Embracing the new abnormal: how financial firms can move beyond the pandemic

Neil Dhar Vice Chair - Chief Clients Officer, PwC US May 01, 2020

There’s no going back to “the way it was.” It’s time to acknowledge that the world has changed and embrace the “new abnormal”.

Every day, I speak with executives at banks, insurers, asset management firms, real estate companies and private equity (PE) firms about how leaders and their teams are preparing to return to work. Many large companies are beginning to stabilize, and are adapting to life in the COVID-19 era, despite the immense human and economic cost.

We want a return to normal. But as firms strategize about what comes next, many leaders are asking “What lessons are we learning?” and “Can we build smarter?”

Consider the PE model. Traditionally, these firms pursue businesses and assets in desirable sectors, and install talented management teams. They take steps to drive efficiencies (cost) and identify growth (revenue) opportunities, and they look to create value (increase EBITDA) in a three-to-seven-year time period, followed by a sale or public offering.

In today’s uncertain environment, that model is far more difficult to follow. Certainly, if you work at a PE firm with holdings in, say, the travel and leisure industry, you’re helping portfolio companies address some extraordinary near-term challenges related to safety, revenue, liquidity and cash management. But then what?

Asking the right questions

These days, we’re reconsidering our operating models on the fly. As we put the pieces back together, we are often grappling with deep-held assumptions that we didn’t even know we had—and that may no longer make sense. From the C-suite to investors to portfolio operations and portfolio management teams, it’s time to think big and bold, and have the conviction to drive change. As you contemplate the way forward, here are seven questions to consider:

1) How do you define your workforce?

When cities, states and countries went under lockdown, millions of employees started working from home. We expect this trend to extend far beyond the crisis. In fact, in a recent PwC survey, 60% of financial services industry respondents said they’re considering making remote work a permanent option for roles that allow. Reducing local and long-distance travel, along with creating more flexible, virtual teams, may make your workforce more productive and agile.

Which of the following is your company planning to implement once you start to transition back to on-site work?

All industries
Financial services

Change workplace safety measures and requirements
%
%
Reconfigure work sites to promote physical distancing
%
%
Make remote work a permanent option for roles that allow
%
%
Change shifts and/or alternate crews to reduce exposure
%
%
Accelerate automation and new ways of working
%
%
Evaluate new tools to support workforce location tracking and contact tracing
%
%
Reduce real-estate footprint
%
%
Source: PwC COVID-19 US CFO Pulse Survey
April 22, 2020: Total base of 305; FS base of 60

2) What real estate do you need?

In a matter of months, firms have begun to reconsider real estate footprints that have developed over decades. For many, there may be less need for shared physical spaces. Permanent offices may look different, with fewer people and more physical separation. Videoconferencing has rapidly become mainstream. We may also see the rise of virtual conference rooms with virtual reality (VR) headsets to support teams, while sharply reducing the need to travel—or even commute.

3) What should you buy vs. own?

What functions do you really have to own? Once, firms would have said “our contact center,” “our technology help desk” or “our tax department.” This is likely no longer the case. There's nothing new about reexamining non-core work, matching skills to roles and determining which roles might be done more efficiently through managed services. But as COVID-19 leads firms to look for more flexibility, you may find outsourcing and onshoring can help you compete on a whole different scale.

4) How flexible is your supply chain?

A flip side of outsourcing is risk, as the pandemic has made painfully clear to some. Supply chain management involves trade-offs in cost, efficiency and safety, like any other process that involves risk. You may find that you need a more holistic way to understand these risks across your firm. You may also need to calibrate the level of risk you take on much more finely than before, as you look to drive efficiencies and incremental value.

5) Do you have the right technology?

Your firm’s use of technology has almost certainly changed because of COVID-19. Many companies have rapidly and successfully spun up their use of video, virtual desktops and internal social networking platforms. Companies that invested in cloud computing almost certainly have had an easier go of it. The basic benefits of cloud technology are worth repeating: Many firms find it faster, cheaper and more flexible than on-premises computing. The most successful firms take it further, using cloud as a strategic enabler to streamline operations, drive business growth, spur digital innovation and support resiliency.

6) Are you using data and analytics effectively?

Specifically, are you creating and using information with a ROI mindset? Customer behavior is always changing, and it could certainly change as a result of the pandemic. With the right information, you can improve your predictive abilities immensely. This can help you change along with your customers—whether you are trying to anticipate defaults, insurable events, reopenings, impacts of a second wave or balance transfers. Predictive analytics can lead to operational excellence. Firms that have developed data-driven insights are more likely to know where they’ll need to invest and where they can back off.

7) How resilient is your scenario planning and forecasting?

“The crisis will end when we have effective testing, tracing and treatment.” Maybe. There are many experts predicting V, U, W and other shaped recoveries—but, in reality, no one knows how this crisis will play out. In fact, the pandemic has made it painfully clear that forecasting can’t be set in stone. The more you understand the inputs that shape your business, the more likely you are to anticipate disruption and its impact on underlying cash flows. While few companies anticipated this particular disruption, there are examples of more adaptive companies in every industry. It’s possible to build muscle for this.

What needs to be fixed? What could become more variable?

These are the nuts and bolts issues that define how agile your operations can be. I encourage you to look beyond the current environment to reexamine the art of the possible, redefining how you’ll deliver products and services—and manage costs—in a post-COVID-19 world. The pandemic is likely to give some leaders the push they need to make decisions at scale and the discipline to carry them out.

A year ago, few imagined that we’d be running global businesses from our kitchen tables. Maybe it’s time to reimagine bigger and bolder.

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