Lessons from change
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27 Octombrie 2009 |
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ERNST & YOUNG S.R.L. |
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Lessons from change - what do they mean for you?
The world is still reeling from the biggest financial downturn since the 1930s. Trillions of dollars have been lost, millions of people have become unemployed and the global economy has all but shuddered to a halt.
During the past two years, the seemingly infinite pool of global funding that delivered a decade of cheap and abundant credit has dried up. Economic players dependent on this credit - consumers, companies and governments - have had to make rapid and radical adjustments. Some have not survived. Some still struggle. And some have emerged as new leaders. But all have had to adjust.
If we are to avoid repeating the mistakes that have caused such economic distress, we need to learn from the past as we build for the future. It has often been said that the most important lesson to master is the ability to learn. Learning from others is lower cost and lower risk than learning from experience. That is our focus in this report.
Since January 2009, Ernst & Young has been running our ‘Opportunities in adversity' program to help businesses across the globe act decisively in the economic downturn. It is, after all, the action of business as much as of government that will drive and sustain any recovery. Since its launch, we have held some 40,000 meetings with senior executives, using our "stress pendulum" (see Figure 1) to help them identify the right course of action to take. We are continuing to help steer many of these companies to secure a better position for the future.
Undertaking this activity has put us in a privileged position. We have continued to gather deep insights from companies in many industry sectors and markets around the world on how they are managing in this downturn. We have pulled together these insights and tested our findings through an in-depth survey of over 500 Ernst & Young client service partners from our member firms across the globe and additional research by our Global Industry Centers. Combining all that we have learnt from our clients gives us a unique perspective into how companies are responding to the new environment.
Our Lessons from change program has two elements. Our Global Industry Centers have drawn together our findings in 14 sector-specific reports. These reports explore the different challenges and opportunities faced by different industry sectors and provide deep insight for participants in those markets. In this overarching report, we look across these analyses to try to establish a broader agenda for action that will be relevant for all business - in every sector, in every country.
As a consequence, we believe a new performance agenda is emerging as companies respond to the downturn and prepare for a different future. Not all of these lessons from change may be new. But they are taking on new importance as companies strive not only to survive, but to thrive. We believe this agenda establishes eight primary performance goals for the new economy. These range from revitalizing business models and accelerating decision-making to strengthening talent and improving the confidence of stakeholders. In the coming months, we will be focusing on these performance goals to help businesses across the globe thrive in the new market.
Ernst & Young’s stress pendulum: finding the right course of action
During a credit crunch, the way a business manages cash is a key determinant of success. Every company falls somewhere on a stress pendulum between "cash earn" and "cash burn" and for every business there is an appropriate course of action to take.
Our Lessons from change reports cover the
• Asset Management • Automotive • Banking and Capital Markets • Consumer Products • Government and Public Sector • Insurance • Life Sciences • Media and Entertainment • Mining and Metals • Oil and Gas • Power and Utilities • Real Estate • Technology • Telecommunications
Lessons from change: the three missives:
1. This is not business as usual. Many assumptions have been reset, practices have been changed or are recognized as needing to change.
2. Cash remains important, although it is no longer central. Even companies that are "cash rich" have a new focus on working capital management and getting the balance of their funding right.
3. A new business agenda is emerging. While we might be back from the brink, the economy and market environment is not getting "back to normal."
Executive summary
Now is the time to prepare for the rebound
Back from the brink ...
From the crash of Lehman Brothers in September 2008 through to late February 2009, there was a real sense of panic across the world. Uncertainty as to the financial strength - or weakness - of a company extended from the boardroom to its customers, suppliers and shareholders. Nightmare scenarios were discussed. The economic world, as we knew it, looked over the edge - and stepped back.
Through bold government action and massive, multifaceted stimulus bills, most of the major world economies have modestly recovered from their abysmal performance in late 2008 and early 2009 (see Figure 2). Tax measures comprised the largest share of this stimulus. According to a recent OECD report, they represented 56% of the net effect of the average fiscal stimulus of a member country. Market indices have risen and trade measures have begun to grow again. And most measures of consumer, producer and executive sentiment have also begun to turn around.
This is certainly a view that we are getting from talking to our clients. More and more of them are emerging from the immediate short-term crisis of financial uncertainty to start to plan for the future.
... but not back to normal
From our discussions, however, there is a sense that the future economy may be different from the past. Demand may reappear, but it is likely to be depressed. The reappearance and continuation of high levels of unemployment, the prospect of increased taxes to fund the deficits and further restrictions on consumer credit will act to dampen consumer confidence and increase price sensitivity. As stimulus measures are gradually withdrawn a period of public spending contraction in real terms can be expected for many economies.
Extensive losses to both investors and the public purse renew pressure on the corporate governance approach that has seemed to deliver neither transparency nor protection for wider interests. At the same time, the regulatory burden is expected to rise: partially to mitigate the role business plays in damaging the environment and partially to respond to failures in the market. These failures include risk management programs that neglected to spot risk and remuneration programs that rewarded people where businesses have failed and unprecedented shareholder value has vanished.
G20 GDP growth rate (%)
Source: IHS Global insight. Data updated 15 September 2009
