The severe economic recession will be a catalyst of business change as new trends emerge in commercial models, supply chains and finance that will reshape business behaviour well into the next decade, the British business group, the CBI, said on Monday.

Launching its report, The Shape of Business - The Next 10 Years, the UK's principal business organisation said that the recession and credit crunch had become the catalysts for a new era.

The report flags four key areas of UK business where fresh approaches will develop because of the downturn:

• Businesses do not see credit terms falling back to pre-crunch levels and, having become wary of higher debt levels, firms will look to alternatives to debt-driven growth to protect investment and innovation. More financing options will be created and deployed.
• Companies will reorganise and re-examine their approach to working with partners - from suppliers to universities, and even competitors. Ongoing concerns over a 'domino effect' of supply chain failures and issues around trade credit insurance will compel firms to forge more collaborative supplier relationships.
• Sustainability and ethics will become more integrated into the business model. Firms will seek to improve accountability and corporate citizenship further to attract and retain customers and staff.
• A more flexible workforce will evolve, assisted by developments in technology and training, and building on the spirit of collaboration between employers and staff which has grown over the recession. For some firms that might mean a smaller core workforce and a larger 'flexiforce'.

The report says the business environment of the next decade will be significantly different to what might have been expected just two years ago. The financial crisis and the recession that has followed have altered operating conditions by imposing new challenges and exacerbating existing ones. Businesses will respond across the organisation, moving to a more flexible, collaborative and leaner model.

Over the next five to ten years, businesses will face major changes to finance and capital conditions. Finance will be more expensive and its availability will be constrained by regulation and changes to the banking market. From an era in which finance was cheap and readily available, these changes will be a significant driver of adjustments to corporate finance models and investment behaviour. Businesses will also need to adjust to a less benign economic backdrop. The next decade will almost certainly be characterised by a higher level of economic volatility and increased risk – clouding the certainty required for long-term planning.

The financial crisis has accelerated three other existing drivers of change or has changed their character. Public trust in business and markets, already in decline, is now at a low ebb. The profit motive is distrusted, and the onus is now on businesses to demonstrate their ethical credentials.

The report says there is greater scepticism about the Anglo-Saxon model of capitalism and its ability to deliver desirable and efficient outcomes; greater political activism, government intervention and supervision can be expected. Businesses’ approach to social and demographic change will also alter as a result of the recession. Retirement will still accentuate existing shortages of critical skills, but plugging these gaps will have to be the responsibility of business rather than government, whose spending will be constrained. In addition, pension problems will force some to work longer, requiring businesses to manage staff with wider age ranges, expectations and motivations than before. Lastly, the recession has altered the economic climate in which business needs to move to a low-carbon economy and improve resource use. The ability and preferences of government and some consumers to pay for this movement have been compromised, raising new questions about the role of business.

At the same time, trends in technology change are set to continue, and as over the last decade, will have a significant impact on business models and ways of working

Richard Lambert, CBI Director-General and a former editor of the Financial Times, said: “We may be at the start of a new era for businesses, in which attitudes to finance and to corporate leadership are changed for a generation by the shock of the past two years.

"What we now need is a more balanced, less risky pathway to growth  - - one in which the short-term returns may be lower, but the long-term rewards for management success will be a lot more sustainable and secure.

"There are important questions around how businesses are going to finance growth and investment in the future. And in a more collaborative, less transactional world, closer relationships with customers, suppliers, employees and shareholders look like becoming the new norm.”

Many of the report's findings are supported by a new survey conducted by polling firm Ipsos MORI in October and November and sponsored by the CBI and business advisory firm Deloitte. The survey of business leaders, mostly CEOs and chairmen, and representing a UK workforce of almost 1m and a global turnover of around £1trillion, revealed a shift in attitudes towards financing and supply chains.

Over half (55%) said that they will now only tolerate a lower level of risk from gearing and, within that group, 70% said an economic recovery would not reverse their position. Two thirds (68%) expect no improvement in credit availability in 2010 and are reshaping their business financing: 50% said they would use less bank debt, 44% said they would rely more on equity finance, and 26% said they would make more use of bond issuance.

And when asked about supply chain fragility during the recovery, only 24% said that they are not concerned. Businesses were most worried about a unique, specialist supplier going bust; that the supplier's own supply chain would collapse; and that the supplier would be unable to obtain working capital.

Because of these ongoing threats, 68% of firms said they would be strengthening the level of partnerships with suppliers in the coming years. One in three (30%) said they would be increasing their number of suppliers. And around one in five said they would be offering finance to key suppliers, reducing dependency on 'just in time' processes, and shrinking geographic distances to suppliers.

Richard Lambert added: "Firms looking to reduce risk and acknowledge their interdependence are seeking more collaborative ways of working through partnerships and joint ventures. Perhaps we will see a flourishing of supply chain finance – in which firms with the largest, most solid balance sheets help finance their smaller suppliers or customers.

"Businesses want to adapt to a harsher credit climate by finding new sources of funding. Why not encourage new forms of institutions to finance the growth of small and medium-sized enterprises through equity and debt? And why not make it easier for companies to raise money locally, perhaps through new regional banking and investment institutions, rather than having to rely on a few very big players in London and Edinburgh?"

John Connolly, Senior Partner and Chief Executive of Deloitte UK, said: "The findings of this survey are consistent with those in Deloitte’s Quarterly CFO survey. We know that companies have identified certain long-term responses to the events of the past two years such as a more cautious approach to debt and, more generally an attitude of greater financial conservatism.

"We can recognise that many businesses have proven resilient to the effects of the downturn: profitability has taken a knock but the impact has been less pronounced than might have been expected. Corporate insolvencies are running at significantly lower levels than the recession of the early 1990s and unemployment, whilst still growing, is not as high as some people feared. The route to recovery is sure to present challenges, but UK business has shown it has the ability to respond with imagination and flexibility."

The survey also showed that higher credit costs are hitting business investment plans. However, investment for a low-carbon economy seems to have escaped the squeeze, and 88% said they would invest as much as planned before the recession, and 27% said they were planning to spend more than planned. Government policy on green issues is vital however, with two thirds (65%) citing it as an important influence on investment decisions.

When sterling's value moved sharply up in the late 90s and stayed at high levels for longer than expected, it "had a real impact on the shape of our economy," Richard Lambert, Director-General at the CBI told CNBC on Fri, Nov. 20th. "Its impact on the economy is more complicated than it used to be," he added: