Banking-sector woes must not spook future-focused organizations

10 Apr 2023

Not many people had heard of Silicon Valley Bank (SVB) when it collapsed in early March. But its fall, and the subsequent scramble to bail it out, caused loud, polarised reactions around the globe. 

Two schools of thought were quickly established, almost as rapidly as HBSC’s rescue of SVB’s UK arm. One side moved to calm the situation by claiming it was an anomaly. They said it only happened because the niche bank catered for technology companies, whose leaders had been spooked, triggering a run. 

Those at the other end of the debating table were more alarmed and stated it was reminiscent of the early stages of the 2008 crash. This argument was strengthened somewhat when, a week after the SVB incident, 167-year-old Zurich-based lender Credit Suisse was forced into an emergency merger with rival UBS in a deal backed by the Swiss government.

Whatever you think about what caused the downward spirals suffered by SVB and Credit Suisse, and what the longer-term effects might be, they are yet more examples of having the rug being pulled from underneath you. 

It seems that since the start of the pandemic, nothing has been either stable or reliable. So many unusual things have happened – again, for whatever reasons – that have rocked business leaders’ confidence. It’s as though you blink, and something else happens. And, these days, it’s not something small, either.

On March 23, 2021, exactly a year on from the first lockdown in the UK, one of the largest container ships in the world, the 400-metre Ever Given, ran aground in the Suez Canal, blocking it for six days and preventing almost $10 billion (£8.2 billion) worth of trade a day, according to shipping data.

Then 11 months later, on February 24, 2022, Russian tanks headed for Kyiv. The geopolitical tensions that have exploded since Vladimir Putin’s attempt to take Ukraine have further damaged already-struggling global supply chains following two years of a pandemic and the Ever Given blockage.

 

Beware knee-jerk reactions

No wonder business leaders are fearful of what might come next. Yes, we are learning to expect the unexpected, but I would argue that now is not the time to batten down the hatches.

Certainly, many of my clients are becoming more cautious, and the recent SVB and Credit Suisse falls have only made them want to be more risk averse. However, shutting up shop will not give them what they need to succeed today or tomorrow. 

To an extent, it is instinctive to hide in your burrow, waiting for trouble to pass. But what if a tsunami is coming, and you have not seen it in time or prepared for such a giant wave? Well, you will drown in your burrow.

Additionally, there is a danger that organisations have an unrealistic idea of future demand. The latest data indicates that there has been a bigger upturn in the economy than was previously predicted. But to what degree is that due to consumer desire following a relaxing of the coronavirus restrictions combined with golden-quarter sales, for retailers in particular? 

Whatever industry in which you operate, the point is that demand might not last as long as you want. Supply chains might be more stable than they were this time last year, but companies have to contend with inflationary costs, and some might have surplus contingency materials. It’s a perfect storm, but I would urge business leaders not to overreact and be too cautious.

 

Need for agility and long-term thinking

For example, one organisation I’m currently working with is making good money and still looking at growth. Still, because it is not making as much profit due to the impact of inflation, plus the demand isn’t as strong as it initially thought it would be, drastic decisions are being made regarding investments.

Given that the business is in a relatively healthy position and that the currently perceived negativity is skewed in reality – partly down to overly ambitious forecasts before inflation, and other factors, began to bite – one could argue that this is a wrongheaded attitude to take, and it will likely have long-term consequences. 

Therefore, I would urge business leaders not to have a knee-jerk reaction to the recent shocks in the banking sector. Any rash decisions could fatally damage the business. If you start switching off the tap to valuable resources now, only to find you will need them next year and can’t turn it on then, where does that leave you?

It’s worth bearing in mind 75% of the global CEOs quizzed for PwC’s latest Annual Global CEO Survey, published in February, believed their business would suffer a decline in growth in the coming year, primarily due to economic uncertainty and market volatility.

Further, 40% of the CEOs in PwC’s report reckoned their organisation would not be economically viable in a decade. The message is clear: what works today will not work tomorrow, and innovation is vital. Therefore, there is a critical need to shift away from a business-as-usual approach. And the surprises that pop up should force organisations to look further out and not focus so much on the short term. 

At Oliver Wight, we advise business leaders to look at how things might be over a 36-month horizon. Ultimately, a business requires in-built agility to respond to anything, potentially. So don’t make decisions that could remove the flexibility necessary to avoid disaster and glide through volatile times.

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