CASH MANAGEMENT, DOSSIER COVID-19
Building business resilience in a crisis
16 June 2020
Corporates’ business resilience capabilities have been tested in recent years by a series of challenges – but the scale and speed of the Covid-19 pandemic creates an unprecedented level of uncertainty to be prepared for, says Deutsche Bank’s Dennis De-Weerdt
‘Expect the unexpected’ could be the mantra for the 21st century and any company without business continuity and business recovery at the top of its risk agenda is probably no longer in business.
In more than a decade since the global financial crisis, events have required companies to become more resilient in response to a succession of challenging events. They include post-crisis recession; increasingly frequent and major extreme weather events; growing geopolitical tensions that include Brexit and the US-China trade dispute; volatility in commodity prices; cyberattacks such as WannaCry and security breaches; and most recently Covid-19.
The current pandemic is in a class of its own however. Many of the previous shocks limited their impact to a single location or sector; this one has reverberated around the world, with the populations of major economies in lockdown for weeks and economic activity on hold. Comprehensive business continuity and business resilience plans are essential for any company that aims to survive until conditions begin returning to normal.
Among the many challenges created by the pandemic the greatest has been uncertainty; even in the early weeks when it still seemed possible that coronavirus would deliver a sharp, but short-lived blow to global economic growth and a V-shaped recovery would be underway as early as the third quarter of this year. However, recent data suggest that while the number of new cases in developed economies that introduced lockdown is now in decline, the spread of the pandemic has not been halted as the epicentre shifts to regions such as Latin America.1
"A short-term fix won’t work in addressing the disruption caused by the pandemic – only a longer-term approach can succeed"
Add to this the potential for both a second and subsequent waves of the pandemic – and a U-shaped or even L-shaped recovery – in the months ahead, continued uncertainty must be addressed from the outset in developing a business resilience plan. It has also quickly become clear that a short-term fix won’t work in addressing the disruption caused by the pandemic – only a longer-term approach can succeed.
Working from home
In certain respects, the pandemic has provided clarity rather than uncertainty; particularly in revealing that employees of a professional organisation can still produce work of a high level when based at home.2 There might be a loss of certain efficiencies in working from home rather than in the office, and employees’ ability to interact with colleagues is more limited, but generally processes have held up remarkably well over recent months. Much of the change is likely to be longer-term as individuals opt to continue working from home more, even once returning to work safely is again possible.
This relative success evidences that digital developments have taken a huge step forward. In particular, the necessities produced by remote working have provided a quantum leap in digital signing capabilities. Given that many employees are, at times, reluctant to embrace change, what would in normal circumstances have been a gradual transfer over a long period of time from the traditional wet ink signature to digital capabilities has been accomplished in a few short weeks. Deutsche Bank has been steadily developing its digital signing offering in the past two years, while also responding to those clients seeking an alternative, bank-agnostic solution.
The combination of lockdown and greater reluctance to handle banknotes and coins that might carry coronavirus has also motivated companies think about how they move cash around.3 The growth of the business-to-business and business-to-consumer (B2B/B2C) markets in recent years has already driven a move to online payments. The treasury function has to respond, as even countries whose citizens were previously reluctant to abandon cash have seen many taking up online since the start of the pandemic.
Covid-19 has also provided further impetus for an area of treasury that was already under review as a result of escalating trade tensions between the US and China and other geopolitical issues such as the UK’s protracted departure from the European Union. In response, companies had begun reviewing the location of their suppliers, as well as the length and complexity of their supply chains, to ascertain what changes could strengthen their business resilience. Companies have become better at appreciating the impact of losing a major supplier or a major location – Japan’s manufacturing capacity temporarily disrupted by Japan’s tsunami and earthquake and subsequent floods in Thailand in 2011 had knock-on effects for companies worldwide – and the pandemic has refocused treasury’s attention on logistics. Paying a key supplier late in the current environment is self-defeating if it forces them out of business and no alternative is available; hence the deployment of payables finance programmes.4
A robust business resilience plan means understanding the effect of the coronavirus crisis on those in the company’s supply chain and helping them survive where possible. Treasury needs to have oversight of real-time balances and liquidity funding, both for suppliers and for the company’s own subsidiaries in lockdown.
Technology and security
The pandemic has also underlined the synergies of banks partnering with the financial technology sector in developing business resilience solutions for corporate clients. Fintechs, which are location-agnostic, were instrumental in developing the markets with innovative solutions which, then strongly linked to the infrastructure and regulatory frameworks banks provide, expands on that strong partnership.
New and emerging technologies, including real-time information on the company’s FX positions and digital signing, can support the decision-making process and be incorporated into a company’s business resilience action plan. Particular attention has been given to artificial intelligence (AI) and robotic process automation, which although more supportive than decisive, will play their part.
It should also be remembered that before Covid-19 dominated the headlines, fraud prevention and cybersecurity was the biggest business resilience challenge for most corporates. The pandemic has created a distraction, but extraordinary times always present opportunities for fraudsters and other criminals to exploit.5 The move to digitisation must be accompanied by a duty of care in ensuring that information is not tampered with and the bank has been able to identify and thwart a number of attempts.
The new normal
Unprecedented times, where the ‘new normal’ often includes the majority of your employees working from home, requires a review of the company’s processes and digitising as and where possible.
Deutsche Bank’s short video, ’Improve business resilience through treasury digitisation’, recommends a five-step business continuity health check to ensure that the company’s defences stay robust. The measures are:
- Managing authorisations;
- Ensuring that you have end-to-end payments tracking;
- Enabling digital contract and digital signing capabilities;
- Making sure that you have back-up and the right connectivity in place;
- Prioritising a focus on fraud management and prevention
Banks with a global capability presence can offer corporate clients the required flexibility to move quickly and optimise their supply chain in response to fast-moving events. One further component of business continuity is a bank’s electronic banking capability, which can offer alternative payment channels should one become temporarily unavailable – as was the case in March 2020 when the Philippines financial markets was the first in the world to briefly shut down on Covid-19 concerns.6 Expecting the unexpected will continue to be central to business resilience plans over the months ahead and electronic banking capabilities will prove their worth in a range of disruption scenarios.
Dennis De-Weerdt is Global Head of Service and Implementations, Cash Management for Deutsche Bank Corporate Bank
1 See https://coronavirus.jhu.edu/map.html at jhu.edu
2 See From the engine room at flow.db.com
3 See Covid-19's assault on cash at flow.db.com
4 See Payables finance: a guide to working capital optimisation at flow.db.com
5 See Beating Covid-19 cybercrime at flow.db.com
6 Reported in the Financial Times on 17 March 2020
Global Head of Service and Implementations, Cash Management for Deutsche Bank Corporate Bank
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