Senior Client Partner
This Week in Leadership (July 19 - July 25)
What the Delta variant means for office returns. Solving the labor shortage with returnships. Plus, tips for how to be a great board director.
It used to be an exciting period. During so-called budget season, leaders would have a chance to reset priorities, figuring out capital spending, funds for new projects, and most of all, rewards for the employee who drive all this.
That excitement is not a common sentiment this year. Many corporate leaders were expecting the pandemic to be over by now and business to be rebounding. But now, with prospects for additional aid from the government dimming by the day and weekly jobless claims stubbornly high, corporate leaders are reorganizing their budget priorities just as they need to start locking in planning for 2021. “For some firms, it’s a season of surrender,” says Nathan Blain, a Korn Ferry senior client partner and the firm’s global leader of organizational strategy and digital transformation. Gone are the expectations for a rebound by the end of 2020; in their place is a fading hope that there will be a rebound in sales and profits by early 2021 or even later.
Both JPMorgan and Citigroup, which reported their quarterly earnings Tuesday, predicted that unemployment will remain high and more of their customers could start defaulting on their loans. JPMorgan has nearly $34 billion set aside for potential losses, and if the economy returns to a recession, it might need to set aside $20 billion more, the bank’s CEO, Jamie Dimon, told investors.
For manufacturers, energy companies, and many other industries, this budget cycle will become a moment of reckoning. Many CEOs promised that they would not have layoffs in 2020, Blain says. But revenues have only bounced back somewhat since the worst of the lockdowns in the spring. With the pandemic showing no signs of ending, and companies having to spend millions on making their offices cleaner and safer, leaders face the prospect of keeping budgets steady in 2021, and risk losing more money or cutting back on salaries and other expenses. “Very few expected a health crisis to go into the first quarter or even second quarter of 2021,” Blain says.
Budget cutbacks could be across the board, even in tech spending. Only 33% of firms expect their IT budgets to increase in 2021, according to a new survey from Spiceworks Ziff Davis, an industry market research group. That’s down from 44% increasing their budgets in 2020. At the same time, 17% of firms expect their IT budgets to decline next year.
It’s a little different story for the travel, hospitality, and leisure industries—they started fearing the worst some time ago and weren’t expecting a rebound this year, says Radhika Papandreou, a Korn Ferry senior client partner who specializes in those industries. “The winter will be rough,” she says.
Indeed, on Tuesday, Delta Air Lines told investors that the coronavirus looks to depress travel for years, especially business travel. Delta has already laid off about 18,000 workers, while another 40,000 have agreed to take some form of unpaid leave.
The one thing leaders in the sector have been able to do is raise money. Royal Caribbean, the large cruise firm, announced Tuesday that it had begun selling $500 million worth of common stock. Over the past couple months, Delta, United Airlines, and American Airlines have all announced they are borrowing billions of dollars. The fact that many firms can get more financing is good news, Papandreou says, because it means investors feel demand will return over the long term.
To be sure, some retailers are actually excited for the holiday season. A majority of retailers recently polled by Korn Ferry in September said they expect holiday sales this year to be flat or slightly up from last year, a sentiment almost unthinkable just a few months ago. Craig Rowley, Korn Ferry’s practice leader for the consumer sector, expects television manufacturers, video-game makers, and streaming-video services to have a strong fourth quarter as people look to buy bigger TVs for in-home entertainment.
For most everyone else, however, budgeting looks to be an unpleasant task, followed by an even more unenviable task: telling everyone else how little money there is to use in 2021.