Top 10 growth & profitability disruptors for 2022

2021 was another challenging year marked by the ongoing COVID-19 pandemic. Across all sectors, business leaders were forced to embrace rapid transformation and rethink their strategies. As we continue to navigate through an unpredictable pandemic, ongoing climate crises, and political shifts, we look to the lessons of the last year to help us understand and prepare for what’s ahead.

Below, we predict some of the issues and trends that will continue to impact business growth and profitability in 2022—and share strategies for combating these disruptions.

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Inflation is increasing and will likely remain high throughout 2022.

Strategic initiatives to consider:

Inflation in Canada is at its highest levels since 2003. This has largely been driven by record low interest rates, disruptions from labour shortages, supply chain bottlenecks, and a strong rebound in consumer demand. The Bank of Canada warned that inflation could stay high into mid-2022. Despite many businesses experiencing revenue recovery from reopening, inflation has resulted in rising input costs, putting pressure on bottom-line profitability.

Pricing strategy & analytics

Before passing on a cost increase directly to customers, consider the potential volume impacts. Carefully assess price elasticity and market pricing to inform customer pricing strategies.

Cost increase mitigation strategy

Could your suppliers be giving your organization larger cost increases than your competitors? Leverage analytics and market information to evaluate if the cost increase makes sense before accepting it.

80/20 portfolio optimization

Cost increases may make it worthwhile for you to reconsider the products and services you offer, as well as the customers you serve. BDO leverages a data-driven 80/20 approach to define strategic focus and simplify operations to improve your bottom line.

Go to next page

Labour shortages are likely to persist. Meanwhile, minimum wages are increasing.

Currently, about a third of Canadian businesses are reporting labour shortages. With an aging workforce, they are likely to persist. This has made it difficult for businesses to fulfill their customers' demands on a timely basis. Meanwhile, minimum wages continue to increase across Canada and employees are demanding improved compensation packages. It is important for business leaders to assess how this will impact their organization’s pricing, operations, and profitability.

Strategic initiatives to consider:

Operational performance diagnostic

Is your organization spending time on non-value add activities? Are there opportunities to leverage digital solutions to enable your employees to work more efficiently? What is the root cause of increasing turnover? These issues can be diagnosed through BDO’s Operational Performance Diagnostic, which aims to identify practical opportunities to drive sustainable, profitable growth.

Talent & culture strategy refresh​​​​

More than a quarter of business leaders are struggling to retain their employees. Modernizing succession planning, training, compensation packages, ways of working, and culture can boost productivity while mitigating expensive turnover costs.

Go to next page

Digital has proven itself as both an efficiency driver as well as a growth accelerator.

From the way we work to the way we shop, our behaviors have changed. Digital adoption has increased to its highest levels ever across the globe. While digital channels have driven growth, they have caused some businesses to deprioritize profitability. Fulfillment, logistics, and returns costs often make online orders unprofitable. It is critical to have a clear plan on how digital supports achievement of overall business objectives.

Strategic initiatives to consider:

Channel strategy & optimization

While digital channels allow businesses to reach more customers, they often result in decreased profitability. The cost to fulfill and deliver an online order is high and it’s not uncommon for these orders to generate negative profitability while cannibalizing brick and mortar sales. For strong, long-term financial health, organizations should ensure they have a cohesive strategy to manage margins across channels.

Operational performance diagnostic

Are we missing out on digital drivers of growth? Are there ways we can leverage digital tools to drive automation and efficiency? Are we leveraging digital tools effectively compared to industry peers? These are important questions to consider as part of an operational performance diagnostic, which aims to uncover quick wins and long-term opportunities to drive sustainable top and bottom-line growth.

Go to next page

Supply chain resilience and agility is more important than ever.

Over the past year, unpredictable events like COVID-19, labor shortages, and extreme weather have led to supply chain disruptions and increased logistics costs and complexity. Climate disasters and water extremes are expected to become more prominent over time. Traditional supply chains were not designed for the ever-changing environments they exist in and businesses must adapt if they hope to maintain a competitive position in the market.

Strategic initiatives to consider:

Supply chain transformation

Major disruptions to business operations, such as COVID-19, requires businesses to be able to make smart and informed on-the-ground decisions and provide leaders with information on a timely basis. To do so, businesses must ensure they have the right tools and processes for monitoring and reporting, crisis management, and continuous improvement.

Supply chain analytics

From demand planning to inventory management to shipping and logistics, more organizations are leveraging predictive analytics to ensure availability while minimizing excess inventory to drive sales growth and operational efficiency. With constantly shifting market dynamics, forecasting models can no longer be driven by historical sales; key external factors must also be integrated for increased accuracy and agility.

Go to next page

ESG is an increasingly important driver of value creation.

Business leaders are placing more strategic importance on Environmental, social, and governance (ESG) initiatives. Assessing how ESG fits into your strategic objectives can result in sustainable, long-term growth and profitability. In many situations, ESG initiatives result in increased stakeholder engagement, stronger customer loyalty, improved risk management, innovation, and employee retention and productivity. Ultimately, this leads to better financial performance.

Strategic initiatives to consider:

ESG maturity assessment & strategy

As your organization develops its 2022 business plans, consider how ESG fits into the objectives and overall strategy. Recent ESG trends are driving opportunities for revenue growth (new products and markets), cost reduction (e.g. energy efficient technologies, waste reduction), and risk mitigation. Organization-wide alignment behind how ESG supports corporate objectives can result in sustained value creation.

ESG due diligence & integration

From an M&A lens, ESG is a factor that is increasingly considered in the due diligence and integration processes. If the target organization lacks ESG management practices, the buyer may face costly risks post-acquisition. In integration, as ESG is directly related to corporate and employee values, it is important to ensure alignment on how ESG fits into the combined entity’s strategy.

Go to next page

M&A activity is expected to continue to be high throughout 2022.

2021 was a record year for M&A activity due to pent-up demand for deals during the pandemic, increased access to capital, low interest rates, and increased business owner retirements and exits. Despite inflation, the geopolitical environment, and potential interest rate increases, high M&A activity is expected to continue in 2022. Although the high volume and rapid pace of M&A deals is demanding, it is critical to promote deal success through enhanced due diligence, strong and timely integration, and a structured, fact-based approach to identify and realize synergies.

Strategic initiatives to consider:

Data-driven deals & enhanced due diligence

Leveraging analytics throughout the M&A lifecycle enables efficiency and increased value capture. Using a fact-based, data-driven approach to complete commercial and operational due diligence provides both buyers and sellers with the clarity required to promote deal success. Post-deal performance measurement through automated reporting supports efficient integration and realization of synergies and enables adaptation where needed on a timely basis.

Digitally-enabled M&A

With many organizations pursuing several deals at any given time, each moving at a rapid pace and requiring cross-functional support, M&A activities can become difficult to manage. To increase efficiency and effectiveness, particularly in a virtual setting, businesses may consider using digital platforms to support them throughout the M&A lifecycle.

Go to next page

Businesses will need to adapt and reduce dependence on subsidies.

While government funding and support programs have helped businesses mitigate the disruptions caused by COVID-19, it’s uncertain how these programs will change over the next year. Businesses must continue to adapt and stabilize operations to mitigate future reductions to funding. This includes exploring new strategic growth options, optimizing the core business, and revaluating traditional ways of working.

Strategic initiatives to consider:

Growth strategy refresh

With significant shifts in consumer behavior, market dynamics, the labor landscape, and digital advancements, organizations must evaluate whether their current strategy remains the right one to move forward with. These shifts have created opportunities for growth while mandating organizations to rebalance priorities and transform how they operate. Ensuring organization-wide alignment on the path forward is critical to future success.

Performance improvement & turnaround

As external disruptions have put strain on cash flows and pushed for rapid transformation, many businesses are experiencing value leakage from misalignment between historical processes and new priorities. Conducting a deep dive review of revenue streams, operational efficiency, overhead costs, and working capital can uncover low-hanging fruit opportunities to boost financial performance, as well as long-term strategic opportunities for sustainable value creation.

Go to next page

Interest rate hikes could make it more challenging to access capital.

In response to high levels of inflation, it’s likely that interest rates will rise in 2022. This will result in increased borrowing costs, as well as decreased access to capital. Consequently, organizations may find it more difficult to finance both organic and inorganic growth initiatives. For business leaders that are looking to sell their business, it’s critical to note the importance of timing as higher interest rates tend to lower a buyer’s willingness to pay.

Strategic initiatives to consider:

Valuations & pre-divestiture improvement

Higher interest rates generally result in decreased valuations. As the cost to borrow increases, a buyer’s willingness to pay decreases. For business leaders that are planning to sell their business, it’s important to understand the impact of changes to interest rates. To optimize its selling price, an organization can also undertake a performance review to identify and/or implement value creating opportunities that would be attractive to the buyer.

Growth capital planning

For organizations investing in growth initiatives, capital will likely become more costly and difficult to access. In response, it’s worthwhile for business leaders to evaluate what types and sources of capital are most appropriate. Identifying the right funding partners can promote achievement of growth targets with decreased cost of capital and higher levels of flexibility.

Go to next page

Working from home is here to stay—and threat actors are lurking. 

During the pandemic, remote work has become the new normal. Employees have access to sensitive information they typically would not have accessed in the office. With a heavy reliance on home Wi-Fi for connectivity, the attack surface has naturally become larger. This results in a greater opportunity for threat actors to take advantage of any weaknesses in cyber defences to gain access to sensitive information or disrupt operation.

Strategic initiatives to consider:

User awareness and education

Helping employees understand how to securely connect to the work environment and exercise appropriate vigilance when operating a system remotely go a long way to help keep your organization secure.

Data loss prevention

Updating use policies and enabling additional security controls to prevent sensitive data from leaving corporate systems is a critical step to maintaining confidentiality of information.

Monitoring for anomalous behaviour

Detecting threats early in the attack cycle could prevent threat actors from achieving their objectives. It’s important to have capability in place to monitor for behaviour which strays from the norm, and the ability to rapidly respond and remediate.

Go to next page

Cybersecurity risks will continue to grow alongside digital transformation.

Cyber threats are now the norm for organizations across the board. As businesses implement new technologies and services, these threats will continue to grow. Cybersecurity risks must be managed in order to maintain systems availability, protect sensitive information, and maintain a strong brand reputation.

Strategic initiatives to consider:

Planning for security

Include cyber security in the business planning process and throughout the lifecycle of a new solution. Test the resilience of systems to security issues prior to implementation. It’s easier to fix a security issue beforehand, than recover from a cyber incident.

New services to drive growth

While new services will drive business growth, it’s important to understand how enabling technology changes your security posture and creates new security challenges.

Third-party risk

It’s important to understand the risks associated of sharing data with third-party vendors and organizations. Ensure that parties handling your data have the capabilities and security posture to protect your sensitive information.

Go to next page

How can BDO help?

Despite the disruptive nature of these issues—and this is by no means an exhaustive list—there are plentiful opportunities for leaders to build more profitable, resilient organizations. BDO experts can help you find the opportunities and manage the risks to help you grow.

Interested in learning more? 

Hali Van Vliet
Director, People & Change 

#LabourShortages 

Kyle Hulme
Partner, Management Consulting

#ESG #Digital

Rocco Galletto 
National Leader, Cybersecurity

#WFH #Cybersecurity

Adam Brown 
National Leader, Value Creation Services

#Inflation #SupplyChain #InterestRate #M&A #Profitability

or reach out directly to a member of our Advisory team:

Top 10 growth & profitability disruptors for 2022

2021 was another challenging year marked by the ongoing COVID-19 pandemic. Across all sectors, business leaders were forced to embrace rapid transformation and rethink their strategies. As we continue to navigate through an unpredictable pandemic, ongoing climate crises, and political shifts, we look to the lessons of the last year to help us understand and prepare for what’s ahead.

Below, we predict some of the issues and trends that will continue to impact business growth and profitability in 2022—and share strategies for combating these disruptions.

Inflation is increasing and will likely remain high throughout 2022.

Strategic initiatives to consider:

Inflation in Canada is at its highest levels since 2003. This has largely been driven by record low interest rates, disruptions from labour shortages, supply chain bottlenecks, and a strong rebound in consumer demand. The Bank of Canada warned that inflation could stay high into mid-2022. Despite many businesses experiencing revenue recovery from reopening, inflation has resulted in rising input costs, putting pressure on bottom-line profitability.

Pricing strategy & analytics

Before passing on a cost increase directly to customers, consider the potential volume impacts. Carefully assess price elasticity and market pricing to inform customer pricing strategies.

Cost increase mitigation strategy

Could your suppliers be giving your organization larger cost increases than your competitors? Leverage analytics and market information to evaluate if the cost increase makes sense before accepting it.

80/20 portfolio optimization

Cost increases may make it worthwhile for you to reconsider the products and services you offer, as well as the customers you serve. BDO leverages a data-driven 80/20 approach to define strategic focus and simplify operations to improve your bottom line.

Labour shortages are likely to persist. Meanwhile, minimum wages are increasing.

Currently, about a third of Canadian businesses are reporting labour shortages. With an aging workforce, they are likely to persist. This has made it difficult for businesses to fulfill their customers' demands on a timely basis. Meanwhile, minimum wages continue to increase across Canada and employees are demanding improved compensation packages. It is important for business leaders to assess how this will impact their organization’s pricing, operations, and profitability.

Strategic initiatives to consider:

Operational performance diagnostic

Is your organization spending time on non-value add activities? Are there opportunities to leverage digital solutions to enable your employees to work more efficiently? What is the root cause of increasing turnover? These issues can be diagnosed through BDO’s Operational Performance Diagnostic, which aims to identify practical opportunities to drive sustainable, profitable growth.

Talent & culture strategy refresh​​​​

More than a quarter of business leaders are struggling to retain their employees. Modernizing succession planning, training, compensation packages, ways of working, and culture can boost productivity while mitigating expensive turnover costs.

Digital has proven itself as both an efficiency driver as well as a growth accelerator.

From the way we work to the way we shop, our behaviors have changed. Digital adoption has increased to its highest levels ever across the globe. While digital channels have driven growth, they have caused some businesses to deprioritize profitability. Fulfillment, logistics, and returns costs often make online orders unprofitable. It is critical to have a clear plan on how digital supports achievement of overall business objectives.

Strategic initiatives to consider:

Channel strategy & optimization

While digital channels allow businesses to reach more customers, they often result in decreased profitability. The cost to fulfill and deliver an online order is high and it’s not uncommon for these orders to generate negative profitability while cannibalizing brick and mortar sales. For strong, long-term financial health, organizations should ensure they have a cohesive strategy to manage margins across channels.

Operational performance diagnostic

Are we missing out on digital drivers of growth? Are there ways we can leverage digital tools to drive automation and efficiency? Are we leveraging digital tools effectively compared to industry peers? These are important questions to consider as part of an operational performance diagnostic, which aims to uncover quick wins and long-term opportunities to drive sustainable top and bottom-line growth.

Supply chain resilience and agility is more important than ever.

Over the past year, unpredictable events like COVID-19, labor shortages, and extreme weather have led to supply chain disruptions and increased logistics costs and complexity. Climate disasters and water extremes are expected to become more prominent over time. Traditional supply chains were not designed for the ever-changing environments they exist in and businesses must adapt if they hope to maintain a competitive position in the market.

Strategic initiatives to consider:

Supply chain transformation

Major disruptions to business operations, such as COVID-19, requires businesses to be able to make smart and informed on-the-ground decisions and provide leaders with information on a timely basis. To do so, businesses must ensure they have the right tools and processes for monitoring and reporting, crisis management, and continuous improvement.

Supply chain analytics

From demand planning to inventory management to shipping and logistics, more organizations are leveraging predictive analytics to ensure availability while minimizing excess inventory to drive sales growth and operational efficiency. With constantly shifting market dynamics, forecasting models can no longer be driven by historical sales; key external factors must also be integrated for increased accuracy and agility.

ESG is an increasingly important driver of value creation.

Business leaders are placing more strategic importance on Environmental, social, and governance (ESG) initiatives. Assessing how ESG fits into your strategic objectives can result in sustainable, long-term growth and profitability. In many situations, ESG initiatives result in increased stakeholder engagement, stronger customer loyalty, improved risk management, innovation, and employee retention and productivity. Ultimately, this leads to better financial performance.

Strategic initiatives to consider:

ESG maturity assessment & strategy

As your organization develops its 2022 business plans, consider how ESG fits into the objectives and overall strategy. Recent ESG trends are driving opportunities for revenue growth (new products and markets), cost reduction (e.g. energy efficient technologies, waste reduction), and risk mitigation. Organization-wide alignment behind how ESG supports corporate objectives can result in sustained value creation.

ESG due diligence & integration

From an M&A lens, ESG is a factor that is increasingly considered in the due diligence and integration processes. If the target organization lacks ESG management practices, the buyer may face costly risks post-acquisition. In integration, as ESG is directly related to corporate and employee values, it is important to ensure alignment on how ESG fits into the combined entity’s strategy.

M&A activity is expected to continue to be high throughout 2022.

2021 was a record year for M&A activity due to pent-up demand for deals during the pandemic, increased access to capital, low interest rates, and increased business owner retirements and exits. Despite inflation, the geopolitical environment, and potential interest rate increases, high M&A activity is expected to continue in 2022. Although the high volume and rapid pace of M&A deals is demanding, it is critical to promote deal success through enhanced due diligence, strong and timely integration, and a structured, fact-based approach to identify and realize synergies.

Strategic initiatives to consider:

Data-driven deals & enhanced due diligence

Leveraging analytics throughout the M&A lifecycle enables efficiency and increased value capture. Using a fact-based, data-driven approach to complete commercial and operational due diligence provides both buyers and sellers with the clarity required to promote deal success. Post-deal performance measurement through automated reporting supports efficient integration and realization of synergies and enables adaptation where needed on a timely basis.

Digitally-enabled M&A

With many organizations pursuing several deals at any given time, each moving at a rapid pace and requiring cross-functional support, M&A activities can become difficult to manage. To increase efficiency and effectiveness, particularly in a virtual setting, businesses may consider using digital platforms to support them throughout the M&A lifecycle.

Businesses will need to adapt and reduce dependence on subsidies.

While government funding and support programs have helped businesses mitigate the disruptions caused by COVID-19, it’s uncertain how these programs will change over the next year. Businesses must continue to adapt and stabilize operations to mitigate future reductions to funding. This includes exploring new strategic growth options, optimizing the core business, and revaluating traditional ways of working.

Strategic initiatives to consider:

Growth strategy refresh

With significant shifts in consumer behavior, market dynamics, the labor landscape, and digital advancements, organizations must evaluate whether their current strategy remains the right one to move forward with. These shifts have created opportunities for growth while mandating organizations to rebalance priorities and transform how they operate. Ensuring organization-wide alignment on the path forward is critical to future success.

Performance improvement & turnaround

As external disruptions have put strain on cash flows and pushed for rapid transformation, many businesses are experiencing value leakage from misalignment between historical processes and new priorities. Conducting a deep dive review of revenue streams, operational efficiency, overhead costs, and working capital can uncover low-hanging fruit opportunities to boost financial performance, as well as long-term strategic opportunities for sustainable value creation.

Interest rate hikes could make it more challenging to access capital.

In response to high levels of inflation, it’s likely that interest rates will rise in 2022. This will result in increased borrowing costs, as well as decreased access to capital. Consequently, organizations may find it more difficult to finance both organic and inorganic growth initiatives. For business leaders that are looking to sell their business, it’s critical to note the importance of timing as higher interest rates tend to lower a buyer’s willingness to pay.

Strategic initiatives to consider:

Valuations & pre-divestiture improvement

Higher interest rates generally result in decreased valuations. As the cost to borrow increases, a buyer’s willingness to pay decreases. For business leaders that are planning to sell their business, it’s important to understand the impact of changes to interest rates. To optimize its selling price, an organization can also undertake a performance review to identify and/or implement value creating opportunities that would be attractive to the buyer.

Growth capital planning

For organizations investing in growth initiatives, capital will likely become more costly and difficult to access. In response, it’s worthwhile for business leaders to evaluate what types and sources of capital are most appropriate. Identifying the right funding partners can promote achievement of growth targets with decreased cost of capital and higher levels of flexibility.

Working from home is here to stay—and threat actors are lurking. 

During the pandemic, remote work has become the new normal. Employees have access to sensitive information they typically would not have accessed in the office. With a heavy reliance on home Wi-Fi for connectivity, the attack surface has naturally become larger. This results in a greater opportunity for threat actors to take advantage of any weaknesses in cyber defences to gain access to sensitive information or disrupt operation.

Strategic initiatives to consider:

User awareness and education

Helping employees understand how to securely connect to the work environment and exercise appropriate vigilance when operating a system remotely go a long way to help keep your organization secure.

Data loss prevention

Updating use policies and enabling additional security controls to prevent sensitive data from leaving corporate systems is a critical step to maintaining confidentiality of information.

Monitoring for anomalous behaviour

Detecting threats early in the attack cycle could prevent threat actors from achieving their objectives. It’s important to have capability in place to monitor for behaviour which strays from the norm, and the ability to rapidly respond and remediate.

Cybersecurity risks will continue to grow alongside digital transformation.

Cyber threats are now the norm for organizations across the board. As businesses implement new technologies and services, these threats will continue to grow. Cybersecurity risks must be managed in order to maintain systems availability, protect sensitive information, and maintain a strong brand reputation.

Strategic initiatives to consider:

Planning for security

Include cyber security in the business planning process and throughout the lifecycle of a new solution. Test the resilience of systems to security issues prior to implementation. It’s easier to fix a security issue beforehand, than recover from a cyber incident.

New services to drive growth

While new services will drive business growth, it’s important to understand how enabling technology changes your security posture and creates new security challenges.

Third-party risk

It’s important to understand the risks associated of sharing data with third-party vendors and organizations. Ensure that parties handling your data have the capabilities and security posture to protect your sensitive information.

How can BDO help?

Despite the disruptive nature of these issues—and this is by no means an exhaustive list—there are plentiful opportunities for leaders to build more profitable, resilient organizations. BDO experts can help you find the opportunities and manage the risks to help you grow.

Interested in learning more? 

Hali Van Vliet
Director, People & Change 

#LabourShortages 

Kyle Hulme 
Partner, Management Consulting

#ESG #Digital

Rocco Galletto 
National Leader, Cybersecurity

#WFH #Cybersecurity

Adam Brown 
National Leader, Value Creation Services

#Inflation #SupplyChain #InterestRate #M&A #Profitability

or reach out directly to a member of our Advisory team:

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