What should CEOs and boards be doing now that inflation is rising? asks Michael Appleby
Forecasts of inflation of more than 15 per cent and interest rates above 6 per cent, union strikes, supply chain pressures, a cost-of-living crisis, political uncertainty, a weak housing market, caps on rent increases below inflation and an impending recession – not a particularly appealing environment to be heading into the Autumn with.
It is the record levels of inflation that are the real problem in all of this. With levels set to exceed those seen in the 1970s, few (if any) leaders in any sector have had to deal with and guide their organisations through such a difficult period and all indicators suggest the current inflationary environment is here to stay.
The housing sector will be at the forefront of the challenges.
Responsible for supporting some of the most vulnerable in society (and those most exposed to the cost-of-living crisis), whilst at the same time being a significant contributor to the development of new homes (exposed to significant supply chain cost inflation and potential drops in housing market values).
So, what are the key areas that CEOs and boards across the sector should be focusing on now to guide their organisations through the next period?
Service offer review
Ensuring service offers remain relevant will be essential. Robust prioritisation based on cost and need will be critical to ensure that organisations focus on what services will provide the highest value and the most positive impact to people in their homes. Tough decisions may be needed on scaling back activities.
Scenario planning
The sector is already well versed in stress testing, and this should remain at the forefront of discussions amongst board and executives.
Organisations should also push the assumptions to see what will really test the organisation. Twelve months ago no one was predicting inflation at current rates. Scenario planning shouldn’t just be theoretical, it should result in robust plans which can be implemented quickly if the worst happens. It should also extend beyond financial planning – what happens if there are energy blackouts (how should tenants be supported)? What if a supplier collapses (have you got resilience elsewhere)? What if a proportion of the workforce goes on strike (what do you stop doing)?
Organisation review
The pandemic led to many organisations reviewing their operating models and cost structures. Few in recent times have had a singular focus on cost reduction, but that may change now. Alongside scenario planning, CEOs and Boards should have a clear understanding of where the costs sit in their business and what can be changed quickly if required. This may include having contingency plans in place, or speeding up current technology programmes to move more quickly to more efficient digital-based ways of working.
Talent
With significant gaps in the recruitment market, there’s pressure to attract and retain talent. With more strikes forecast and high demand from employees, the upward pressure is likely to increase. Last year we saw the cost of living awards across the sector ranging from 2 per cent to 6 per cent. Next year could be even higher. But don’t just focus on basic salaries – not only does that add to the overall inflationary pressure (the housing sector acting as an echo chamber – where one organisation increases, others will need to follow), it might also not deal with the root cause.
Employees don’t tend to leave an organisation simply for a slightly higher salary in a similar role. Focus therefore on the overall talent value proposition and make the organisation a good place to work.
Procurement and supply chain
The procurement function must be a strategic partner to the executive team. Getting the best value from current procurement exercises is key. Working closely with and managing your supply chain will be essential. Engage with them to plan work/costs/scenarios for the next 12 months so shocks can be avoided. Suppliers and service providers will be under significant pressure too, and a stronger partnership arrangement will avoid costs being simply passed up and down with a longer-term approach in place.
Inflationary environment response teams
There is a strong case for inflation response teams to be created to deal with this crisis, similar to those during the pandemic. The impact will be cross-organisational and there will be a need to ensure a coordinated response, especially across larger and more complex organisations.
Compassionate approach
Throughout this period everyone is dealing with the same pressures – whether a customer, employee or supplier – professionally and personally. It is easy in times of crisis for things to become adversarial and difficult. But a compassionate, collaborative approach has significant benefits – especially as we emerge from the other side.
Getting ahead and planning now, will be critical in ensuring organisations have the resilience to manage the uncertainty.
Michael Appleby is markets & growth director at Altair. To learn more about how we can support your organisation, please contact Michael.Appelby@altairltd.co.uk or sioned.hughes@altairltd.co.uk