long overdue.
In 2020, 46% of people began to work from home for at least some of the week, according to Home Office statistics. In January 2022, this number had only decreased. slightly, with the Office for National Statistics reporting that 36% of working adults continue to work from home at least once a week.
Hybrid working is increasingly becoming the norm – with employee experience being a key driver in its adoption. Microsoft found that 73% of workers want hybrid and remote working to continue. Overall, these new models have created opportunities for increased productivity via employee satisfaction inspired by a healthier work-life balance.
For many, this newfound freedom and flexibility is an efficient way to boost morale and, therefore, drive performance. And with BBC Worklife revealing only 12% of people want to revert to the ‘old way’ of working, the message is clear for employers.
The recruitment revolution
Microsoft found that remote job advertisements on LinkedIn increased five-fold over the last few years, illustrating companies’ long-term commitment to new ways of working.
The expansion of flexible working has presented numerous benefits to employees. It has also benefited recruiters, helping them to tackle skill shortages.
Some industries can now hire employees regardless of location, allowing recruiters to focus on skill and experience, rather than a person’s ability to access a physical business base. This has helped to greatly expand recruiters’ reach, both nationally and internationally.
The UK is facing a labour shortage however, caused by a surge in vacancies post-pandemic, says recruiter, Randstad. Role vacancies in the private sector also far outweighed application numbers, with the latter falling by 11%, and the former rising by 61%.
But with a greater focus on remote and flexible working, companies can now access an expansive international talent pool to hire externally from the UK. In effect, flexible working solutions have the capability to alleviate localised and national labour shortages. Solutions that were not possible to integrate into processes just a decade ago.
This would support the argument that traditional working patterns are outmoded, and should be replaced by models that allow employers and employees to collaborate like never before.
The great skills surge and unlocked creativity
With more choice comes more competition. After McKinsey & Company found that 4.3 million people voluntarily quit their jobs in December 2021, it seems employees are just as aware as recruiters of the expanded talent pool.
Increased competition driven by changes in employee and business attitudes have forced companies out of their comfort zones to develop new skills, think creatively and become more agile. Companies of all sizes have had to adopt new technology to improve collaboration between remote teams and across experience levels.
These platforms must be effective and accessible to maintain employee retention. Companies’ hyper-awareness regarding staff wellbeing is now vital when it comes to ensuring people, regardless of their location, are valued on an equal level.
The importance of diversifying operations, from implementing more flexibility, new technology and greater attention on employees as people, is not going unnoticed. Although these changes naturally lead to more optimism about streamlined and globalised business, they also put structures in place to help navigate the uncertainty this ‘new normal’ represents for many.
The challenges directors face in 2022
As we approach the second half of the year, it feels 2022 has been a tale of two sides for business, with many challenges to consider. The Institute of Directors survey found, for example, that international trade and the macroeconomic environment were among the worries for its members.
War in Ukraine
The survey in question was published in February. Since then, Russia has invaded Ukraine with devastating consequences for the people of Ukraine. Business too is affected, with 9 in 10 business leaders telling the Institute of Directors the conflict would negatively affect their business.
Kitty Ussher, Chief Economist at the Institute of Directors, said “the devastating human impact of this conflict is, rightly, at the forefront of all our minds,” adding that “leadership teams are having to “replan their operations at speed in the light of a rapidly changing, uncertain and ultimately tragic situation.”
Inflation has hit a 30-year high after rising 7% in the year to March, according to the Office for National Statistics. The CPI (consumer prices index) inflation figure rose from 6.2% in February, and may rise further still this year.
With prices rising faster than wages, led by soaring costs of petrol and food, this is a significant concern for directors and senior leadership teams. Employees struggling with the cost of living may well want pay rises. Rising prices of UK-manufactured goods can mean less demand for them overseas.
The number of business leaders expecting inflation to be running at 6% by the end of 2022 rose from 18% in January to 51% in March, amplifying these concerns.
Trading with the EU
Nearly six years after the referendum, Brexit is causing a headache for many businesses.
When the Institute of Directors asked its members what would improve their business operations, the top answer was ‘a new trading relationship with the EU’.
Another recent IoD survey found 42% of UK businesses which trade internationally are now exporting less to the EU than they were five years ago.
Emma Rowland, Policy Advisor at the Institute of Directors, called on the UK Government to “work pragmatically with EU leaders” in an effort to “put business first”.
She called for ministers to prioritise digital systems like the Single Trade Window to “alleviate the administrative and time-consuming burdens on businesses” and to do more to “reduce friction at the border”.
H2: The future is bright but uncertain
Regardless of what the remainder of 2022 brings our way, it’s become increasingly crucial in recent years to safeguard your business. Hiscox offers a wide range of policies for business protection; and will work with you to tailor the policy to suit the particular risks your business may face.
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