How to navigate the current economic crisis successfully

In this article, Ian Brumwell of Atlantic Insight outlines his recommendations to prosper in these uncertain times: have a clear strategy, be forensic and clinical, invest wisely, and act boldly to successfully navigate the current economic crisis.

Every day businesses are featured in the news as they slash costs and reduce their investments in R&D, Capex and M&A to conserve cash.

In every economic crisis and heavily disrupted marketplace there are always going to be winners and losers. So why will certain businesses succeed in navigating the current pandemic to stronger competitive positions in the longer term?

I would like to suggest four actions that we have observed being taken by businesses that have successfully position themselves to thrive after economic crises.

1. Develop clarity of purpose
We have often been engaged by businesses that had historically taken a slash and burn approach to cost reduction that might have satisfied short term imperatives, but with the benefit of hindsight, it was at the expense of severely compromising future growth. Furthermore, this risky approach tends not to cut in the right places and deeply enough.

Successful change is vision and mission-led, and during a crisis this is even more critical; the strategy to achieve the post pandemic business needs to be quickly and clearly defined to inform cuts and investment. This requires the impact on the business / product / service portfolio to be quickly determined by evaluating metrics such as sector attractiveness, market share, profitability, capability strength and potential for growth. A targeted portfolio ensures that future investment is aligned to the business strategy and injects the confidence into management to take wise and bold decisions that result in long term success.

2. Use a forensic, clinical approach
Once the strategy and the optimum business portfolio have been defined, effective execution is critical. Invest in those businesses, products and services that have the best chance to successfully deliver high returns and enhance competitive advantage. Divestment should be considered for those products and services with poor economics operating in unattractive markets (low growth / declining addressable markets and low industry profitability).

Compartmentalising the business into Legacy and Growth businesses is a further step that successful management teams adopt with the objective of delivering operational and commercial excellence in the Legacy business to maximise profitability in order to free up cash to fund the Growth business. This process should begin with an Operating Strategy and Operational Review with the objective of identifying a set of evidence-based recommendations that form the basis of an improvement programme to radically simplify the business and optimise the P&L through streamlining product offerings, lowering fixed costs, optimising sourcing strategies and operational productivity, leveraging digital and technology and improving customer service and experience levels. We will elaborate further on some of these topics in a later article.

3. Invest wisely
Funding wisely Growth businesses is critical to securing long term success. It is essential to invest based on a well-defined strategy and targeted product portfolio. Adopt a portfolio management approach to capex and R&D to deliver the best returns over the long term. Cash rich businesses can also pursue inorganic growth through M&A.

4. Act boldly to reap the rewards
We have supported businesses that have adopted the above principles to deliver strong returns following the financial crisis of 2009. Not only did they dramatically enhance the profitability (one client doubled profitability every 2 years on average over 6 years) of the Legacy business, but they also built a new Services and Solutions business with the potential to achieve $bn revenues. As we navigated the transformation, the business initially resisted the need to cut as deeply as recommended only to have to cut again as the predicted market trends started to materialise. The business and its excellent leadership team benefited from a clear strategy and targeted product portfolio, and a commercial and operational excellence improvement programme which significantly contributed to the funding of smart R&D, capex and M&A plays in high growth sectors.

In my next article, I will outline how operational excellence can contribute to delivering the strategy’s targeted outcomes.

Ian Brumwell is a Partner at Atlantic Insight.

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