Axiom EPM:
Fit for the Future: Part 2: The importance of financial agility
Applied Financial Intelligence
How to adapt and succeed in a post-pandemic economy While the effects from COVID-19 and Brexit might be polarised across different sectors, every business is being forced to act – to rapidly anticipate, plan and adapt to this changing landscape of uncertainty.
With the pandemic especially bringing far-reaching and potentially severe consequences, each sector is having to plan for a different set of future challenges. To prepare for the ‘what’s next?’, financial agility has taken on a whole new importance. As each sector presents its own unique series of challenges and opportunities, it is vital to also understand the range of impacts and changes that will affect each industry to better plan for individual outcomes and future success. From Healthcare needing to manage investment in a capitalconstrained environment, to changing business models within Financial Institutions, through to human capital management across Professional Services. By gaining a better understanding of such issues by each industry, businesses can re-imagine and re-align, ready to plan operations and growth going forward, to develop new forecasts and strategies for success. Therefore, Axiom financial performance management solutions are designed to improve financial management efficiencies and forecasting within individual sectors, so you can develop new opportunities to stay ahead of the competition.
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From this guide you will discover how to adapt to financial change quickly and help your organisation develop a more agile business model. You will explore: • Facing future economic challenges head on and being ready for them. • ‘’What if’ scenarios for future-mapping in a crisis. • Modelling financial scenarios through diversification and new routes to market. • Future financial strategies and the tools to successfully execute them.
Applied Financial Intelligence
COVID-19 and future crisis planning While sales are predicted to recover gradually, further reductions in employment are expected in the first half of 2021 and there is a resulting increase in uncertainty among businesses about their prospects and outcomes throughout the year ahead.
“ COVID-19 has provoked some of the steepest GDP declines ever in the UK and other European economies. The path of recovery is uncertain, but it is likely many of the impacts will eventually prove temporary, even if there are may be hard-to-predict, longer-term socio-economic impacts, such as changes to supply chains or in the ways in which people and organisations work” 1
Alongside many sector-specific challenges, businesses across the board are facing issues that include: • The impossibility of forecasting future demand and revenue based on historical data, seeing as no precedent exists in recent times to compare with the effects of COVID-19. • On-going challenges from changing government policy and legislation. • Revenue and profitability models and maintaining environments that are satisfactory for all. • Supporting costs and predicting future culture shifts, including remote working. For all businesses facing this on-going future uncertainty, looking ahead at all kinds of scenarios and outcomes has become paramount. Add to this the need to be agile to adapt to such changes quickly and effectively and, most importantly, successfully.
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ttps://www2.deloitte.com/uk/en/pages/global-markets/articles/tackling-brexit-andh covid-19-together.html
Applied Financial Intelligence
‘What if’ scenario planning Scenario planning is vital for mapping out dramatically divergent potential future situations, both regarding the economy post-pandemic, the UK leaving the EU and a depressed economy. It allows for multiple financial responses to be planned, which can be quickly enacted when needed, and therefore ensures businesses can flex and adapt to changing circumstances.
New ‘normal’ = new processes and approaches to financial management Due to the impact the pandemic has had on business operations, the use of any historically-based business planning and budgeting approaches runs the risk of being significantly flawed and liable to repeat similar operational liquidity and execution challenges. This will even apply to key event periods, such as Christmas or Black Friday, which are often closely tracked and monitored in multiple sectors. Existing forecasting processes are often either overly simplistic or so convoluted that a few tweaks to the numbers requires a completely new forecast. This causes unnecessary delays at a time when the ability to adapt swiftly to market changes is essential.
New financial processes are therefore necessary to ensure the best outcomes when approaching the new landscape for operating a business.
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Applied Financial Intelligence
Test rather than guess the future Axiom’s powerful, easy-to-use modelling capabilities equip you to strategise for uncertainty, manage change and seize the opportunities around the corner. Drawing on data from across your organisation – and factoring in the various drivers that impact your business outcomes – scenario planning is an incredibly valuable tool for assessing the impact of critical uncertainties, new organisational initiatives and fresh market opportunities. Be prepared for every scenario
Axiom’s modelling functionality can help you to:
With on-going changes in market dynamics and the product and customer mix difficult to predict and plan for, it is critical that businesses plan for varying future scenarios, depending on the length, and breadth, of the pandemic and any associated local, or global, restrictions.
• Define the key internal and external drivers of the business.
A highly agile financial planning system that can adapt in real time is required, using accurate financial data to help understand and predict change. Equally, your financial performance management software should create business and financial models that can be ready to flex and adapt. For instance, the Insurance sector will need to look closely at pricing, modelling future scenarios and pay-outs. Scenario planning, costing and profitability management will be crucial to this. By using cost and profitability metrics, businesses can optimise their operations in reaction to the unpredictability of the current market. For instance: • Mid- to long-term scenario planning can accommodate changes to the cost base, shifts in demand and consumer spending patterns.
• Quantify your financial sensitivity to these drivers. • Test the strength and flexibility of a strategy under rapidly changing conditions and against multiple variables. • Model scenarios that depart from the current conditions. • Investigate possibilities that would otherwise be missed. • Prepare for various combinations of adverse circumstances that may manifest. • Produce higher quality strategic plans, budgets, and forecasts. Ultimately, enabling you to manage uncertainty with confidence and giving you answers to the ‘what ifs?’ that you can trust.
• Fine-tune operational and production processes highlighting inefficiencies to better anticipate demand. • Plan multiple budgets and closely monitor forecasts to quickly react to changing scenarios.
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Applied Financial Intelligence
Diversification and new routes to market As highly unpredictable changes in demand through certain market channels continue, industries need to adapt quickly and find ways to replace lost revenue while minimising costs and capital expenditure. The ever-changing risks associated with COVID-19 have meant that many sectors have needed to urgently develop effective diversification strategies, or still need to. This has included anything from a review of short-term tactics to more long-lasting transformation in strategic direction.
Across multiple sectors, there have been some great examples of diversification. Both for the short-term, emergency response, but also for long-term gains. These include: • Brewers and distilleries finding a new use for ethanol supplies to make hand sanitisers. • Manufacturers using 3D printers to produce PPE. • Wholesale food companies, and restaurants, devising raw ingredient menu box delivery services and/or introducing a hot meal take-away service.
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Mitigating risks
Changes in competition and opportunity
While retaining the same business model could mitigate risk in terms of change, it could also increase risk in the current crisis and economic climate if the business is to survive. Therefore, businesses need to adapt, pivot – and diversify – to manage and lessen current and future risks. The assessing of new, more profitable behaviours to diversify sits at the very heart of scenario planning.
The current challenges create multiple changes in the competitor landscape. In terms of Brexit, changes to tariffs and new trade deals outside the EU will bring new competitors to market. COVID-19, as we have seen, is bringing new products and services to market, as well. As a result, UK businesses must remain competitive and able to adapt quickly as the financial landscape shifts.
To utilise strategic planning tools, such as ‘Ansoff’s Matrix’, businesses and financial teams can start to develop scenarios for potential new products or services via a matrix of existing products, existing markets, new markets, and new products. Approaches like these can help businesses realise their current options for diversification, development of new ideas or markets, as well as considering the methods to create a new business model.
Businesses in the Retail sector are regularly engaged in competition with one another. At present numerous new avenues of competition are forming. From supply chain competition where designers, and producers, are establishing a direct route to market, to an increase in the growth of e-commerce. This variety of competition can create price wars, drive down margins and impact on profitability, forcing a requirement to keep tight control over inventory and other important financial data.
Developing new business models to provide a stable revenue stream during such intense disruptions is the key. Approaches such as new digital services or as-a-service revenue models are simpler to scale based on business volume and need low- or no-touch processes from order to cash.
Shifting to digital When considering new opportunities for diversification and new routes to market, it is critical that all sectors consider the potentials presented by employing technology and AI to transform businesses – especially those in more traditional industries. Keeping up to date with emerging technologies is not just smart – it is profitable. From cloud computing and collaborative technologies to mobility and analytics, technology can hold the key to competitive advantage and growth. Likewise, another source of support emerges from government tax relief for Research & Development2 (R&D) projects. This benefit might bring considerable support to businesses working on innovative projects in science and technology and can be claimed from the planning process onwards.
Conversely, the Professional Services sector has witnessed a flood of new local and overseas firms that are eager for new business. In turn, this puts pressure on the pricing models of more established firms and has an adverse effect on their fees and margins.
Businesses need to adapt, pivot – and diversify – to manage and lessen current and future risks. The assessing of new, more profitable behaviours to diversify lies at the very heart of scenario planning.
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https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief
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Applied Financial Intelligence
Capital planning The foundations for successful capital planning remain the same: to develop strategies and forecasts and make confident decisions based on informed insights. Even in a crisis, capital planning remains important – businesses still need to focus on both recovery and long-term strategy.
Recovery planning Sectors need to act now and rapidly, to re-imagine and re-design robust, flexible operating models and capital plans. All of which urgently require scenariobased forecasting. During the pandemic, many businesses have deferred capital expenditure to free up cash. Research from McKinsey reported that “freeing up cash by deferring capital expenditures is one of the fastest and most substantial ways to mitigate these ill effects”, with sectors worldwide announcing “capital-expenditure cuts ranging between 10-80%”3. As capital projects come back online, businesses need to triage their portfolio, prioritise a range of options, optimise individual projects and finalise the company portfolio plan.
“ Freeing up cash by deferring capital expenditures is one of the fastest and most substantial ways to mitigate these ill effects.” 3 McKinsey
Critical long-term decisions Longer term strategic decisions must not be forgotten while recovery plans are under way. While access to finance might be a challenge, for cash surplus organisations now is a good time to start to plan capital projects. It is all about making timely decisions on future investment in the capabilities to adapt and innovate in a challenging market. Developing longer term decisions in production capabilities investments, with consideration of mid- to long-term changes, for example: • Accommodation of new health and safety regulations in light of the pandemic. • Expanding capacity in response to current demand. • In Retail, bricks and mortar stores will need to make effective decisions on how much commercial real estate to shed in order to remain cost-effective without cutting back too deeply on market presence. • Investment in the customer experience: considering cash flow for future investment and ROI. • Developing scenario planning. For instance, in Hospitality, it can inform questions such as, ‘What if I refurbish the hotel?’ or ‘What if I refurb in a year’s time?’ As well as planning ahead on capital investments, it is equally important to monitor the progress of the projects and the return on investment.
https://www.mckinsey.com/business-functions/operations/our-insights/resetting-capital-spending-in-the-wake-of-covid-19
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Applied Financial Intelligence
How Axiom helps address these challenges No investment decision should be taken in isolation. Axiom’s Capital Planning and Tracking solution delivers the insight businesses need to deploy capital with confidence, helping to ask the questions to make confident moves: • Does this project represent the best use of our resources? • How will the additional outlay affect cash flow? • Will the long-term profit justify the short-term costs? By bringing forecasting, capital planning and tracking together, Axiom empowers businesses to make truly data-driven decisions, supported by the numbers companies trust.
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Applied Financial Intelligence
The importance of financial agility in summary As pressures increase, it is more critical than ever to have accurate financial data easily to hand, as well as the ability to report from a high level and then drill down into the financial data for the detail. Equally important is careful cash management, analysis of capital expenditure and running multiple scenarios to prepare for all kinds of change. Putting in place insight, agility and continuous innovation matched with robust financial planning and management. Sustainable success and growth require insight, agility and continuous innovation matched with robust financial planning and management. By efficiently gathering financial information from across the organisation, businesses can predict the impact of a wide range of operational and market drivers, for fast, effective decision making. It all comes down to knowing your data well and scenario planning to test for different types of potential futures; capturing reporting and analysis that can develop new business models and provide a stable revenue stream during intense disruptions.
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Applied Financial Intelligence
Axiom solutions – Fit for the future With Axiom you can respond to the financial challenges today, while developing opportunities and innovations to stay ahead of the competition tomorrow. Covering budgeting, cost management, planning, analysis, and reporting, Axiom’s solutions can help you adapt confidently to changing market conditions and operational priorities, aligning strategies with operational budgets and forecasts. To plan for all eventualities and outcomes, decision-makers require accurate forecast and budget data, both financial and non-financial, along with in-depth ‘what if’ scenario planning. Axiom integrates structured and unstructured financial data for a joined-up and single view across your entire business, ensuring your processes are highly efficient and robust. From financial planning to budgeting and beyond, our rich reporting and modelling functionality enables you to report, track, measure and plan for immediate reporting and long-range plans. With our Budgeting and Forecasting solutions you can leverage real-time data to acquire insights, accelerate informed decisions, and advance plans. With Axiom Reporting and Analysis, you can transform data into insights to power the financial performance of your business. Axiom’s financial performance management software means you can model and test different financial plans and initiatives and have total control over every aspect of your finances from cash flow management to capital planning. We give you the tools to prioritise and determine the right opportunities and investments to support growth, now and in the future.
Why not get in touch and see how Axiom can help your office of finance face the challenges of today and tomorrow. Contact us by emailing hello@axiomepm.co.uk or call us on +44 1932 548 465 to talk to one of our specialists.
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Applied Financial Intelligence
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Applied Financial Intelligence