Gilles Bonelli, The Hackett Group Associate Principal and Finance & EPM/BI Executive Advisory Practice Leader for Europe, and Nicolas Walden, a Senior Director, and our European Procurement Advisory Practice Leader, discuss the implications of the Ukraine/Russia conflict and other recent macro and geo-political events on both finance and procurement.
Welcome to The Hackett Group’s “Business Excelleration Podcast,” where week after week we hear from experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to world-class performance. In today’s episode, The Hackett Group’s Global Communications Director Gary Baker welcomes guests Gilles Bonelli and Nick Walden for a conversation about recent macro and geopolitical events (like the Ukraine-Russia conflict) and the shifting global economy, as well as what these things mean for strategic and business planning in both finance and procurement. Gilles is an associate principal with The Hackett Group – much of whose leadership is in the area of finance. Nick is a senior director with a focus on procurement.
The conversation begins with an overview of where we are today and how we got here. In order to craft an accurate picture, though, Nick wants to first look to the recent past to offer context on the present and our trajectory going forward. As 2020 began, the COVID-19 pandemic was about to hit the U.S., and lockdowns across the globe were on the horizon. Many business sectors started to struggle, though those grounded in an online business model tended to fare better. 2020 was marked by low inflation and specific areas of commodity scarcity. 2021 saw changes in buying behavior, rising inflation, and waves of disease spread, lockdowns, and reopenings. Energy prices rose, and inflation hovered at about 7% at the end of the year.
Turning to 2022, Gilles runs through the key circumstances at play. The war between Russia and Ukraine is creating a demand and supply shock, and driving a set of rapidly worsening business conditions in relation to inventory, labor, and more. There have been adverse effects across most business segments, and the business world is much different from how we envisioned it at the end of 2021. Looking at the global economy, Gilles explains how comparisons with economic cycles of the past suggests that we are headed in the direction of recession. Nick’s perception is the same; he notes that nine times out of 10, when the Fed has to raise interest rates, the economy turns toward recession. In his understanding, the current moment bears significant similarities to the stagflation of the 1970s to about 1985, as well as to the global financial crisis of around 2008 to 2014.
In light of this understanding, the question remains as to what the procurement and finance functions should do to see their companies fare well. On a broad level, finance and procurement leaders must try to navigate the uncertainty of the moment by anticipating possible issues and events to come. They – along with marketing, commercial, and supply chain function leaders – must work together in planning. The business needs integrated planning from strategy to operations. The finance and procurement functions, in particular, need to collaborate within the business by reevaluating key assumptions. For instance, the war between Ukraine and Russia raises the possibility that the standard approach of planning three to five years ahead may not be sufficient, and quarterly growth will no longer be predictable.
Finance and procurement should keep an eye on several key domains in which planning assumptions may have changed. For procurement, assumptions around resilience and diversification must be reevaluated. While for finance, planning questions around funding, physical and asset exposure, and supply chain need to be addressed. The finance and procurement functions must reckon with the reality and impact of sanctions, which introduce systematic and structural cost disadvantages. They should also be thinking about energy concerns, risk to supply, new commercial structures, how to increase agility (especially given inconsistent global inflation levels), and how to best plan for the future. Planning assumptions related to inflation and stagflation demand particular attention because inflation levels are expected to remain at least moderately high for the medium term, central banks cannot impact supply-side factors, and inflation inevitably impacts things like commodity availability, demand, and labor.
As the conversation moves toward a close, Gilles returns to the topic of sanctions to consider the need for a new substitution strategy, a higher cybersecurity budget, and anticipation of such possibilities as lack of central government support, bankruptcies of various companies, and bans on companies in sanctioned areas. Organizations need to scenario plan and try to anticipate future events (even black swan events like cyberattacks, an extended war, or another strong pandemic wave) as best as possible; to do so, they will be helped by tools like The Hackett Group’s Forecasting Accelerator tool.
- 00:50 – Welcome to this episode hosted by Gary Baker.
- 01:36 – An overview of the current situation, starting with the context of the past couple years.
- 06:01 – Where are we now in 2022?
- 08:12 – Thoughts on what comes next in light of the global economy.
- 14:42 – What should procurement and finance leaders do to help their companies fare well?
- 16:28 – How finance and procurement should handle collaboration within the organization.
- 27:04 – A deeper look at the planning assumptions concerning inflation and stagflation.
- 32:38 – Navigating the implications of sanctions in the Ukraine-Russia conflict.
- 37:05 – Consider even black swan events in planning for the future.