Competing for growth. Winning in the new economy
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10 Ianuarie 2011 |
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ERNST & YOUNG S.R.L. |
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Executive summary
Companies across all sectors and markets are expecting the new economy to be even more competitive than the old over the next two years, according to our survey of 1,400 executives from around the world. The increased competitive pressure extends across the value chain for labor, input materials and capital. And those from emerging markets expect competitiveness to increase the most, as companies from developed markets enter and local players intensify their focus.
Competition in the new economy is dynamic and being shaped by four macro–economic factors which, while not new, have a significantly more pronounced importance than before.
Market variation has increased
Emerging markets are growing, but there is a significant variation in performance across them. Similarly, some developed markets are doing better than expected, whereas others are struggling or continuing to decline.
The same variation in performance and forecast is true for market segments. There is a general re-emergence of increasingly cost-conscious buyers, but some luxury segments continue to thrive. Old purchase patterns are under pressure. Boundaries between buyer groups overlap and change, challenging the go-to-market assumptions of even the most established players.
The market is more volatile
Product life cycles continue to shorten as innovation is increased. Economic forecasts are being changed and measurements corrected on a quarterly basis — across almost all markets. This volatility is placing increased pressure on the supply chain, which must now accommodate rapid change.
There is pressure on margins
Expectations of price increases in the future are currently low — almost 60% of respondents expect a price rise that either only matches inflation or is below inflation. At the same time, many executives are experiencing both price erosion in their market and increased costs — for input and labor — in their production, raising on-going questions about their financial viability.
Stakeholders are nervous
Attracting and retaining talent remains a problem with vastly divergent approaches to staffing levels, both through the downturn and in the emergence of the new economy. Capital seems limited and there is caution about the risks that are faced, the new regulation that is almost certain to come and the fiscal retrenchment that is being implemented. There are growing demands for greater transparency and improved governance.
Competing for growth framework
Our research shows that high performing companies are significantly ahead of their competitors in four critical areas.
1. CUSTOMER REACH
Maximizing the potential market opportunity for their product or service
- Focusing on the more profitable segments
- Broadening product service offer around current clients
- Prioritizing markets to compete in
- Reinforcing their brand and marketing efforts to increase awareness and mitigate price pressure
2. OPERATIONAL AGILITY
Improving their ability to deliver effectively in a fast-changing market
- Accelerating speed of response to get to market quicker
- Enhancing flexibility of their supply chain to respond to smaller but profitable opportunities
- Refocusing on innovation, especially at an incremental level
3. COST COMPETITIVENESS
Sustaining their economic viability
- Informing the pricing decision with full cost information
- Passing on the pressure to others in their “ecosystem”
- Sustaining cost-reduction efforts by focusing on process change, rather than just discretionary constraint
- Optimizing capital, wherever possible
4. STAKEHOLDER CONFIDENCE
Building stronger relationships with their stakeholders
- Identifying and explaining risk
- Anticipating regulatory change
- Enhancing their reporting
- Securing and developing their people
While companies may choose to focus on particular aspects of this competitive agenda as the basis of their strategy, we believe the four to be linked. A balanced approach is required and the ultimate competitive position is found when all are optimized.
The new normal
When we surveyed the market in January 2010, we found that companies were starting to "get back to business, but not back to normal." It was clear that a new performance agenda was needed for a new type of market. But as the recession turns into a slow recovery, we would expect to see competition gradually return to pre-crisis levels. Instead, however, an overwhelming majority of our respondents — 85% — believe their market is going to get more competitive in the next two years. Forty-six percent say it is going to get significantly more competitive. Why would that be?
