Why Companies Are Making the Wrong Moves
A new survey conducted in December 2008 by Booz & Company of 828 senior managers across the globe finds that companies—whether financially weak or strong —are struggling to make the right moves in the current economic environment, with many wavering in their confidence of leadership’s ability to navigate the crisis.
According to the survey, 40% of senior managers doubt that their leadership has a credible plan to address the economic crisis, while an even greater number—46%—are not sure that their leadership could carry out the plan, credible or not. Additionally, one-third of all CEO and CXO-level respondents do not have confidence in the plans that they presumably wrote themselves. Further, a remarkably high number of hard-hit companies—65%—are not doing enough to ensure their own survival, such as accelerating efforts to dispose of assets or secure external funding. Among companies that state they are financially strong, one-quarter are not taking advantage of opportunities to improve their position in the crisis.
While more than half (54%) of the managers expect their companies to emerge from the crisis stronger, the survey finds their optimism doesn’t square with their balance sheets; there is a disconnect between many companies’ financial/competitive position and strategic response.
The Booz & Company survey explored how well corporate executives are handling the global economic crisis, the actions they are taking and the impact on the companies’ social responsibility agendas. Respondents represented companies from many major industries. Thirty-seven percent of the respondents were CEOs or people who reported directly to CEOs; another 24% were two layers below the CEO. Geographically, the survey captured responses from managers in 65 countries.
The Booz & Company survey concludes that, in many cases, companies are not following the course that is best suited for them. Respondents’ companies were categorized by Booz & Company as either strong (characterized by both financial and competitive strength), stable (strong financially but weak competitively), struggling (weak financially but strong competitively), or failing (weak in both areas). Based on an analysis of responses, Booz & Company found:
- While struggling and failing companies would be expected to accelerate efforts to improve working capital positions, slash overhead, 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% 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.
Additional highlights of the survey include:
“Green” efforts will be significantly delayed due to recession. The survey reveals that 40% of respondents expect “green” and other corporate social responsibility initiatives to significantly slow due to the downturn. The pullback will be especially pronounced in transportation and energy industries, with, respectively, 51% and 47% of respondents in those industries saying CSR agendas will be delayed.
Optimism overly rosy? Despite the depth of challenges they face, 54% of all respondents—CEOs and lower levels alike—believe that the crisis will ultimately have a positive impact on their companies’ competitive position. This sense of optimism was even higher—at 59%—among managers in emerging marketscompared with 53% in North America and 52% in Western Europe. Further, 75% of managers express a rosy view of their companies’ financial strength today; only 13% said they worked for companies that are financially weak.
Skepticism grows farther down the management chain. Among managers below the CEO and CXO levels, 51% think senior leadership lacks the capabilities to carry out their crisis plans, a point that seems at odds with the optimism expressed by many respondents.
Financial industry executives are alone in praising collaborative efforts to resolve crisis. Forty-three percent of financial industry respondents believe business, government and union leaders are working together effectively to stabilize their industry. Skepticism about stakeholder collaboration was highest in healthcare and pharmaceuticals (56% are critical of efforts); telecommunications and media (42%); and transportation and commercial services (41%).
Critical to addressing the crisis for their companies, senior leadership must take stock of their world view through three steps of crisis restructuring, according to Booz & Company:
- 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.