Conventional response to recession leads to failure
Article Type: Research and results From: Strategic HR Review, Volume 11, Issue 3
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PA Consulting Group’s “Managing uncertainty” survey shows how an organization’s approach to the financial crisis links to its total shareholder return (TSR). Companies are discovering that the conventional response to recession – battening down the hatches and waiting for business as usual to return – is a formula for failure. Most companies were too cost focused, too slow and too passive, according to a PA Consulting Group survey of over 200 business leaders. Data from the period 2007 to 2010 was used to cover the main timeline of the financial crisis.
Findings of the survey include the following:
Those companies that cut costs drastically performed worse than those that adopted a moderate approach to cost cutting.
Many companies took 18 months to respond and they performed worse than those who acted quickly.
The minority who saw the crisis as a time to gain market share performed very strongly.
Companies that made drastic cuts to their costs did not have a higher TSR than those that took a more moderate approach – in fact the survey demonstrates that those who cut costs so extensively that they slashed staff had a 10 percent lower TSR than those that contained or avoided staff cuts.
Mark Thomas, business strategy expert at PA Consulting Group, says: “Just as politicians are beginning to realize that their natural response to the financial crisis has been inadequate, many companies are discovering that the conventional response to recession guarantees that a business will lose. The reason for the failure of these conventional management strategies is that they are designed for conventional inventory-cycle recessions – and a balance-sheet recession is a completely different beast.
“The highest-performing companies took a different approach: they identified the crisis early and responded quickly. They had a moderate approach to cost reduction, and they looked beyond this to focus on the opportunities to get ahead. A fundamentally different approach is what produces the highest performance and this needs to be heeded by companies in this economic downturn.”
For more information. Visit: www.paconsulting.com/managinguncertainty
