Andrew Palmer: How to profit from change

FIRMS across the region have been asking how they can prepare themselves for the challenges and opportunities presented by the changing business environment, and how the CBI might be able to support them in tackling the "change" agenda.

In each instance, the managing director knows that change needs to happen and is looking for some external support in setting the scene internally and laying out some of the issues that need to be considered. The CBI is not a management consultancy, but we have spent much of the past year talking to companies across the UK about the future business environment and how they expect things to be different in the coming years.

The key question is whether companies expect a return to the operating conditions before the credit crunch and recession. The answer is overwhelmingly that they do not. In response, the CBI has produced a product aimed at helping companies to challenge their existing assumptions on the external operating environment and suggest ways in which they might adapt or radically re-engineer their businesses to gain advantage in a changed competitive landscape.

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The legacies of the financial crisis and the ensuing global recession have materially changed the conditions affecting business. Around the western world governments are reining in public spending, credit conditions are constrained and business and consumer confidence is low. But the events of the past few years have also brought into focus other structural trends in the global economy, natural environment and society.

Trust in business and markets is declining, there are increasing pressures on natural resource availability, and significant demographic changes. Understanding how these drivers interact, and how customers, suppliers and partners will change behaviour, will be key to a successful business strategy.

One of the key changes that is already being felt is the need to find new sources of finance and capital. The attractiveness of debt is declining, and the capacity pressures evident in the traditional banking sector will drive new models and sources of finance. Sovereign wealth funds are making headlines in relation to football clubs, but are quietly making their presence felt in other sectors, too. And cash rich companies will increasingly look to use that in supporting and creating supply chain advantage.

Paradoxically, the increase in available labour has not lessened companies' concerns about talent management, particularly the skills to manage change. Managing workforces will be a more complex environment as businesses search for ways of preserving the flexibility that has been developed during the recession with locking in and rewarding the key skills that will be in short supply.

Organisation and location factors will also become more complex. The risk inherent in supply chains has been highlighted during the

recession, and tempered the trend towards greater and more distant outsourcing. But companies will also want to share risk by developing deeper partnerships based on collaboration with diverse organisations. Developing an organisational culture that fosters partnership working will be a key challenge for many management teams.

Sustainability and ethics will also rise higher up the corporate agenda. Whether it is the weather peaks and troughs that we have seen this year, rising food and energy prices, or the increasing challenges apparent in sourcing fossil fuels, the environment is unlikely to diminish as a driver of behaviour. And many factors that were hidden or lessened by a benign economy come into sharper focus during the lean times, so company performance on agendas such as equalities, social inclusion and supply chain management will come under greater scrutiny as consumers become more selective in where they spend their money.

Many management teams have now stabilised their business after a challenging few years where survival seemed the order of the day. They are now ready to plan for growth, but face a radically different set of challenges and are keen to seek help where they can. Those which understand the changes best, and tackle them systematically, are the companies which we should see outperforming in the coming years.

Andrew Palmer is regional director of the CBI.