The shape of business has changed forever
London, Moscow, 2 August 2010 ― A new study by Ernst & Young highlights the changes that business perceive as permanent to the global enterprise landscape following the economic downturn. Only 68% of respondents expect economic improvement by 2011, and for 71%, the expectations for 2012 are not much higher, according to Planning for growth, which is based on research of senior executives across the globe.
The study examines what changes are anticipated in the global economy following the economic downturn, whether changes in the global market will be temporary or permanent, and whether the way companies measure their performance will be affected. The result gives a view of the next three years from the business world’s perspective and explores the longer-term response that successful companies are planning.
Lars Weigl, Global and EMEIA Performance Improvement Leader, Ernst & Young, said:
“Attitudes to finance and to corporate leadership are changed for a generation by the shock of the past three years. What we now need is a more balanced, less risky pathway to growth - one in which the short-term returns may be lower, but the long-term rewards for management success will be a lot more sustainable. Future market leaders will be companies which are both entrepreneurial and flexible. Dominant players in 2012 will be those with the ability to make and execute decisions quickly.”
Four out of ten companies responded that they do not expect their business to return to the “normal” conditions that existed before the economic crisis: this is an increase of almost 25% compared to the previous results from the same survey last year. The shift in power to new economic giants like China and India, as well as additional regulation, increased taxes and the potential return of inflation, are seen as major factors which will make businesses less profitable.
Weigl added, “The market changes of the last few years have been dramatic and most businesses around the world now have to cope with a 20% to 50% reduction in demand. According to our survey, respondents expect to emerge from the crisis into a fundamentally changed business landscape.”
A consistent theme in the findings - both in terms of market outlook and planned business response - is the expectation of increased volatility and complexity. Markets are expected to see major swings in growth, and both the volume and depth of change is expected to increase. Tighter regulation is expected and increased caution will refocus business efforts onto innovation in product and process, rather than finance.
Two key factors emerge as being critical to future corporate success: the speed with which a business can respond to both opportunities and threats, and the flexibility that it builds into its operation to enable it to do so.
Weigl explained, “To thrive in the new business environment, companies need to operate more efficiently; concentrate on their core business, focus on enhancing customer satisfaction; improve supply chains to reduce time to market; and be more innovative and adaptable to optimize market reach and product/service mix to exploit new customer opportunities.”
Many companies have already started to revisit their business model and are planning changes in the way that they operate and measure their performance: while the top five performance indicators are expected to remain the same, there is a major shift from quantitative to qualitative and relative measures as key performance indicators (KPIs).
Respondents said that significant changes will need to take place widely across their company, affecting every business function: almost 75% expect a reasonable amount of change will be required, but 40% expect that change to be extensive.
“Improvement of efficiency of finance and operations and in many companies, revision of the strategy is a top priority on the agenda of the national companies,” – says Igor Boldyrev, CIS Advisory Leader. “What worked before the crisis does not work now. Future leaders of the Russian industries change quickly and radically and are looking for the best practices which work in the recovery in other countries. In a sense, the business returns to the "basics" in the management of the assets and efficient use of the capital.”
About the Ernst & Young survey
Planning for growth is based on two surveys. The first was conducted between September and November 2009 and comprised 866 telephone interviews with stakeholders, CFO/finance directors, head of strategy/corporate development, financial controllers and functions reporting to the CEO, CFO and COO. The interviewees comprised professionals in the IT, risk, customer relations, finance, human resources, supply chain, and strategy disciplines. The respondents cover all major industry sectors and represent 15 of the largest economies in the world; Australia, Brazil, China, France, Germany, India, Italy, Netherlands, Poland, Russia, South Africa, Sweden, United Arab Emirates, United Kingdom and the United States.
To evaluate changes in perceptions during the early part of 2010, additional research was carried out in May 2010 across the major industry sectors from UK, France, Germany, Netherlands, Poland, China and India.
The Planning for growth summary report and accompanying seven white papers on business function impact (strategy and business evolution; customer reach; supply chain; finance and capital markets; governance, risk and compliance; IT and infrastructure; human resources) are available on request, or at www.ey.com
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
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