Dr. Tim Klatte, Partner and our Head of Shanghai Forensic Advisory Services in China, provides his perspective based on China’s previous SARS experience, and how other countries can learn from their experience amid COVID-19 uncertainty.
As the world faces its biggest healthcare challenge in more than a generation, the social impacts of the coronavirus (COVID-19) will be fast and prolonged. For industry, the effects may be even longer-lasting, forcing a greater need than ever to strive for business agility, strengthened client relationships, and enhanced employee care.
Since the media’s uptake of the outbreak in Wuhan, China in January, the country has served as a yardstick for much of the world in terms of how the pandemic may evolve, and how best to tackle it. However, unlike many regions and nations who are finding themselves in unchartered territory when it comes to a suitable response, China itself is no stranger to major outbreaks.
The country’s fight against SARS less than 20 years ago still lives vividly in the memory of its population, and while virus containment and mortality rates are of course a priority; the overriding concern across all industrial sectors remains how damaging COVID-19 may prove to be to the global supply chain.
Dr. Tim Klatte, Partner and our Head of Shanghai Forensic Advisory Services in China, explains: “What the SARS experience taught corporates here is the level of supply chain stress involved.
“Central China, especially Hubei Province, serves as one manufacturing hub for the country, and some recent statistics and research conducted in late February have already painted a concerning picture for sectors like automotive and logistics.”
It’s a reflection of the fact that local downturns, slowdowns or – in this case – lockdowns don’t just rebound back to normal in their aftermath.
Especially with a global crisis such as this, China may indeed be coming out of the worst of its coronavirus impacts, but other countries interlinked in their globalised supply chains are only just starting to take the hit. Even as Wuhan and the rest of the country begins to remobilise, their supply chains are entering a phase of disruption and inaction.
To illustrate the global nature of the coronavirus and its impacts on corporate life, Oxford Economics recently reported that the global economy is facing a sharp downturn in Q1, reflecting damage in demand and contracting GDP.[1]
“The impact on trade looks set to be especially large,” the document stated. “Reports indicate freight activity on some routes is down 20%-40% on normal levels and we think Chinese imports will be down around 12% in Q1 from the previous quarter.
“Our baseline forecasts assume a relatively rapid rebound in global growth from Q2 onwards, but even this will leave world growth for the year at only around 2%, easily the slowest pace in the last decade.”
For us in professional services, this presents a new and nuanced challenge. Our very nature is to provide a service. Yet, if clients are unable to operate in their usual way, and their typical service needs are modified, where’s our value?
“Our role has already been impacted tremendously,” Tim says. “Not just in China, but globally. And it’s all happened in a such a quick timeframe. At Grant Thornton, we have tried to reclaim some control over the situation by putting together response teams and crisis management plans to address the situation and to ensure both ours and our clients’ business continuity.”
As Tim elaborates, this revolves around changing the dynamic of the professional service proposition from being a face-to-face solver of problems, to being more agile and reactive to each client’s needs.
“We’re using this period as an opportunity to get closer to clients,” he says. “We can share with them what we’re doing, and as we’re serving multiple industries and regions, we can also share with clients what their peers are doing. It keeps us relevant and helpful while still offering value to them as well.”
By being in the middle of so many sectors and geographies, professional service firms are ideally placed to be a linchpin. To convey successful strategies to clients that have been seen elsewhere, and that are even being implemented internally.
A key driver of this effort so far, that will continue to grow in importance moving forward, is a greater appreciation for, and adoption of, tech.
“Continuity of projects and business development is a huge issue and by embracing technology we can retain as much of this continuity as possible,” Tim continues. “While many projects can’t be completed remotely, we’re a key facilitator in reducing the disruption across projects that can be.”
Grant Thornton UK Partner and Global Head of Professional Services, Peter Gamson agrees, adding that this reliance on tech should be part of a wider movement towards flexible working.
He says: “Many firms have had the technological and organisational flexibility to work remotely for some time now, but to this point, they have not had the necessity to put it into practice and make it work.
“This period will likely prove to be the point that causes many firms and their employees to realise that changing the way we work going forward perhaps isn’t as challenging as it may have previously felt. If handled well, teams and individuals could come together to work much more closely than they previously have.”
If we don’t move towards more flexible, digitised methods of operating then we lose our value as a trusted advisor.
Conor Farley, Partner at Grant Thornton Australia is at least seeing progress along these lines, though.
“To the industry’s credit, we are already seeing a tangible move towards remote working, and the use of online platforms for training, graduate inductions, recruitment assessment centres and critical meetings,” he says. “For the latter, we’re leaning more on internal IT departments than ever before, while also looking towards third-party vendors to facilitate this new method of relationship management and engagement.”
The virus has curtailed a lot of norms that professional services take pride in providing. While clients are readily adapting to the challenge, we too need to mitigate the effects as part of a bigger strive for improved flexibility.
This more dynamic relationship is already being demonstrated between law firms and their clients, as Tim adds: “A lot of corporates around the world are facing disruption to their bottom line and need to accommodate or offset that. To do so they need to understand local labour laws and contract situations, and this is where the law segment of professional services is proving to be not just an adaptable helper, but a pivotal consultant during a difficult time.”
From this perspective, we also have a responsibility to offer guidance and advice. For law firms, this has included encouraging workers to take annual leave during this period so that all hands are on deck to capitalise on an industry rebound in the virus’ aftermath.
With many projects being put on hold, the opportunity to take time off in conjunction with typical HR regulations may be inhibited once everything springs into action once again.
In more general terms, Tim and the global Grant Thornton Professional Services team are urging peers and clients to address three core themes in order to firstly ride the wave of the coronavirus; and to then come out the other side even stronger:
While the former has been addressed as an immediate way to offset coronavirus’ impacts, the latter two are being emphasised as ways to mitigate today’s challenges and also prepare more effectively for similar crises in the future.
“Supply chain diversification is something that China certainly learned from after SARS but that the rest of the world needs to address now,” Tim explains. “It’s a lesson to everyone that we have to hedge our bets and reduce instances of putting all our investments into one or two pockets. By diversifying our supply chains we’re more likely to be ready to adapt and mobilise at a moment’s notice, rather than relying on one sole source to keep our productivity afloat.”
He adds: “Meanwhile, we have to show, internally, how much we care about our employees in a crisis situation. Showing that we’re still valuing them and giving them a platform to succeed even during rough times is a small gesture that will have a lasting impact on employee commitment.”
Immediately, this may include distributing masks or sanitisers to them, while making their work schedules more flexible. In the long-term, Peter is already calling for heightened communication around areas that workers may find more daunting.
“Coaching and developing people remotely is not easy to do and if people are left to their own devices they could easily feel uncared for,” he says. “To this end I think firms will need to focus primarily on maintaining strong communication with their people.”
Flexibility. Enriching the labour force. Greater appreciation of tech. Diversification of suppliers and supplier geographies. These are lessons that can stand us in good stead both now and beyond coronavirus’ elimination.
Tim says: “Adapting to COVID-19 realities is a learning curve for everyone and we in professional services are beginning to grasp the virus’ severity and respond in kind via papers, reports, guidelines and a host of webinars.
“While we ourselves are evolving our business model so we can continue providing value to clients, we can also set an example for how the rest of the corporate world can evolve so that similar crises have less of an impact in the future.”
Conor concludes: “Once the dust has settled, we’ll hopefully ignite a feeling among more innovative and faster moving clients of ‘why didn’t we always work like that?’ en route to longer-term organisational profitability.”
To discuss these and any other matters impacting professional services firms contact our global head of professional services, Peter Gamson, or your local Grant Thornton firm.
[1] Coronavirus: World economy faces a short, sharp shock, Oxford Economics - 4 March 2020