Intelligence Total Business
May 2003
Wayne Furphy
Country Managing Director At a Glance The challenge facing business is to move forward through
appropriate investments despite a confusing economic picture and a number of
conditions that did not exist in previous upturns: loss of trust in business,
continued repricing of equity markets and new dimensions of uncertainty,
particularly politically. This will require great resolve and dexterity; a
willingness to take strategic risks; a deep understanding of the critical
drivers of wealth creation and their roles in business strategy.
Posted: June 17, 2003
  The Oxford dictionary defines "uncertain" as "not to be
depended on" and that, I believe, is an apt description of the global economy
over the past 18 months. In addition, the sheer unpredictability of what lies
ahead means prospects for global economic recovery are uncertain.
In South Africa we seem to have been spared some of this
downturn and, in fact, our local economy seems to be surviving this uncertainty
and performing well. There is no doubt however, that business and economic
uncertainty is more of a force to be reckoned with today than it was in the
past.
However, I do believe that while things may never be the
same as they were before the global economic slowdown began in the middle of
2000, they will get better. And businesses can take some key actions to prepare
for the upturn.
There is no doubt that this unparalleled opportunity won't
exist for long. It is those companies that act now that will be best placed to
succeed in the future. Over the last two or three years there have been changes
that have been as sudden as they have been dramatic. The major economies have
plunged into a global recession.
Technology investment has collapsed. Global equity markets
continue to spiral downwards. A series of accounting scandals has rocked
corporate boardrooms across the world. As business confidence has evaporated,
the focus of many companies has increasingly turned to survival-paring back
costs, tightening organisational control and avoiding major strategic
commitments to the future.
This was a time when markets for products, capital and
labour became increasingly integrated across borders and business models became
increasingly global in nature. As part of this transformation, traditional
market divisions and corporate boundaries were reconfigured, businesses became
increasingly connected through alliances, mergers and joint ventures and
technology became truly integrated within business. The corporation began to be
seen less and less as a stand-alone entity, and more as an organisation
embedded within a much wider network of other businesses, consumers, suppliers
and stakeholders.
As global business reels from a series of systemic shocks,
much of this conventional wisdom now appears to be in disarray. A cultural
crisis of confidence has emerged within the business world, as conventional
assumptions about global strategies and models are thrown into doubt by
recession and greater geopolitical uncertainty.
The high-profile failure of many "new economy" strategies
has led many to question whether the information revolution was simply all
froth, with no real or lasting significance in terms of productivity or growth.
The revelations of accounting irregularities have begun to cast doubt on the
"growth miracle" of the 1990s.
As a result, there is a now a real danger that business will
lose sight of the important lessons of that era. A key challenge facing global
companies today is to recognise and hold onto the enduring long-term trends
that will remain important to future wealth creation--new markets, technology,
innovation and entrepreneurialism--while recognising and adapting to a
different and unfamiliar set of business and economic realities.
The most successful companies during and after the upturn
will be those that have learnt lessons from the past and implemented plans for
the opportunities ahead.
There is now a real danger that the crisis of confidence in
business will overshadow many of the positive changes and drivers of value that
emerged during the boom years. Many businesses are anxiously scanning the
horizon for signs of an imminent recovery. At best they will see conflicting
signs. More important, it may take their focus from the central issue--to
prepare for the different business environment of the upturn. The usual
reaction to difficult times is to cut costs and put off decisions about the
future, delay investments and retreat to core markets. But in the downturn of
the early 1990s there were some companies that instead mapped out elements of
their future success:
- The Resumption of Globalisation. As technical, regulatory
and cultural barriers were eroded the stage was set, even for companies in
industries that had largely been domestic, to become more globalised in
character.
- Product Diversification. Companies that were strong in their
markets set out to transfer successful strategies from one industry to another.
- Innovation in Business Models. As consumers became more
price-sensitive, retailers pioneered or extended low-cost products and
services.
- A New Style of Leadership. The flamboyant or superstar CEO
emerged, with a reputation made on the back of daring ventures into new
commercial territory.
Businesses can learn from the lessons of the past but must
also take account of the differences in current conditions. A key difference is
that business is going to have to make the recovery happen.
The challenge facing business is to move forward through
appropriate investments despite a confusing economic picture and a number of
conditions that did not exist in previous upturns: loss of trust in business,
continued repricing of equity markets and new dimensions of uncertainty,
particularly politically. This will require great resolve and dexterity; a
willingness to take strategic risks; a deep understanding of the critical
drivers of wealth creation and their roles in business strategy.
Companies now have a critical opportunity to re-evaluate the
key drivers of long-term value for their business. A longer-term focus not only
necessitates new thinking about the nature and sources of value within
business.
It also requires a determination to avoid short-term actions
that may severely debilitate the organisation and weaken or destroy
opportunities for value creation once the recovery gets underway.
The critical success factors for creating value in the
recovery are: markets, assets and leadership. The prime challenge for leaders
is to restore trust in business by rebuilding and strengthening connections
with investors, employees and wider society. Leaders will need to be:
- Bold but highly principled.
- Strong but not controlling.
- Comfortable with ambiguity.
- Confident in inviting diversity of opinion and culture.
- Realistic and optimistic about the future.
And they will need to emphasise organisational discipline
while creating space for entrepreneurialism.
The real test is not whether a company has been smartest
about predicting the timing of the recovery but whether it has been truly
competitive in its preparation. Companies need to ensure that they are ahead of
the pack--control costs; build and get fit for the future; spend strategically;
look to create and shape demand in tomorrow's markets. They also need to ensure
that they are building resilience through flexibility by adopting an agile,
flexible stance anchored in a strong sense of common purpose and core values.
They must ensure that they focus on building connections
with the outside world and networks with other businesses; restore trust with
investors; bring diversity of thought into the organisation. Companies need to
be sure that their CEO is a leader of leaders. The era of the "superstar" CEO
is now finished.
These turbulent times demand strong, but principled leaders
who foster leadership and innovation throughout the organisation.
Finally, they should ensure that they seek discipline not
control by avoiding the "feast or famine" syndrome. Develop a culture of wise
cost management in good times as well as bad; set the right boundaries for
employee autonomy and decision making.
This is not a time to wait and see. Today's uncertain
environment is actually a huge opportunity for leading companies to emerge.
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