Trending
Select your location
In the last couple of years, it has been interesting to observe the downward trajectory of businesses around the world, mostly due to the pandemic. The situation has been particularly intriguing in Indonesia, where business downturns have led to a rise in Suspension of Debt Payment Obligations (PKPU). In fact, the number of PKPUs in 2020 alone was nearly as high as those in the previous two years combined.
Many industries would attribute this downturn to the havoc wreaked by the COVID-19 pandemic across almost all industries. However, a deeper analysis by players within the industry suggests that the troubles run far beyond that.
By way of mere example, it is interesting to assess the trajectory of Indonesia’s once-booming real estate industry. Over the last few years, it has been apparent that the country’s real estate and property businesses has experienced a slowdown in business activities, prompting experts and industry-players alike to ponder upon what needs to be done to kickstart a much-needed rebound. To this end, we analyzed factors like the current and historical market characteristics and economical books, where we found many interesting lessons.
Despite being regarded historically as one of Indonesia’s most promising sectors, real estate players have actually been seeing signs of residential property sales steadily declining, as shown by the waning residential property sales index since 2018. The cause for this, as experts warned, is saturation in the market.
How EY-Parthenon can Help
Moreover, a closer look into the past suggest that some of the players in the sector did not undertake thorough preparation which led them with "bad" investments which are still being suffered by the companies today, and leaving them with idle inventories which are difficult to be converted into cash.
Such problems, however, are not unique to real estate. Businesses in any sector can be easily exposed to such drastic downturns. To ensure that they are able to sail through such storms, it is imperative that company leaders are meticulous in their assessment of the health of their respective business.
Among the most important traits of a business leader is to always have a feel and snapshot of what is happening in and around their market. In the case of real estate, for example, leaders must be savvy enough to understand that the real estate business is bound to experience market saturation at some point, most likely due to shifting customer’s needs (or purchasing power). Therefore, real estate businesses need to know when and which market is saturated, while also identifying new in-demand markets that are ready to be swiftly and opportunistically penetrated.
For leaders in any sector, having awareness of potential as well as current issues surrounding their respective businesses will enable them to develop contingency plans for possible crisis. It is also crucial to create multiple scenarios through multiple strategies, as different issues would require different plans and responses. Businesses that want to thrive for a long time need to be able to do all of the above at the very least. It’s a complicated process, but a manageable one at the same time, as long as leaders understand that resilience is the key.
The importance of resilience for a business cannot be overstated. Although it comes particularly handy when the going gets tough, resilience needs to be built and harnessed from very early on. Resilient companies are able to respond to crises opportunistically, thrive in new circumstances, and shape the competitive environment to their advantage. While establishing true resilience takes a lot of time and hard work, there are three things that, if consistently carried out, can help businesses build strong elements of resilience.
1. Scan – Detecting possible current and non-current issues.
It’s important to regularly conduct business reviews, through which leaders will evaluate the past and current condition of the business, while also analyzing its future prospects. It is also crucial to assess the current business plan and its relation to both internal and external factors (industry situation, demand growth, etc.), which would provide leaders with a better understanding of the company’s current obligation, the management’s aspiration regarding future initiatives, and help them lay out realistic ways for the company to get back on track.
2. Focus – Finding best (and most realistic) way possible to thrive using new strategy.
Companies must be able to identify and prioritize the most suitable responses by understanding which part of the business is crucially affected by the issues at hand. Leaders need to understand how to always focus on the ongoing risk and control assessment. There are a lot of aspects to take into account at this stage, but the key is always to understand that a business must balance its performance and compliance by ensuring that management’s actions are consistent with corporate strategy, align with the organization’s risk profile, and, most importantly, know that the corrective actions align with the company’s vision and current condition.
3. Act – Making the right moves to stabilize a business.
Given that business is full of uncertainties and that projections are never 100% accurate, adapting to changes is something most leaders have become accustomed to. However, making swift changes to an idea that has been executed can be difficult for leaders to do. Executing a plan well is only one part of the task, as there are bound to be numerous minor issues to the plan, and what becomes important is how the business reacts. To ensure that companies are well-placed and well-equipped to react commendably to issues that arise, leaders need to keep abreast of the development and changes to the present condition, which is why they need to always gather information and evidence systematically from diverse sources. The goal is ultimately enable businesses to sniff out and address issues before it’s too late.
Understanding and acting on the importance of being resilient will prepare businesses to react when the market or the company itself makes a sudden move, thus able to implement new value-creation plans. Unfortunately, those who don’t are likely to be faced with a situation where leaders are late in realizing that their business is in a bad situation. Most businesses have short-term liabilities to pay, and because of that, during the pandemic many of them had tried hard to avoid financial distress. As a last resort, many would turn to restructuring to patch things up, but would end up realizing that without resilience, the chance of it being a successful route is relatively small.
EY, with strong professionals, does not only provide restructuring assistance to help businesses bounce back to their heights, but is also able to assist companies to be resilient by guiding them through the complete package of Scan-Focus-Act and providing clear and trusted business turnaround plan for the company to achieve sustainable growth.
Related articles
How to proactively transform the business for long-term success
Proactive transformations and their successful execution can help companies realize their full potential. Learn more.
How to drive successful transformation for long-term value
Firms must avoid various pitfalls to overcome the inevitable business transformation challenge for substantial, sustainable long-term value. Learn more
How to enhance long-term business value through sustainability
As stakeholders’ expectations focus more on sustainable development, companies must fully embrace this paradigm shift to create value. Learn more
Economic challenges for businesses in Indonesia, due to the pandemic and deeper issues, highlight the need for resilience. The Scan-Focus-Act framework emphasizes proactive planning and swift, decisive actions. Seeking professional assistance, such as from EY, can aid in navigating crises and charting a path towards sustainable growth in uncertain times.
