Executives at middle market companies think it's going to take time to get back to normal after the disruption of the COVID-19 pandemic.
On average, executives expect it to take about 6.4 months for businesses to get back to full capacity. That's one of the findings of a new report from the National Center for the Middle Market in Columbus.
The center, a collaboration between the Ohio State University Fisher College of Business and insurance company Chubb, surveyed 1,000 executives at middle market companies for its next Middle Market Indicator survey. That survey, which covers the second quarter of 2020, is expected to be released later in July.
But as part of a new report, the center compared the results from the June survey to a "COVID-19 pulse survey" of 260 companies it conducted in March. While the two surveys aren't a direct comparison, they do offer some interesting insights.
Overall, the new report found that fewer executives were expecting a "catastrophic hit from the pandemic" in June, compared with March.
The questions the surveys had asked were slightly different: In March, the center asked executives to think about the impact to the next three months. In June, it asked about the next six.
In March, 25% of executives thought the impact would be catastrophic, said Thomas A. Stewart, executive director for the center. Under the longer time frame asked about in June, 13% thought it would be.
"The good news is, that's half as many," Stewart said. "The bad news is, that's one out of eight. And they've had some time to think about it."
That's pretty "grim," he said.
And back in March, executives thought the recovery would be faster. At that time, 19% of respondents thought recovery would take more than six months. In June? Forty percent of respondents thought that.
As of early June, respondents to the survey were operating at 67% capacity. This varied by industry; the report gave the example of construction, which was operating at 80% capacity, versus retail, which was at 56%.
"Ongoing uncertainty" was reported by 76% of respondents as one of the top three challenges to running a business back in March. Sixty-six percent still thought that in June. And the challenges of maintaining employee communication and engagement and customer relations and engagement were also top concerns. Operational continuity was also listed as a top-three challenge for more than half of respondents, but one that lost share from March to June.
The most significant impact executives are expecting is on projected 2020 revenue, though fears have lessened in recent months. In March, 43% of executives surveyed were expecting a significant, negative, long-term impact to 2020 projected revenue. In June, 23% of respondents were.
Expectations had also been tempered in areas like potential changes to employment, hours worked and growth initiatives from the March survey to the June one.
When the lens is cast back to the end of 2019, the impact of the pandemic becomes apparent.
In December 2019, respondents to the Middle Market Indicator survey projected a 12-month revenue growth rate of 4.9%. By June, that fell to 2%. Expected employment growth rate for the same time period dropped from 3.5% in December to -0.2% in June. Fewer respondents reported plans to enter new markets or build new facilities as of June as well.
It wasn't in the report, but Stewart said one area that companies did not intend to cut back on was digital transformation. That includes everything from online sales to automation.
"It does suggest that we're not going to come back to normal," he said. "We're going to come back to new."
That's going to include approaches to safety and productivity, as well as "omnichannel" capabilities, he said.
Another piece of data the report didn't delve into in depth is whether companies thought they would have to make "significant and long-lasting changes" in terms of employee safety and customer interactions, Stewart said. Most thought they would.
It's tough to compare this moment to the past, but Stewart offered an "imprecise" analogy to a previous report from the center.
That report looked at how middle market companies have responded to different kinds of risks. That includes strategic risks, such as acquisitions, cyber risks and operational risks. That last category includes difficult-to-predict events, such as natural disasters like hurricanes and wildfires.
The report found that strategic risks were the toughest to prepare for and to recover from, he said. The cyber and operational risks were more sudden, but companies could bounce back from them faster.
The pandemic is a different kind of risk altogether, but there still might be some lessons to be learned.
"It is hurricane-like in that it's a big storm and it comes from outside, and you can see it coming, but you don't have too much warning from it. But it's like a hurricane that won't go away," he said. "And so it has both that immediate impact but also that long tail that strategic risk has."
The question is still how many of the changes that companies are facing are long but temporary, and how many are permanent. And, of course, how the strategic changes companies are making now — and the risks those changes carry — could affect them going forward remains to be seen.
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July 11, 2020 at 03:00PM
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COVID-19 recovery could be long road for middle market, survey says - Crain's Cleveland Business
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