Ernst & Young's global survey "Lessons from Change" shows companies re-evaluating business models and increasing flexibility as they plan for recovery

An Ernst & Young study released today looks in detail at how leading global companies have dealt with recession and are preparing for an eventual recovery. "Lessons from Change" is a unique distillation of the conversations that over 500 of our senior partners from member firms around the world have had with their international clients in the last few months.

While many companies are emerging from a crisis of financial uncertainty and starting to plan again for the future, they do also recognize that they are now operating in a very different business environment.

There was a consensus that many lessons can and need to be learnt from the experience of the past eighteen months. A year ago stock market indices plunged 10% in one morning; now equity markets have recovered but while business may be back from the brink, few companies think that it will be 'business as usual'.

It is a new and tough environment as Steve Almassy, Global Vice Chair Industry, Ernst & Young explains: "At first sight it is a pretty grim outlook for business in this new post-recessionary world.  Demand is likely to be depressed for the foreseeable future, unemployment may well remain higher, as will taxation to help fund government stimulus programs and consumer confidence will therefore take some time to recover. There is no doubt we will also see deeper and more aggressive regulation that is bound to carry with it an expensive price-tag for business."

Different business environment, different priorities

When asked to evaluate their clients' strategies in dealing with this new environment, our partners highlighted how thinking had moved on since earlier in the year.

As Almassy explains, "Six months ago clients were telling us that it was all about survival and getting enough cash in the door to pay their staff and their suppliers.  Now corporates have broadened their focus to looking at re-evaluating their business model and doing all they can to optimize the flexibility of their operations. Cash is still important but so is planning for the future and optimizing market reach either by geography or by new products and services."
 
Re-evaluating your business model?

After the last twelve months it is hardly surprising that nearly 90% of the clients we examined had either adopted or were considering adopting a strategy of re-focusing on core competencies.  This is either because non-core assets are being sold or there has been a fundamental recognition that it is a high-cost and high-risk strategy to aggregate competencies.

A high proportion of companies were also reassessing their key customer strategy (84%) and reviewing segment profitability (85%).

Improving efficiency

In addition to looking at their business model and strategy for a changing world, companies were also looking at ways of permanently driving down cost and adapting more quickly and effectively to a changing market.

Over 90% of companies had either accelerated cost reduction programs across their business (74%) or were actively considering doing so (18%). 

The number of companies who had already introduced outsourcing or shared service centers was lower at 55% but a further 31% were actively looking at introducing some sort of efficiency drive for business support functions. Companies were also actively pursuing an agenda of reducing fixed costs. 

Businesses also saw the need for better forecasting and analysis (80% adopted or considering) and continuing to explore new ways of flexible working as opposed to headcount reduction (71%).

Lessons from industry sectors

Our research also looked at the variations across sectors and how the recession has impacted different industries in different ways. The banking and automotive sectors have for instance undergone a massive change in the last two years whilst others - life sciences, technology and oil for example - whilst clearly feeling the pinch have not seen the same kind of upheavals.

Steve Almassy explains, "Despite the differences across sectors in terms of how they have been affected by the recession, there are also some common principles that all have learnt or they are learning as a result of the last two years. No company, regardless of their sector, can afford to believe there will be a return to normality any time soon and every industry has participants who will not survive longer term."
 
Looking outwards

Perhaps one of the more surprising findings from our discussions with clients (and most welcome) was that rather than hiding behind national protectionism, as many had feared as a consequence of the recession, many corporates were already actively diversifying into new geographic markets. When asked 85% of companies had already done so (59%) or were actively considering such a plan (26%).

Steve Almassy explains, "Emerging markets will most likely rebound quickest from the recession and our clients can see that with 15% of the Fortune 100 now headquartered in the BRIC countries (i.e. Brazil, Russia, India, and China) the opportunities for higher growth and potential to expand are truly global. Companies may well be focusing on their core competencies but that does not preclude them from looking for new customers and new markets."