The only manner in which a business can maintain profitability at the bare minimum, therefore, is to look at its operational costs and discard those it does not need to incur in order to deliver at the lowest level of operation
BUSINESS HUMAN RESOURCE
The COVID-19 Pandemic has led to the lockdown of countries and their economies globally in a bid to prevent further spread of the virus. The primary objective is to limit the interaction of people socio-economic life activities.
This limited ability to transact and interact has led to the overall slowdown of economies and downward revision of growth projections as key activities that drive this growth are suspended/restricted.
As a result of the above, the focus that the majority of businesses has turned to the survival of their businesses through and beyond the lockdown period. The majority of businesses, be they large medium or small scale, have therefore resorted to focusing on business continuity strategies that are characterised by three key principles.
Reduction of Business Operational Overheads
All businesses will be looking to drastically reduce their operational overheads as the first priority. This is in a bid to apply control over the business operational cost variables that they can directly and quickly influence in order to remain at breakeven point.
It is, however, and in the same breath, not expected that there will be obvious or generic ways of boosting revenue given the uncertainty that the pandemic has created as well as the change in habit of the general population that these businesses derive their revenue from.
The only manner in which a business can maintain profitability at the bare minimum, therefore, is to look at its operational costs and discard those it does not need to incur in order to deliver at the lowest level of operation as well as review those overheads that are necessary for such operation and minimise these as far as is practicable.
One of the immediate cost centres will be Human Resource. This is mainly due to the fact that for the majority of businesses, this factor of production is the most expensive and therefore the most sensible first port of call in cost reduction.
Moreover, in view of the new way of life introduced by COVID-19 the cost of each unit of human resource is expected to actually increase as businesses are forced to equip staff with Personal Protective Equipment (PPE) to prevent transmission/infection of/with the disease.
The review of human resource that is employed in any business will be based on two key elements; workload re-distribution to minimise the need of large numbers of staff but without reducing efficient and effective production and the re-assignment of tasks in a manner that ensures that each unit of HR is operating at optimum capacity.
In relation to this will be the consideration of replacing the human resource with Artificial Intelligence (AI) or adoption of Information Technology (IT) based delivery of services that were hitherto delivered using humans.
This aspect will include the replacement of human resource with automated units in manufacturing, even in the face of a significant need for capital input to achieve this as well as the adoption of the use of IT where some units of human resource will be required to operate off-site at a cheaper cost to the company in terms of the salaries paid to these units and the cost of accommodating them in offices, factories, etc.
There has been widespread discussion on the new concept of working from home. While this will definitely become a part and parcel of the new working environment, it will however only apply to the staff left behind after the review of the human resource employed.
One cannot actually say with certainty the extent that the above will affect the number of people employed in companies but what is certain is that there will be a wave of rationalization of the workforce employed across the board.
Debt and Credit Management
The second priority that businesses will be expected to consider will be the vigorous collection of a debt owed to them while at the same time reducing the amount of debt they owe.
This will no doubt lead to heightened pressure on businesses to settle an outstanding debt earlier than anticipated. This aspect will rise in priority and be handled in conjunction with the reduction of operational costs and it is expected that there will be a domino effect with each business, in turn, adopting a similar approach in their financial management. In extreme cases where payables are higher than receivables, it is likely that some businesses may wind up.
New Procedural and Operational Standards
Firms that manage to successfully implement the above two measures will then look to developing new methods of conducting business that would bulwark them from similar events in the future.
In this regard, while many businesses will seek to maintain minimum levels of human resource employed and operate in a manner that will minimise debt and credit even after the pandemic has been resolved, they will also adopt new operating procedures such as restricted or zero tolerance for credit to customers while at the same time discouraging the accrual of debt owed by them to suppliers.
Business planning will also most likely focus on the short to medium-term with little provision for investment in growth or expansion of the business with greater emphasis applied to emergency planning.
The overall impact of this pandemic will be expected to manifest in the following ways:
Many companies will face the real notion of winding up their business.
A large number of the surviving businesses will drastically downsize their operations and focus on those clients whose creditworthiness is impeccable and avoid dealing with any client whose ability to settle their debt is questionable.
The adoption of IT as a substitute for the human resource will intensify. To what extent one can only wait and see how long the pandemic will remain active but the adjustment towards this method of working will be real.
IMPACT ON COMMERCIAL OFFICE SPACE
The immediate impact expected will be a move towards a reduction in space occupied driven by:-
The optimisation of space occupied after reduction in the human resource numbers, adoption of IT methods of delivery where applicable and social distancing methods in how staff are seated in offices.
The review of operational costs in the form of not only reducing physical space occupied but looking for ways to reduce the unit cost of each square metre occupied.
The impact is however not expected to be all negative based on the following:
In the process of reviewing how they do business, many tenants will come to realise the intrinsic value that the office space they occupy has to their core business and consider a reduction in the space they occupy as having a negative impact on their image, especially where image portrayal is enshrined in the nature of offices they have. These may opt to focus on all other cost centres and choose to leave their office space reduction as a last resort.
The new concept of social distancing may render the current open-plan office layout untenable in preventing the spread of the virus in the workplace. Tenants may need to revise their layouts and compartmentalize several offices which will result in a need for more space.
The improved financial management in terms of debt and credit will result in more efficient firms. This, for the landlord, will mean a significant reduction in rent default by tenants and will also present an opportunity to ascertain the true creditworthiness of a tenant's business vis-à-vis his ability to meet the rental obligations.
In order to maximise the positive and minimise the negative Landlords will need to consider two key aspects going forward.
The dormancy of the notion of tenant experience being contributory to the levels of occupancy and the rent paid for space occupied by tenants is no longer the case.
In these times this aspect is now at the forefront and should be there for any self-discerning landlord in driving to maximise rental income and occupancy. All efforts must, therefore, be made by landlords to address this and enhance the experience that tenants have in their buildings.
Concessionary measures specifically in terms of occupancy related costs to the tenant aside from the rent paid will have to become part and parcel of the terms and conditions of any tenancy agreement.
Explicit efforts made by a landlord to reduce the costs related to occupancy of space to the tenant will also go a long way in endearing the tenant to the property even where cost-cutting is the approach of the day.
In conclusion, it is important to appreciate the fact that a pandemic is an unprecedented event that has affected the entire global community. In truth, it is not possible to accurately predict or project what the real impact of this pandemic will be until much later.
In addition, it is equally important to note that the same is not yet resolved and the earliest time that such resolution is expected is between July and August 2021, leave alone the fact that there could be further waves of infection and therefore further lockdown periods that could occur in the interim.
Landlords need to carefully consider all options open to them and consult with real estate investment specialists involved in property management in order to apply a strategy that is geared towards, in as much as possible, retaining rental income and occupancy levels at the least.