Your decisions over next two years will define the decade

Jun 30 2009 by Nic Paton Print This Article

Whether the downturn continues or we start to ride an upturn, the decisions managers make over the next two years are likely to govern not only how quickly their organisations recover, but how they perform over the next decade.

The prediction by consultancy Deloitte has highlighted the importance for managers at all levels to be getting it right over the coming months if they want to be in a position to capitalise on the wider economic picture, whether it remains turbulent or starts to improve.

In a new report examining which companies are most likely to be in a winning position to capitalise on the current turbulence, it has argued that what you choose to do and the decisions you make both during and in the immediate aftermath of a recession will govern whether you end up outperforming your competitors or just perform as an also-ran.

John Connolly, Deloitte chief executive and senior partner, said: "How companies act over the next 24 months will drive their performance for the next decade – difficult though it is, with so many near-term priorities, now is the time to think beyond today's challenging markets."

In buoyant markets, most companies tend to perform within a relatively narrow range, but in a recession the range of performance tends to broaden hugely, the research suggested.

For example, the standard deviation of annualised shareholder returns for the FTSE-100 companies in the UK increased from eight per cent in the 10 years preceding the recession of the early 90s, to 27 per cent during the recessionary period, he argued.

This trend was mirrored in the downturn of the early 00s, where the standard deviation more than doubled from 14 per cent in preceding 10 years to 29 per cent during the recession itself.

For the current downturn, the trend again seems to be holding true, where the standard deviation so far increasing from 12 per cent in the growth period leading up to the downturn, to 29 per cent in the year up to Q1 2009, argued Connolly.

"What is the cause of this spread of performance? Difficult conditions expose those with fundamentally weak strategic as well as financial positions," he emphasised.

"But it is reinforced by what companies choose to do in recession: whether they enter in a relatively strong or weak position, those that act decisively and boldly - and are seen to be taking those actions by the market – will outperform both in recession and beyond," he added.

"Unsurprisingly, as the recession unfolded, organisations inevitably focused on the short term – on actions to secure financing and to manage cash and control costs. Many companies have now stabilised their business performance sufficiently to think about the future," he continued.

Those businesses that come out of the recession as winners will be the ones distinguished by their commitment to a compelling strategic direction, agreed Deloitte partner Richard Punt.

Organisations with a robust yet agile business model, and those prepared to take bold action were the ones more likely to best placed come the upturn and beyond.

"Successful positioning will require an ability to identify and secure medium term sustainable growth; to transform the business model to exploit new market conditions and finally to capture opportunities for growth through M&A," said Punt.

The winners emerging from a recession were typically those that had not only built up their financial strength, but which also had developed more resilient, robust and flexible business models as well as "compelling value propositions", he argued.

Operational excellence, an intelligent focus on costs and proactive decision making were trademarks of companies that are able to deliver long-term sustainable growth, he continued.

"Successful businesses of the future will require dedicated and visionary leaders to drive decisions that are forward looking and can build a platform for success. Just as a recession can expose weak leadership, it creates real opportunities for those brave enough to take decisive action," he suggested.

"It is about leadership and the leader's ability to both conceive and deliver a vision – however transformative it might be – while managing the priorities of the here and now," Punt added.

"While being realistic about the continued near-term challenge, we believe this environment is driving profound changes in our markets and creates conditions in which companies can distinguish themselves from competitors.

"Those who are confident, determined and prepared to take equally profound action will emerge as winners," he concluded.

The first challenge, of course, for many managers is simply to carve out the space to raise their sights and look beyond the challenges of surviving.

A survey of nearly 570 executives by consultancy Ernst & Young earlier this month found that two thirds were still focused almost solely on survival, though this was an improvement on the three quarters reported at the start of the year, it said.

And back in April, with the first signs of recovery beginning to show (or at least fewer signs of sharp decline) workplace author and management guru Suzanne Bates urged managers to start making decisions on the basis of a coming upturn. Managing and maximising the recovery needed to be moving higher up the executive priority list, she argued.