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Home / North West / A new world with new rules: what are the lessons from change?

A new world with new rules: what are the lessons from change?

A new world with new rules: what are the lessons from change?
News
November 09 2009
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S Allport

Simon Allport
North West Senior Partner
Ernst & Young LLP 

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A year ago stock market indices plunged 10% in one morning; now equity markets have recovered and businesses are back to some sort of normality. As the UK economy looks to be back from the brink and optimism grows, there is a consensus that many lessons can and need to be learnt from the experience of the past eighteen months – but few companies think that it will be ‘business as usual’.

The world has changed – we are now operating in a very different business environment, with new rules. Thriving in this challenging business climate requires flexibility, creativity and imagination.

Different environment, different priorities
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 optimise the flexibility of their operations. Cash is still important but so is planning for the future and optimising 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 that Ernst & Young examined in a recent report, Lessons from Change, 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, according to the report.

Over 90% of companies had either accelerated cost reduction programs across their business (74%) or were actively considering doing so (18%). The numbers of companies who had already introduced outsourcing or shared service centres 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%).

Cost reduction may be the short term goal but increased flexibility is the longer term objective for companies. The time for knee-jerk reactions is over.

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%).

Emerging markets have for the most part rebounded quickest from the recession and our clients can see that with 15% of the Fortune 100 now headquartered in the emerging BRIC (Brazil, Russia, India and China) countries 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.

Lessons from Change looks in detail at how leading companies have dealt with recession and are preparing for an eventual recovery. It is a unique distillation of the conversations that over 500 of the firms senior partners from around the world have had with their international clients in the last few months.

Lessons from Change, is available to download at www.ey.com/lessons-from-change  

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