NEW YORK—If you’re still doing business in recession mode, it’s time to start thinking proactively to get ahead in the next business cycle.
“It goes to the notion that a crisis is a terrible thing to waste,” said Punit Renjen, chairman and chief executive officer of Deloitte Consulting in New York, to attendees Jan. 26, 2010, at The Conference Board’s annual cost management conference.
But a recent Deloitte survey found that most companies aren’t preparing for the upturn. Most aren’t anticipating a change in their market or product profile, aren’t making continued integration of operating models or structural improvements a priority, and their talent management approach is largely reactive, the survey found.
Renjen said companies that respond strongly in advance of the upturn will not only grow market share faster than competitors, but they’ll also grow earnings faster than revenues, attract top talent and exceed investor expectations.
He discussed challenges surrounding the upturn and how organizations can manage shifting priorities to get ahead.
Reflecting on the Downturn
While experts are mixed on when a true recovery will take place, apparently so are business leaders, according to a December 2009 Deloitte poll that asked for views on 2010 growth prospects.
Of 1,700 respondents, 16.7 percent said they expect no growth in 2010, while 31.1 percent expect 0 to 2 percent growth and 20.9 percent expect 2 to 4 percent growth. Only 16 percent said they expect 4 percent growth or higher, while 15.3 percent reported, “don’t know/not applicable.”
That same survey also found that most companies were “pretty reactive in the way that they approached this particular recession,” Renjen said. About 40 percent said they’re still in “distressed” or “turnaround” mode, 27.3 percent are in an “aggressive” mode and looking to take advantage of weaker competitors, and 12.2 percent are in “offensive” mode and looking to capitalize on white space opportunities, while 22.9 percent responded “don’t know/not applicable.”
Finding Your Way Out
Renjen recommended these steps when managing out of volatile times:
Stage 1: Secure the business. Focus on rapid costs and liquidity improvements with a very short-term focus and react to growth “in a very opportunistic way.” Tighten spend policies, lower working capital and drive rapid sourcing programs for external spend, he said.
Stage 2: Make structural improvements. Look at “how you actually do work,” Renjen said. Focus on transformational cost improvements in the medium- to long-term range. Consider restructuring corporate, business unit, and support functions for greater synergies and optimizing manufacturing and supply chain networks from a total cost perspective or developing a global sourcing program, Renjen said.
Stage 3: Drive profitable growth. Capitalize on growth and resourcing growth opportunities and ensure scalability of cost structure. Renjen recommends prioritizing investments and resources; acquiring, divesting or partnering for better market positioning; and reorienting your organization’s market and business portfolio.
He added that these steps “don’t happen sequentially. If you go back to a scenario-based agile approach, many of these actions need to happen concurrently. While you’re securing the business and addressing structural costs, you need to be thinking about both tangible and intangible ways to drive profitable growth.”
Prepare for Some New Realities
Strategies also must factor in new realities, including a push for sustainable or green solutions, limits on borrowing, changes in competition because of bankruptcies and acquisitions, changes in consumer spending and preferences, and new accounting and environmental regulations and requirements, according to the Deloitte presentation.
Renjen recommended the following when developing your strategy:
Evaluate the current business situation. Understand the performance baseline and what drives value and ask, “What is the new reality?” Renjen said.
Develop a transition strategy. Engage key leaders and explore scenarios and possible responses to develop a transition strategy that considers the unique mix of business priorities.
Identify and prioritize actions and allocate funding/resources. Look for the “highest and best use investments and programs.” Define measures of success and clarify ownership and accountability, Renjen said.
Operationalize your transition strategy. Communicate your intentions with the business “in a very transparent and very clear way.”
'The Sky Still Looks Cloudy'
In an earlier session, Bart van Ark, vice president and chief economist for The Conference Board, talked about challenges for business leaders as they try to manage for tomorrow.
He said the global economy is gradually working itself out of the recession, with Asia leading and Europe, the United States and the United Kingdom trailing. Income, credit and unemployment are the “main drag” on consumer spending and limit expansion opportunities. Meanwhile, unusual monetary and fiscal stances make it hard to predict stability in financial markets, exchange rates and inflation.
Emerging economies are bouncing back at different degrees and just how solid their recovery is differs “strongly.”
But these economies have become more competitive based on productivity, and not only as a low cost producer. Van Ark said as the economic shift to emerging economies continues, “productivity growth in those countries will provide the key for sustainable global recovery.”
Pamela Babcock is a freelance writer based in the New York City area.