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Reacting To The Global Crisis

February 10 2009 - A survey by Booz & Company of 828 senior managers from 65 countries explored corporate responses to the global economic crisis and the impact on social responsibility agendas. Respondents came from a variety of major industries. Over one-third (37 per cent) were CEOs or reported directly to CEOs; an additional 24 per cent were two layers below CEO. Managers from Western Europe predominated (38 per cent) followed by North America (30 per cent) and emerging markets (28 per cent).

Respondents were asked to assess their company's financial strength (ability to function without immediate external financial support) and competitive strength (relationship to competition in respect of costs, product/brand positioning, technology/capabilities, leadership/management, and ability to influence or collaborate with regulatory authorities). Companies were categorized as strong (both financially and competitively), stable (strong financially but weak competitively), struggling (weak financially but strong competitively) or failing (weak in both areas).

The survey found that irrespective of their designation, companies were finding it difficult to identify effective responses to the current economic downturn ( 40 per cent questioned whether their leadership had a credible plan in place). Many respondents (46 per cent) doubted their leader's ability to implement a crisis strategy even if apparently credible. One-third of CEO and CXO-level respondents were not confident about their own plans.

The survey also found that 65 per cent of struggling companies had responded insufficiently to ensure their own survival (such as increased attention to asset disposal or pursuit of external funding). One-quarter of companies that considered themselves financially secure were not taking advantage of opportunities to improve their position. More than half (54 per cent) of respondents expected their organizations to emerge from the crisis stronger but the survey did not support this optimism, finding discrepancies between many companies' financial and competitive position and their strategic response.

Bill Jackson, Booz & Company senior partner explained:

"Companies have focused on the near term, some at the expense of the long-term opportunities. The strong need to go long. They need to create a view of new industry structure. Many strong and stable companies are playing things too short-term oriented for the moment. The really struggling and failing companies have reacted dramatically and some have already moved into bankruptcy."

The survey found that, in many cases, companies were not following the most appropriate course. It concluded:

  • While struggling and failing companies would be expected to accelerate efforts to improve working capital positions, slash overheads, drive process improvements and renegotiate deals with suppliers, surprisingly many are not. Between a quarter and a third of respondents say their companies are pursuing such strategies no more aggressively than they were before the crisis.
  • Stable and strong companies are more focused on cutting costs across the board and conserving cash than on opportunities to strengthen their competitive positions.
  • While stable companies would be expected to capitalize on the crisis by buying companies with compelling products or brands but weak finances, or pursuing other growth initiatives, 21 per cent are pulling back on mergers and acquisitions, as are the same percentage of strong companies. One in five stable companies is also investing less in new products or slowing moves into emerging markets.

Bill Jackson added:

"A real issue is with the 'tweeners'-companies holding on by their finger nails. They have reacted to the near term cash issues; they are working on renegotiating their bank covenants, but one wrong move and they are done. Their boards are worried, since this crisis is new and different to most executives' experiences."

Additional survey findings include:

  • 40 per cent of respondents expected "green" and other corporate social responsibility initiatives to be significantly delayed as a result of the recession. This was especially pronounced in transportation (51 per cent) and energy (47 per cent).
  • Despite the depth of the challenges faced, 54 per cent of respondents overall believed that the crisis would ultimately have a positive impact on their companies' competitive position (59 per cent of managers in emerging markets compared with 53 per cent in North America and 52 per cent in Western Europe). 75 per cent of managers expressed a positive view of their companies' current financial strength; only 13 per cent said they worked for financially weak companies.
  • Among managers below CEO and CXO levels, 51 per cent thought senior leadership lacked the capabilities to carry out crisis plans. Researchers suggest this is apparently at odds with the optimism expressed in other responses.
  • Forty-three per cent of respondents from the financial sector believed that stakeholders from business, government and unions were collaborating effectively to stabilize their industry. Less positive responses came from those in healthcare and pharmaceuticals (56 per cent critical); telecommunications and media (42 per cent); and transportation and commercial services (41 per cent).

The survey identifies three steps to restructuring in the current economic crisis:

  • Get an accurate read on the environment and the company's position in it. An accurate self-diagnosis is critical to end the cycle of inappropriate strategic actions.
  • Design a good plan that does enough, but not too much, when time is short and resources may be diminished in a crisis. Identify a limited set of straightforward initiatives that have the potential to make a difference quickly.
  • Communicate and execute, which is vital to regaining the confidence of all stakeholders, from skeptical managers to risk-averse shareholders.

Bill Jackson concluded:

"Many top executives are still reacting and are not ahead of the curve yet. They are still operating with their cumbersome processes and lines of communications. This is slowing them down. They are do not getting the right homework fast enough, nor are they able to enact decisions quick enough or to the extent they expect. This crisis calls for a new, more direct leadership approach."

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