Staying agile – how the “year of the pivot” will shape business spending
In this article, Stacey Sterbenz, the VP & UK General Manager, Global Commercial Services at American Express, reflects on 2021 and how it will shape business spending in the year ahead.
Reflecting on 2021, you might justifiably describe it as the “year of the pivot”. Businesses across the world invested in their operations to not only survive the pandemic but to ensure they remained viable and profitable for years to come. In a rapidly transforming world, only accelerated by the pandemic, businesses’ spending habits have unsurprisingly evolved too. Strategies around the purchasing of goods and services have had to adapt, not just to a global pandemic but also rising prices and stretched supply chains.
In recent weeks, we’ve seen rapidly increasing inflation with loud warnings about the rising cost of living and of running a business. However, despite the headwinds of the past two years – and those that lie ahead – spending could be on track to exceed pre-pandemic levels – especially amongst smaller businesses.
But what did business-to-business spending look like last year? And how will those behaviours carry through into this year and beyond amid the ongoing economic uncertainty?
Tech investment set to continue
One area I envisage where high spending will continue is technology. The pandemic brought hybrid and remote working to the fore across multiple industries – the trickle-down effect being that businesses needed to invest in the infrastructure to ensure they could deliver and accommodate these new working models, which are set to stay long term for many businesses.
American Express data shows that future-proofing workplaces, more sophisticated and seamless digital infrastructure, and cutting-edge cyber security technology are just some areas businesses have invested significantly in during the past 12 months. With pandemic-related restrictions easing and growing optimism around the return of business travel, technology spending to support digital transformation and embed hybrid ways of working will continue.
As pandemic restrictions eased, businesses began to take advantage of customers being increasingly out-and-about by investing in the channels to reach them. Data from American Express’ Global Business Spend Indicator shows that outdoor and broadcast advertising spend was one of the fastest-growing areas for businesses in 2021 – suggesting that targeting those locations with renewed footfall was prioritised.
Post-pandemic, more traditional out-of-home advertising will likely gain importance once again, in tandem with online, so businesses will need to keep in mind the optimum channel mix to help maintain competitive advantage.
That being said, the spend invested to capture new legions of online customers over the last two years is unlikely to drop off. An agile digital approach that’s part of a broader omnichannel strategy will continue to be a core component of business investment in 2022 and beyond.
Dealing with disruption
The supply chain challenges we saw in 2021 as a consequence of the pandemic, allied to red tape on importing goods, saw price rises for businesses and consumers alike. For businesses, spending on raw materials, such as lumber, metals, and chemicals, is where many felt the pinch – with UK firms spending nearly five percent more on raw materials in Q2 of 2021 compared with Q1.
However, indirect demand has also played a role in increased spending here. Having to adapt their premises, either through renovating, future-proofing or complying with COVID regulations, saw UK businesses up their spend on construction and building maintenance by 4 percent from Q1 2021 to Q2. And with many businesses still predicted to refit or refurb their premises, it’s likely that demand will continue across the year. However, with inflation still very much on businesses’ minds, we can expect price rises to influence levels of business spending, along with greater attention on how firms optimise their working capital to fund this expenditure.
Last year undoubtedly saw business spending spurred by the need to invest in future-proofing operations due to new ways of working and changing customer behaviour. The pandemic has highlighted the importance of being adaptable to deal with unexpected developments and of effective working capital management to support growth opportunities that help maintain competitive advantage. As we move through 2022, businesses will again need those qualities to tackle the challenges that remain.