High performers continue to mine growth opportunities despite global markets’ uncertainty
- Seventy-five percent of international companies have changed their plans for growth given short term volatility.
- Proportion seeking to take advantage of the current conditions has increased from 19% to 29% since 2008.
- High performers in today’s markets focusing on restructuring debt and securing additional equity, rather than cost reduction.
- Rapid-growth markets less attractive as a growth solution, with high performers focusing on the domestic market and adjacent international markets.
London, 23 November 2011: In a post-crisis economy characterized by market variation, increased volatility, growing cost pressure and stakeholder nervousness; the divide between agile businesses capitalizing from the growth opportunities the “new economy” presents and businesses struggling to respond to change, is becoming more pronounced.
‘Growing Beyond’, a report released today by Ernst & Young, identified that three quarters of companies today are adapting their growth plans in response to continued uncertainty. The report also identified four key growth drivers amongst high performing organizations (defined as the top quartile of companies in both EBITDA and revenue growth), which have enabled them to optimize the opportunities within their markets. Growing Beyond is the latest report to be produced from a study started in 2008, which canvasses the opinion of 600 companies from around the world and 300 Ernst & Young partners.
Andrew Shaylor, the author of the report says: “In the challenging economy, in which we now operate, all companies can benefit from examining how others are seeking to drive growth. While the strategy to achieving growth is diverse, this study highlights that four common drivers remain throughout: customer reach, operational agility, cost competitiveness and stakeholder confidence. The proportion of companies now taking advantage of the new market conditions has grown from 19 to 29% since we started the study in 2008, as we see implications of strategic decisions taken in recent years begins to filter through into performance.”
Customer reach
These high-performing companies have been alert to the impact of the economic turmoil on their markets and their customers, and have acted to re-establish their customer focus and relationships. This is reflected in the study’s findings that high-performing companies have been approaching product development by broadening product service offerings around current customers, with 54% reporting that they have increased their product range by over 10% in the past year, harnessing current customers and their employees as a key source of innovation.
There is also a big increase in companies seeking to find new geographic markets for their goods although growing evidence suggests that this is neither simple nor cost-free. Whilst rapid-growth markets have an important role in the future growth of the world economy, they don’t provide a simple or guaranteed growth solution for all companies. The study identified that companies can improve their growth performance by focusing on the domestic market and adjacent international markets, rather than pursuing the more complex and uncertain opportunities presented by the emerging markets.
Operational agility
In order to realize the potential of these new markets, speed and flexibility are key and this has meant a fundamental shift for businesses marching to the different tune of “global standardization” prior to the crash.
Within high performer companies, talk is not about global standardization and consistency but about exploiting the immense market opportunity through greater customization and variation, which needs to be supported by effective supply chain management. This may include products assembled in their final market destination or creating regional or sub-regional supply chain hubs. Successful companies are ensuring that their strategic agility is fully underpinned and propelled by their operational agility.
Jay Nibbe, Ernst & Young’s Markets Leader for Europe, Middle East, India and Africa, comments: “The temptation to focus product range for speed and efficiency reasons is a strong one but high performers are ahead in going in the opposite direction with the trade-off on cost being perceived as outweighed by the increase in sales.”
Cost competitiveness
The study also revealed that top-performing companies are equally focused on both pricing strategy and sustainable cost reduction. Twice the number of high performers recognized the need for both revenue and profit growth, relative to low performers who tended to focus exclusively on either profit or revenue.
Many sectors and companies are reporting that they are facing strong downward price pressure with 60% of respondents expecting price rises to be at, or below, the inflation rate in the near term. High performers are improving their pricing through increased use of analytics to understand the “value” creation process and moving pricing decisions closer to the target market.
Nibbe comments: “The high performers of today’s markets are focusing on restructuring debt and securing additional equity, rather than cost reduction. They are also reporting increased risk appetite and increased external consultation, to help them maximize the opportunities not only within their traditional market, but all potential markets.”
Stakeholder confidence
Finally, within today’s volatile market, communication is vital and there is an increased requirement for information about future business plans and investments. When it comes to liaising with stakeholders, high performers are taking a different approach, placing more attention on their long-term reputation management; taking action to ensure a long-term relationship with business owners, financiers, key contributors and influencers.
Shaylor summarizes “High performers take charge of their own destiny. They have laser-sharp focus on executing against the four drivers of competitive success and they strike the right balance in their approach in relation to other businesses – strategically and tactically to ensure they achieve sustainable growth, irrespective of the global financial climate. We hope to see the number of businesses taking advantage of the market conditions continue to grow, through the insights gained from high performers, to succeed within today’s markets.”
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