How are private businesses transforming at speed to build value that lasts?

By

Suwin Lee

EMEIA EY Private Leader; Transaction Tax Partner, Ernst & Young LLP

Trusted business advisor specializing in Tax restructuring. Passionate about helping private businesses thrive and achieve their ambition.

4 minute read 23 Sep 2020

COVID-19 has highlighted the importance of adaptability and resilience.

In brief
  • Private businesses are focusing their transformation efforts on their customers, workforce, supply chains and cybersecurity.
  • By turning around distressed businesses, private equity firms are building long-term value.
  • Speed of transformation is critical – businesses need to accelerate to capitalize on market opportunities.

COVID-19 has further accelerated the rate of change in what was already a fast-moving business environment. As a result, organizations today are coming under pressure to transform at speed – particularly in sectors that have been badly impacted by the pandemic. At the same time, COVID-19 has underlined the importance of sustainability and highlighted that the most resilient businesses build value that lasts.

So, what does this mean in the context of private businesses? How are they transforming at speed to build value that lasts?

Transformation is generally a huge endeavor for all but the smallest and most agile of businesses. For that reason, private businesses today tend to be more focused on transforming specific areas of their businesses rather than on wholesale transformation. They are prioritizing their most pressing issues, which are likely to include:

1. Customer behaviors

The EY Future Consumer Index has found that customer behaviors have changed significantly in response to COVID-19. Consumers are becoming more careful with their money as the pandemic continues and they fear the impact of recession. Almost half (48%) of consumers surveyed for the index said that they wanted to postpone the purchase or replacement of big-ticket items, such as automobiles, furniture and appliances, until after the pandemic is over. So, against this backdrop of ongoing consumer caution, private businesses are assessing how the pandemic has impacted their customer base to date and how they forecast it to change further going forward. They are evaluating which measures they need to take in response to these developments – for example, greater investment in digitalization. 

2. Workforce optimization

Private businesses are looking closely at their workforce in light of the pandemic. Do they have too few or too many people to fulfil their current business requirements? What skills will they need going forward? Also, how can they equip their people with the technological skills they will need to work effectively and securely? In future, some organizations may start to look at whether they can use artificial intelligence to streamline processes and augment their human workforce. 

3. Outsourcing opportunities

Since cost reduction is one of the most pressing issues faced by private businesses today, they are looking at opportunities to outsource certain functions and roles. For example, they may want to outsource their legal department or finance and tax team. In some cases, they are even exploring whether they can outsource their entire back office function to a third-party provider. 

4. Supply chain resilience

The pandemic highlighted vulnerabilities in many supply chains. As a result, private businesses are reviewing their supply chains to identify where their risks lie. Were certain suppliers unable to continue supply during lockdown? Or if the business has a supplier in a single location, is too much risk associated with that? Can they find another supplier, either domestically or based overseas? Once a business has found the weaknesses in its supply chain, it can then develop a strategy to make that supply chain more sustainable. 

5. Cybersecurity

As more and more information is exchanged and stored online, private businesses are paying greater attention to cybersecurity. They are doing health checks of their systems to identify possible weaknesses and they are investing in technological tools to strengthen the security around the information they hold. Reputation is a huge concern for all private businesses – their customers need to trust that their investment in cybersecurity is adequate.

When it comes to building value that lasts, private businesses are aiming to build resilient enterprises that are able to adapt and thrive over the long term. Private equity funds, in particular, have a strong track record of turning around failing businesses, generating value for the stakeholders of those businesses, as well as their own stakeholders, in the process. Often, they have recruited expertise from the sectors where they typically acquire assets, which allows them to operationally improve the businesses they buy. Significantly, they are prepared to purchase assets in situations that may be too challenging for other investors.

While they are taking steps to transform, the reality is that most private businesses are probably not transforming quickly or holistically enough. So, it is key that they further accelerate their transformation processes, especially with regard to resourcing and the use of technology to gain powerful market insights. That way they will be well placed to capitalize on new opportunities that arise in the market, such as government-funded infrastructure projects or more affordable assets when they come up for sale. For private businesses, as with all other businesses, the key to success in future is transforming at speed to build value that lasts. 

Summary

COVID-19 has accelerated the rate of change in an already fast-moving business environment. Private businesses are transforming their organizations with the aim of building greater long-term value for their stakeholders. Yet they need to transform even faster if they are to capitalize on emerging market opportunities. 

About this article

By

Suwin Lee

EMEIA EY Private Leader; Transaction Tax Partner, Ernst & Young LLP

Trusted business advisor specializing in Tax restructuring. Passionate about helping private businesses thrive and achieve their ambition.