September 28, 2021

To invest or not to invest? Don’t let business decision making fall into pandemic-paralysis

Article is attributed to Oliver Stein, Director – South East Asia, JAGGAER

Photo provided by JAGGAER

For over a year, businesses have been navigating their way with uncertainty along rocky roads aggravated by pandemic disruptions. As the pandemic turns endemic, businesses are left with choices – to remain cautious with their reserves or to take the leap and invest after a year of incredible challenges to seize a competitive advantage and better protect themselves from future risk.

As my team and I consult with clients, we have seen an uptick in back-office investment across Asia Pacific. Recent research by McKinsey reported that companies are actively investing in this post-pandemic climate and particularly in areas such as digital transformation.

Whilst a cautious mindset is completely understandable after recent events, green shoots of recovering business activity and capital expenditures shore up my conviction that there is a strong case for businesses to prioritize post-pandemic investment.  

Cash is no good if you don’t spend it

Being conservative with our cash reserves is a common practice but where do we draw the line with being too conservative? 

A cash buffer is advantageous when a tragedy strikes, but it will only get the business so far. Cash can always run out but investing in the right plan and infrastructure is a more sustainable, long-term, move .

Risk has always been around and will persist

For anyone in the finance world, any investment has a degree of associated risk, but the other side of the coin is that investments present an opportunity for businesses to grow exponentially. 

The pandemic was a black swan event at a global scale that most organizations did not foresee. It has forced us to review our expectations of business resiliency and continuity, and what that means for strategic positions and investments in digitalization and transformation. 

Whether a natural disaster, political fallout, geographic risk, or many others, risks are a fact of life. Managing risk well will always be key to investing wisely, expecting a solid return. However, recent events have brought to light how many organisations are not prepared to manage their risks. There need to be the right people, processes, and technology embedded in an organisation to effectively tackle the endemic nature of certain risks and see greater economic return as a result.

Ultimately, the adage “you have to spend money to make money,” still holds true. 

Investment has a domino effect

Internal investment, if done right, will stimulate your organization. One smart investment leads to another, and eventually, the domino effect will take over. 

Take, for example, recent data from The Hackett Group, which found that a single investment in a world-class procurement function can deliver: 30% higher margins, 22% lower operating costs, 47% faster requisition-to-purchase-order cycle time, 36% less loss due to maverick buying, and 5 times greater cost-benefits from supplier collaboration. 

Business is about seizing opportunity

A recent poll we conducted showed that there is only a slim gap between companies being cautious with investment (45%), and those actively looking for areas to invest (35%) and being flexible with cash (35%). 

That said, this dichotomy presents a huge opportunity for organizations that invest wisely to get a sizeable competitive advantage over those that continue with a cash hoarding mentality.

Wise Investments for Risk Management 

So where should organizations look to invest and spend both time and money? Decision-makers – in the aftermath – will be looking for investments that give the most return while allowing them to plan for multiple iterative scenarios and mitigate potential risks. 

Here are five key areas for such investments. 

  1. Digital transformation

While being a decade-long buzzword, the reality of “digital transformation” is that little progress has actually been made. Our study with IPG shows that procurement, in particular, is still weighted heavily towards operational activities as opposed to strategic.

The pandemic has sent shock waves through the C-suite, and digital transformation is now a top priority for senior leaders across Asia and the world, but this needs to be met with tangible commitment, investment and strategy.

Digital transformation is a long-term process that won’t happen in a flash. Waiting to invest until the “perfect time” is a mistake because that time can arrive after it’s already too late. The longer an organisation waits, the more lost opportunity there is.

Looking at success cases that have emerged stronger from the pandemic, it is clear that no business can become a top-performing world-class organization without making a concerted technology investment. If you want to see a dramatic boost to the bottom line, look for astute investments to automate and streamline processes while empowering people to become more strategic.

  1. Risk management

Investing in risk management will need to be tailored for each organization, but two key common evaluators should factor in decision making. 

Firstly, assess solutions that will accelerate organizational digital transformation, such as the adoption of predictive and prescriptive analytics, advanced modeling and artificial intelligence (AI). These technologies allow for proactive and data-driven operations to get ahead of risks. If you have a clear picture of the data involved in any risk, you are already in a better position to manage it.

Secondly, invest in your people and processes. Designing a people-first, comprehensive and stress-tested crisis management playbook is essential today. 

  1. Sustainability 

Today, sustainability is, and must be a core business focus. Almost every organisation I have spoken to recently is talking about sustainability, how it can be measured, what its benefits are for the organisation and the industry, and which of the many sustainability factors are their focus. This can involve procuring of more sustainable goods, or promoting better working conditions in suppliers, to a holistic strategy to ethical supply chain. 

If applied right, sustainable technology investments can dramatically increase your bottom line and position your organization for growth. A 2017 study by Nordea Equity Research showed that companies with the highest Environmental, Social, and Corporate Governance ratings, outperformed lesser rated companies by 40%

  1. Supplier diversity

The pandemic has certainly shaken things up for all businesses, and many business decision makers still quake at mentions of the “Suez Canal blockage”. Supplier diversity is well and truly in the spotlight. 

With readily available technology solutions, managing supplier diversity effectively can impact the bottom line, agility, innovation, and be a catalyst for greater business growth.

  1. Talent

Speaking of the investment ‘trickle effect,’ all of the above investment areas influence talent.

A key driver for the new workforce generation is innovation. They don’t want to be saddled with repetitive, paper-based tasks; they want to work on strategy and data. 

In turn, innovation-led talent will bring a new wave of ideas and digital natives who can bridge the gap towards full digital transformation. 

To invest or not to invest

Many organizations were burnt by the initial fallout from the pandemic, leaving a lasting impression that no one will soon forget. The pandemic has proven how poorly prepared we all were for black swan events, and so there is no reason for us to be caught unawares again.

Being conservative with your cash will only get you so far. Is your organization going to leapfrog or lag?