In 2009, our Opportunities in adversity program led to more than 45,000 meetings with companies to discuss the challenges of the new market conditions. Insights from these meetings enabled us to identify Lessons from change — and a new performance wheel comprising eight key goals.
But we wanted to take this a step further, so we commissioned the Economist Intelligence Unit (EIU) for additional research, surveying 876 global executives. Can we move from observed practice of what companies are doing to a more helpful guide to what they should be doing?
What high-performing companies are doing differently
The companies we surveyed showed high levels of adoption of the eight goals of the performance wheel.
Using EBITDA (earnings before interest, taxes, depreciation and amortization) as our measure of performance, we have sought to identify the differences between the level and types of action undertaken by those companies experiencing above 5% growth in earnings and those experiencing less.
Higher-performing companies have significantly higher levels of adoption of almost all programs, as you can see on the two actions per “spoke” on the performance wheel, where the differences in levels of adoption were most pronounced.
Findings from the market
A picture is beginning to emerge from our work — across countries and sectors — of a group of companies that share a particular performance agenda to drive market success. High performers are consistently:
- Seeking to develop a broader and deeper view of their market opportunities, today and tomorrow
- Being more innovative in strategy and structure than their competitors, more collaborative with partners and more questioning of themselves and their potential
- Taking a much more holistic and long-term approach to their people and communicating more frequently and transparently to both their internal and external stakeholders
- Broadening their understanding of risk in their market and from their actions, and tightening their execution and key support processes to mitigate that risk
- Pursuing and attaining greater speed in making and executing decisions to take advantage of their changing market
These successful companies are equipping themselves for the new economy. What actions do you need to take to be one of them?
Driving toward the rebound
Twelve months ago, companies were focused on survival. Today we see the economy beginning to recover, for a wide variety of reasons:
- US$1.8 trillion in government stimulus
- The resilience of some larger emerging markets
- The continued existence of large amounts of mobile capital
The global recession — already over in many countries — is now expected to end in 2010. The common view holds that a gradual recovery will become more apparent, although markets are only likely to strengthen in 2011 and 2012.
Optimism has increased...
Our research shows that over 50% of companies still have a focus on securing their present business, down from 74% in January 2009. And the number who report they are aggressively looking for future opportunities has almost doubled. It is the action of these companies that will drive the rebound.
...but growth remains a challenge
Only 32% of respondents saw revenue growth returning to pre-crisis levels within six months. A further 31%, however, said it would take two years or more for this level of recovery to be achieved, suggesting a rather sluggish recovery for much of 2010.
This is the burning platform for companies: getting revenue growth back. Indeed, if we have just been through a “credit crisis,” we have now entered a “growth crisis.” Revenue growth is the dominant challenge for today’s executives.
The need for action
We believe the critical determinant of a company’s performance is management action. Executives would be unlikely to adopt all the action programs we have identified, but results have shown that the higher-performing organizations follow several of the programs of action concurrently.
Not surprisingly, since the majority of companies are still focused on securing the present, levels of adoption reflect the fact that companies are at the early stages of responding.
Only in the area of optimizing capital availability and deployment have respondents already implemented 50% of the action programs we identified. Given the initial “credit crunch” nature of the economic crisis we are going through, this is to be expected.
But, while overall adoption rates are currently just under 40%, a further 36% of our highlighted practices are under active consideration — and companies are following more than one program in each area.
Can earnings be sustained without growth?
Historically, most business models have been built on an assumption of consistent revenue growth. Part of the reason we are seeing the recovery (despite shrinkage in revenue) is that companies have changed their model to extract earnings growth despite anemic sales (through cost cutting, process redesign, outsourcing, shared services and productivity improvements). The real question may turn out to be: how long can companies sustain earnings growth without revenue growth?