Tough times can still be opportune times for transformation

By Chiu Wu Hong, Partner and Head of Private Enterprise, KPMG in Singapore

While some companies are shying away from transformation goals in the current economic climate, others are seeking to adapt with renewed vigour in order to gain a competitive edge. Many winners of the Enterprise 50 (E50) awards, which recognise Singapore’s businesses for their transformation efforts, have made growth the name of their game in emerging from the COVID-19 pandemic. Collectively, they recorded revenue of more than S$4 billion in 2021, up from just under S$3 billion in 2020. In addition, their pre-tax profits totalled S$334 million, up from S$204 million in 2020.

Ready for change – the case for transformation

As we enter an inflationary environment, enterprises are mulling if they should fund and press forward with transformation initiatives.

However, the reality is that many enterprises simply cannot afford not to invest in such efforts. For example, adopting new digital technologies can help companies work more efficiently and protect their profit margins in difficult times through productivity improvements. They can also transform business models or pivot to new ones to provide new revenue streams, while those that fail to seize such opportunities risk being left behind.

Singapore business leaders are already well aware of the importance of digital transformation. Some 48 percent of those responding to KPMG’s 2022 CEO Outlook survey believe that driving digital transformation will be critical in beating the competition for talent and customers. This has led them to continue to prioritise digital investment even in current times — 60 percent of Singapore CEOs report aggressive strategies to be first movers or fast followers on this front. 

Maintaining momentum in turbulent times

Though important, the road to transformation is not without its stumbling blocks. In the current climate, many local enterprise owners may be focused on how to sustain their businesses, and put longer-term tasks such as transformation on the back burner. Uncertainties surrounding the effects of transformative actions and today’s unpredictable economic environment may lead some to think: “Why change if things are working?”

Innovation and transformation require quality talent and often substantial funding, such as for the purchase or development of cutting-edge technologies. With rapidly rising cost of funds and potential global recession looming, Singapore enterprises increasingly see their immediate concern as staying afloat amid slowing customer orders.

That said, a handful of leading companies view subdued market conditions as an opportune time to consolidate their positions by embarking on their transformation journeys.

For example, the Covid-19 pandemic and recessionary pressures are wake-up calls whereby many companies had to transform quickly just to stay afloat, as evidenced by the huge number of enterprises that digitalised during this period. Taking the necessary actions now can help them emerge stronger and ahead of the pack, when entering the next phase of economic recovery.

The key to success will be careful prioritisation. KPMG’s 2022 Global CEO Outlook survey found that leaders are now directing digital investment to areas of their business that drive growth, with an emphasis on partnerships and preparedness. For example, 68 percent of Singapore CEOs had indicated that they will focus investment on technologies that can help capture new opportunities.  Other digital priorities include technologies that can close the gap for customer service and experience as well as those enabling employees to work better. 

Prioritising a greener future 

Innovation and transformation efforts that focus on environmental, social and governance (ESG) factors are also ripe for exploration. Given that these are future growth areas, there are opportunities for Singapore enterprises to plug into the green ecosystem and circular economy.

Companies that reset their priorities now and pivot to creating sustainable long-term value will be the ones that can last for decades to come. The need for a rapid and radical transition from business-as-usual on all fronts to achieve a low-carbon, net zero society opens new opportunities in green technology and the chance to develop new business models.

Singapore CEOs increasingly agree that ESG programmes improve financial performance, with 56 percent now holding this view, compared to 40 percent a year ago. However, immediate economic pressures remain a concern, with 52 percent mulling over whether to pause ESG efforts in the next six months, according to KPMG’s survey.  

Whether or not a company chooses to prioritise transformation may depend on its profile. Family business founders tend to focus first on operational issues, while others more frequently have innovation and transformation on their mind. Some first-generation family business owners may wish to assess whether their second generation will be keen to take over, before deciding whether to invest in such efforts.

Readying to reset

The good news is that the Singapore business environment is increasingly primed for companies’ transformation. The government has been supporting such efforts through various Industry Transformation Maps, while government agencies such as Innovation Partner for Impact, the Infocomm Media Development Authority and Enterprise Singapore are also earnestly helping local enterprises start and see through their innovation and digital transformation journeys.

Singapore enterprises may also want to seek professional advice on key topics related to their transformation. While they are likely to be experts in their own industries and businesses, the world is changing at breakneck speed and there may be blind spots and many ways of doings things using new technologies.

Seeking external assistance can help companies press forward with their innovation initiatives. Another avenue for change is for local enterprises to enhance collaboration with multinational corporations’ research and development centres, as well as with institutions of higher learning to further anchor themselves in the innovation space.

Those who truly wish to craft lasting businesses will do well to consider how they can transform themselves and pivot their business models, to gain market share amid intense global competition, regardless of disruptions and geopolitical developments.