Business charts a course through Omicron
This insight originally appeared on our global network, Baker Tilly International.
Businesses continue to innovate to mitigate the disruptions and delays caused by Omicron, as the coronavirus crisis begins to shift from being a pandemic to becoming endemic.
Two years into the pandemic, businesses are facing their biggest threat to continuity yet, as the highly transmissible Omicron continues to spread across the world and become the predominant variant that causes COVID-19.
While early evidence suggests that Omicron is a less deadly form of coronavirus than the Delta variant, its increased rate of infection is creating new challenges for businesses as large numbers of employees are forced into isolation.
In the United States, businesses across the country have been forced to scale back working hours or temporarily shut their doors, as infections reached an all-time high in mid-January as 1.35 million cases were reported in a single day.
Industries most affected include retail and hospitality, airlines, shipping and logistics and school districts as labour shortages are exacerbated by the rampant rates of Omicron infection.
Major retailers such as Walmart and Nike have slashed their hours of operation, while coffee shop chain Starbucks adjusted its hours in response to the staff shortages.
And that’s even after the US Centres for Disease Control and Prevention halved its recommended isolation time for people infected with COVID-19 from 10 days to five in December.
The CDC’s recommendation followed a similar edict from the British government, which announced earlier in December that employees who returned negative tests on their sixth and seventh days of isolation would be allowed to return to work.
German Health Minister Karl Lauterbach followed suit in January, also allowing those that tested negative to return from isolation after a week.
But while the shortening of isolation periods has been welcomed as a positive move by business, staff absences of any length can cause significant disruptions to normal operations.
For some industries, such as professional services, the solution is a familiar one, according to Heiner Stemmer, a partner at Baker Tilly Germany specialising in business restructuring and reorganisation.
Mr Stemmer said the best way to reduce the risk of workplace transmission was to analyse every element of a business’ operation and determine which could be done digitally or remotely.
“For Baker Tilly, we have very close communication with our customers and with our employees,” Mr Stemmer said.
“We are running much of what we do from home, but we have slowed down our business in some areas because people were getting ill.
“We communicated with our clients that this can and will happen, and that they would have to show patience with us.
“Most of them want to see us close to them, face to face in their premises.
“But in Germany, we have a term ‘erwartungsmanagement’, which is expectations management.
“We asked our clients to not expect us to run the business in corona times as we did pre-corona.”
The second big learning, Mr Stemmer said, was around making plans in advance.
“You have to identify what is critical in your business and what is problematic, then you determine what measures you can take to avoid risk and what communications you need to proceed with for key clients and accounts, and also for our employees,” he said.
“For internal communications, every week we get an update from our management and board on where our COVID situation is at and what the measures in place are, and that is what you do not only internally, but also what you need to communicate to your clients and key accounts.”
At an overarching level, Neil Hughes, the managing partner at Baker Tilly Ireland, agreed that one of the most important elements in maintaining business continuity through Omicron would be communication.
“What many organisations have done in Ireland is they’ve put in place a communications campaign,” Mr Hughes said.
“One of the local chambers of commerce recently put out a message to the public to explain to them that this issue is a very real, live issue for businesses.
“They were saying that they need understanding from the general public that there are reduced team members within businesses at the present, in the same way that it is in the health sectors at the moment in different countries.
“With people isolating it means that clinical teams are reduced in certain hospitals and in certain settings.
“Communication is an important part of this for businesses.
“You can never have too much communication and you should err on the side of caution when it comes to communication.”
Shipping, transport, travel and logistics
In Mr Stemmer’s home country of Germany, online retail giant Amazon is leading the way in dealing with the disruption of a workforce decimated by Omicron infection.
Mr Stemmer said the logistics sector had received a significant boost from the pandemic, as consumers shifted online to purchase groceries and supplies, whereas previously websites such as Amazon.de and ebay.de were used predominantly for discretionary purchases.
But as infections spread throughout the country, side-lining delivery drivers en masse, Amazon and other major logistics players came up with a sensible solution.
“Logistics has gone through massive growth in the last two to three years with the growth of Amazon, and what they’ve done to ensure continuity is they started to work with a big number of sub-contractors,” Mr Stemmer said.
“That has made them more flexible, if one subcontractor has COVID-19, you simply use another.
“For us, as businesspeople, it’s shown us high flexibility in this situation.”
In the United Kingdom and Ireland, Mr Hughes said there were additional challenges in the logistics sector outside of COVID.
ustoms issues have plagued supply chains in the United Kingdom, with port operators and logistics terminals coming to terms with the challenges associated with Brexit, which resulted in container ships being stranded at sea and shipping companies scrambling to find alternative entry points.
European supply chains were also not immune to non COVID-related disruption, however, with catastrophic flooding in Germany, Austria, Belgium, Croatia, Italy, Switzerland and the Netherlands, causing billions of Euros worth of damage to infrastructure, particularly in Belgium and Germany.
Estimates show those floods caused up to $US3 billion in insured losses, with total damage costs likely reaching a floor of $US11.8 billion.
“Five years ago, everything was reasonably stable in terms of international logistics,” Mr Hughes said.
“But today, there are massive spikes in terms of gas prices from Russia coming into pipelines in Germany and the rest of Europe, and there is massive instability in terms of normal borders because of Brexit.
“We don’t shop on Amazon.co.uk anymore, we now shop on Amazon.de, because if you buy from a UK supplier, we have to pay UK VAT and then Irish VAT on the way in.
“Whereas if you buy from Amazon.de it comes straight in from Germany without having to pay double the VAT.
“Those impacts of Brexit have been very negative for the UK and very positive for the big economies of Europe such as Germany.”
Airlines and other travel operators have also been reeling due to COVID, particularly as trained staff such as pilots and flight attendants become increasingly scarce due to the spread of Omicron.
In the United States, major players such as United Airlines, American Airlines and Southwest Airlines have offered extra pay to flight crews as thousands of airline workers called in sick, causing a raft of cancellations over the busy holiday period.
However, Mr Stemmer said Germany’s largest airlines, Lufthansa and Eurowings, had come up with a more innovative solution.
Instead of offering extra pay, Mr Stemmer said German airlines had reduced the capacity of their network and created a pool system for flight crews and other essential staff, with the number of those workers far exceeding what was needed to operate their routes.
“The airlines believe that there will be much less demand for business flights after coronavirus,” Mr Stemmer said.
“So they put the pilots into a pool, and they take the pilots out of the pool if they are ill and there has been no delays or cancellations.
“By contrast in the US, there have been a lot of cancellations when the crew has become ill, which hasn’t happened in Germany until now.”
Similar innovation is on display in Germany’s biggest industry, automotive manufacturing, Mr Stemmer said.
For parts manufacturers, Mr Stemmer said many of Baker Tilly’s clients were already well prepared for the crisis.
“Before COVID hit, we did some business impact analyses for our clients, but we focused on IT, to determine what would happen if people working in IT became ill,” he said.
“That identified the critical areas and put in place procedures where they can stop production; they are very well organised.
“All of these things that they planned for IT disruption can apply to COVID problems as well.
“They applied the same philosophies to other departments, if you have a problem in IT, it is similar to having a problem in production or administration.
“In Germany, the automotive industry is the biggest industry we have, and there is a network of spare parts delivery.
“They are really well organised and COVID didn’t cause any problems for them because they had their plans, they had determination and they had strategies to continue work.”
f all industries outside of healthcare, hospitality is one which has experienced some of the worst challenges of the pandemic.
As lockdowns became a popular strategy of reducing transmission of the virus, hospitality venues shut down, and when restrictions were eased, the operating environment looked a lot different than it did pre-pandemic.
With many corporate employers offering their workers flexible arrangements, cafes and coffee shops near office towers no longer enjoyed the benefits of high levels of foot traffic going past their doors.
In the UK, a popular measure of the number of workers returning to central business districts is the Pret index, a tally of the number of lunchtime sandwiches and morning coffees being purchased from major chain Pret-a-manger.
While the Pret index recently showed a significant uptick in the number of workers heading to offices at London’s Canary Wharf, transaction levels remain 42 per cent lower than what they were pre-pandemic.
Mr Hughes said that new reality would cause many to have to rethink how they have structured their business.
“They may have to consolidate a bit, they may have to budget for less turnover because there are not so many cups of coffee being looked for. They may also have to have a discussion with their landlord because they no longer have the footfall they were promised when they signed the lease.
“Some hard discussions have to take place with some of these key stakeholders. It’s interesting now that we have to confront it.”
Mr Hughes said major transformations had already taken place in many countries’ hospitality sectors, with vaccination passports at the top of a long list of changes.
“In different countries there is only table service, there are restrictions on people walking around and you have to wear a mask when you’re walking around,” he said.
“And it will be like this for the foreseeable future.”
In Ireland, pubs and restaurants were recently allowed to return to normal opening hours, after having previously been restricted to trading until 8:00PM.
Nightclubs are also allowed to reopen, while vaccination or recovery certificates are no longer required to access restaurants, cafes, pubs or other hospitality venues.
“As businesspeople, we certainly welcome this change, because unless there is another chapter in the book of coronavirus and COVID-19, which we have not even seen yet, there is a sense, certainly in our part of the world, that we are finally getting to the beginning of the end of the pandemic,” Mr Hughes said.
“That’s the feeling that’s out there, and from a business point of view, that means that there is a lot more confidence returning to businesses.”
But while he welcomed the lifting of restrictions, Mr Hughes said hospitality and retail operators, particularly small businesses, needed to continue to plan to be agile.
“If you have a nightclub, bar or a cafe, you are going to have to be very flexible in terms of your team and your staff.
“Because if somebody gets sick over the course of 2022 you need to replace that member of staff.
“A lot of small businesses are already doing this, they are calling on family and friends to plug the gaps as best they can.
“Being super flexible is a really important issue for SME businesses and mid-size companies going forward, because of the ongoing threat of COVID-19.”
Mr Stemmer said he expected vaccination passes to remain compulsory for German hospitality operations, particularly after the country’s government tightened restrictions earlier this month.
In early January, it was announced that customers would need to provide a negative COVID test or evidence of having received a booster shot to enter a restaurant, cafe, bar or nightclub.
However, while those restrictions were designed to help hospitality businesses operate safely, Mr Stemmer said there would still be significant challenges around sourcing staff.
“The heavy impacts have been in hospitality because they are low-cost employees, you do not need to pay very much for a bartender or a waiter, or something like that.
“Last year, for three or four months, hospitality was totally closed down; you could not go into a bar, you could not go into a hotel, nothing like that.
“So people left the industry, and operators couldn’t get them back.
“There is a big human resources problem in hospitality, because it is very difficult to recruit people again because they believe it is a stop and go industry, and their employment is not secure.
“It’s been one of the most prominent problems that’s arisen through the pandemic, there are some hospitality firms that will not reopen because they cannot find employees.”
Pandemic to endemic
Looking forward, Mr Stemmer said the experience from South Africa and the UK is not that the pandemic will end, but that COVID-19 will be an endemic disease dealt with through vaccination, similar to influenza.
“Omicron will be like a heavy flu that is present in everyday life, and we have to live with it,” he said.
“But this will still impact business continuity, because if you are infected with Omicron, at the very least you will have to work from home and you will likely become ill.
“We are expecting to have to deal with this endemic disease for a long time.”