Global Corporations Plan for Success in 2010

A comprehensive Ernst & Young survey of senior executives at nearly 900 major companies worldwide reveals a very different business environment compared with 12 months ago, but highlights a corporate world that, for the most part, is still nervous about recovery.

In January last year, an Ernst & Young study, Opportunities in Adversity, asked companies about their key strategic priorities for 2009. Nearly three-quarters said they were focused on securing the survival of their present business and only 19% said they were looking to take advantage of the recession to pursue new market opportunities. As part of Ernst & Young’s ongoing Lessons from change program, new research shows that by the beginning of December 2009, the percentage looking to pursue new opportunities this year has risen to 34%. Over half (53%) of companies, however, still agreed that surviving 2010 would remain a challenge.

However, after the actions that many were forced to take earlier in the year, it was not surprising companies were seeing progress. Fewer still were focused on improving the performance of their current assets, down from 39% to 27%, and the proportion still restructuring their business declined from 37% to 27%.

John Murphy, global managing partner - Markets, Ernst & Young said, “The spirit of optimism has increased, but it is essentially fragile in nature. A pick-up in confidence is not surprising, given the massive global government stimulus working its way through the economy and the larger developing and emerging economies beginning to rebound. Companies may be less worried about survival over the next 12 months, but the return to a healthy operating environment is still some way off.”

Murphy adds, “As we predicted last January, despite the turmoil and the challenges in 2009 there were some outright winners – companies that have found opportunity in the adversity. Judging by our research, a picture is emerging across countries and sectors of a group of companies that share a certain performance agenda, particularly around achieving speed-to-market. They are faster in making and executing decisions to take advantage of their changing markets.”  

But a way to go before earnings return to pre-recession levels

While they are out of crisis mode, corporations are now turning their attention to when there will be a full recovery in earnings. Approximately one-third saw revenue growth returning within six months, one-third said by the start of 2011 and the final third not for at least two years. Only 1% were pessimistic enough to say it would never return to pre-recession levels. Murphy adds, “Revenue growth – not just earnings growth – is now the burning platform for corporate, many of whom see recovery, certainly in the short to medium term, as sluggish.”

And what will happen in 2010?

How were companies planning to improve their performance this year? Three-quarters of respondents said they believed that there were still major costs savings to be made in their organization through improved efficiency. A high proportion of companies (72%) felt they needed to increase the flexibility of their operations through reducing fixed costs, particularly among support functions, and improving productivity.  

The next most-popular response was optimizing the markets they serve (64%) via new market entry, new products or new channels, and through revitalizing the business model (64%) with new thinking around organizational structure, core competencies and new business collaborations. Respondents also believed that accelerating their decision-making processes and execution (63%) and strengthening their management talent (62%) would be critical to improve their chances of success.

80% look to growth despite problems with accessing capital

Exactly half of all businesses agreed that restricted access to capital will continue to constrain their growth prospects over the next year, yet a significant minority of respondents (30%) said they intended to take an aggressive growth-oriented stance as the demand outlook in their markets is improving. A further 49% of corporations said that they intended to pursue growth opportunistically, as the prospects for recovery in their markets remain unclear. The remaining fifth of companies said that their strategic focus will remain squarely on cost control until the market improves.

Murphy concludes, “It is clear that many companies are seeking to learn the lessons of the changed market. Although there is no silver bullet – no single action that will deliver success – our research has identified a number of action programs, which set high-performing companies apart. For instance, they have a deeper, broader understanding of their markets and the risks involved. Furthermore, they are more innovative in strategy and structure than their competitors and are more collaborative with partners. These successful companies are essentially equipping themselves for the new economy and navigating a new future for themselves.”