“ Innovation is not just a prescription, used in an emergency when crises arise. It is a sustainable strategy that enterprises should insist on adopting.”

We know from years of experience working with fast-growth companies that entrepreneurs see the world differently from most business people.

And we know, having surveyed some of the world’s foremost entrepreneurs at the start of 2009, that their early priority in this downturn was to pursue new opportunities while maintaining a strong cash position.

Have fast-growth companies managed to maintain that positive outlook, that determination to thrive in such difficult times?

To find out, in September 2009 we returned to that same group of future market leaders — participants in the global Ernst & Young Entrepreneur Of The Year Award — and asked them what their priorities were now, what lessons had they learned?

We found that pursuing new growth opportunities remains their No. 1 priority. But there is also a renewed focus on the customer. Fast-growth companies tell us they are intent on satisfying existing customers and ensuring their loyalty, while expanding into new customer segments and geographic markets.

Significantly, one factor underpins all of the lessons from change for future market leaders: their extraordinary ability to innovate.

Innovation — the entrepreneurial difference

Our years of research into what makes growth companies successful tell us that entrepreneurship — and its lifeblood, innovation — thrive in tough times. As one entrepreneur says, “Only those who have the courage to innovate and take risks will lead the economic recovery.”

Another adds, “The current market conditions call for creative and unconventional approaches.”

Innovation drives growth

We use a simple but powerful equation to express what distinguishes an outstanding growth company from its laggardly rivals: E + I = G

“E” represents that classic entrepreneurial spirit. It combines factors such as vision, resilience, passion and leadership — the qualities that can turn any form of adversity into an opportunity.

The “G” stands for business growth — the desired end product.

But it’s the “I” — innovation, the ability to generate new thinking about traditional ways of doing things and to use those insights to deliver change – that generates value.

This equation remains a constant. But fast-growth companies tell us that the focus of their innovation has shifted.

A new performance agenda

An extensive research program among our partners and clients has generated over 400 unique insights into what companies are doing to respond and to drive performance improvement. We have distilled these into eight performance challenges — along with a number of key observed practices, they define a new performance agenda.

1. Reevaluate your business model. Embed innovation and constantly challenge your existing business models against the new business environment.
2. Optimize the flexibility of your operations. Increase the responsiveness of your organization, by making it more flexible and leveraging resources.
3. Optimize capital availability and deployment. Reflect the continued importance of “cash” and constricted funding by optimizing the availability and deployment of capital, to give you a more flexible and robust balance sheet.
4. Optimize your market reach. Optimize your global market reach and product/service mix to exploit opportunities, achieve optimum returns and mitigate risk.
5. Accelerate your decision-making and execution. Make and execute decisions more quickly to take advantage of shorter windows of opportunity and respond more quickly to adverse developments.
6. Revitalize the way you manage risk. Identify the full risk complexity of the market and develop and align a strong control framework for your business.
7. Strengthen your management talent. Gain, retain and deploy a management team that is capable of addressing the complex market and organizational environment.
8. Strengthen your stakeholders’ confidence. Regain and retain stakeholder confidence through transparency and better communication on financial and nonfinancial performance.

Our performance wheel represents these eight objectives in graphical form. It seeks to help companies think about where they should focus management time as they prepare for — and shape — the rebound. The wheel device reflects the fact that, while the impact of each goal will differ from sector to sector and from company to company, each one needs to be considered in the light of current circumstances.

The performance wheel is not a static or prescriptive tool. It is a guide to a future that we are only beginning to understand. There is no single or simple action that a company can take to achieve any of these goals. Rather, to attain them requires a suite of actions.