The Economic downturn is now a reality. With financial markets in turmoil and a daily stream of bad news, from falling Profitability to company failures, the consensus view is now that we are in for an extended period of economic pain that have a profound impact on both consumers and corporate.
However times of change create opportunities as well as threats. For some companies, survival will dominate the agenda; however for others the downturn offers the chance to extend their lead over the competition.
A ripple effect, which started with the credit crunch, has been expanding. The global economic environments has also changed dramatically since the re-engineering boom of the last 20 years and the wave of outsourcing and off shoring that has dominated the last 10 years, have left companies leaner but less flexible.
Furthermore, some of the key assumptions on which many current business models were predicated no longer hold true as low interest rates, cheap transport, consumer indifference and wage gap.
As a result, many companies are likely to find themselves with sub optimal business models, which will be expensive and risky to change. It is not enough to understand what the effect of the downturn will be on demand for your own products and services. It is equally important to understand what is happening to your partners, customers and suppliers.
A comprehensive risk analysis must look at all of these players, as their fate can substantially influence your results different options for how to steer through and adapt to the changing environment. Broadly, these Strategies can be grouped into three categories:
- Corporate Re-structuring
DE-leverage and re-structure debt
For companies facing current or potential shortages in cash flow, de-leveraging, and re-negotiating debt terms should be a near term priority. To preserve cash, many companies will choose to reduce or cancel dividend payments.
Cut costs and maximize cash
Minimize the cost of purchased inputs through exploiting synergies across the organization and establishing greater control over external spends.
Reduce exposure to poor payers and invest in more efficient and effective debtor collection .Digging deeper, optimize business processes to substantially reduce both cost and time required.
Re positioning Strategies
The Re-positioning strategies can be evaluated only with the prior company’s problem like- how companies are organized— by product, geography, process? This all need to be consider carefully in today scenario. Some of the re-positioning strategies are below:-
Invest in innovation
Business and consumer buyers alike are likely to shift expenditure when they feel the squeeze, often in unexpected ways. Products and services that deliver better value for money will benefit and whether a company serves consumers purchasing patterns are likely to change in a period of downturn, and what new needs are emerging.
Moving early on anticipate and service these needs can help to establish strong customer loyalty and a base for future growth
Upgrade human capital
A downturn can also create an ideal opportunity to upgrade human capital and tailor it and A straightforward exercise of mapping the required skills against the organization’s current skills is likely to reveal significant gaps, as well as areas of substantial oversupply.
With redundancies on the agenda for many companies, this is a timely opportunity to address these imbalances Corporate Re-structuring Establish up front a shared vision of a desired future operating model. This should provide answers to questions such as the following: What role will Merger Acquisitions play, and where we are likely to make them.
The underlying trends that have been driving consolidation across a range of industries have not gone away. The benefits of scale, geographic reach, and access to scarce resources will continue to make large Merger Acquisitions an attractive source of future growth.
Divestiture of non-core assets is a strategy that companies should be considering carefully. Consequently, companies need to take a clear and decisive view as to what constitutes a core vs. a non-core asset and act accordingly.
Risks are coming from last two three quarters—mapping these carefully and understanding how to mitigate them will be essential. Many companies will struggle to survive— and some will not make it. In these cases, rapid action to secure cash flow and minimize exposure to risk can make the difference.
Finally, companies with the financial strength to back major acquisitions should be looking at the current environment as presenting an ideal opportunity to establish market leading positions through domestic, global M&A. on the downturn company with competitive advantage and on the learning curve will look very different than it does today.