To win in today's volatile environment, companies will have to exploit opportunities to transform and secure access to capital.
Our experience with supporting clients through previous downturns and periods of volatility indicates that a small number of core activities can make the difference between those winning in volatile times and those who get left behind.
These few actions are all relevant but have differing levels of intensity and impact depending on the current status of the business:
Becoming an intelligent enterprise
This is the place to begin, with an organization that is on top of its information and is built around a core discipline of fact-based, analytical decision making. The number of different points of view and projections have become exponentially greater than just a few years ago. All available data must be utilized to solve problems and monitor the organization, as volatile times require swift, informed, decisive action and commitment.
Growth in tough times
Actions for growth are dependent on the strength of the opportunities to transform in core markets and access capital. Knowing how, where and when to compete is key. Identifying the growth priorities and focusing on those that are most important is part of the answer; success will come if the enablers of data analytics and operational excellence are effectively brought into play.
Strategic cost reduction
Any strategy that is designed to transform a business needs operational effectiveness. A crucial component of operational effectiveness is aligning costs with value-adding activities. Strategic cost reduction programs are essential and need to address the complexity of the operating model, the drivers of cost in the business and the confidence that this latest round of cost-cutting will deliver the results to the bottom line.
Working capital management
The volatility in the current debt and equity capital markets means that often the best sources of finance are within the business. Creating sustainable improvements in accounts payable, inventory and accounts receivable is key. Maintaining improvements in cash flow while maintaining supplier and customer relationships is also critical. Many businesses have seen their working capital positions worsen, but those that have focused on long-term sustainable change have delivered significant value and are well placed to deal with the difficult conditions ahead. For more insight on how to strategically manage capital, take a look at our Capital Agenda.
For those businesses facing chronic demand contraction at the same time as refinancing risk, with resulting difficulties in managing and negotiating with core stakeholders, restructuring and capital and debt management offers an opportunity. This can provide the stability and recovery needed to reposition for growth and gain access to capital markets. Every business should at least explore the potential of a restructuring and capital management initiative, even if they decide not to act. The two critical areas of restructuring during the current conditions are:
- Financial restructuring —developing, negotiating and implementing financial restructuring solutions for over-indebted but viable businesses.
- Operational restructuring —developing and implementing operational improvement strategies for rapid earnings and cash flow improvement.
In our Growing Beyond program, we're further exploring how companies can best exploit these challenging economic times to find opportunities to succeed.
Join the debate at www.ey.com/growingbeyond.