When Good Management Shows: Creating Value in an Uncertain Economy

Good times mask poor corporate performance, but it is during downturns that excellent management distinguishes itself. Accenture conducted in-depth research to investigate the performance of companies during a previous recession and uses the findings to outline the characteristics that set high-performance businesses apart from their competitors.

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Organizations that manage well during a recession improve their performance relative to their competition—and the competitive advantage they gain lasts for years.

As the past decade's record-setting economic performance looks set to slow, executives need once again to turn their attention to the critical business capability of managing well during times of economic turmoil. A commonly held view is that companies able to meet this challenge do so by taking the contrarian view that a recession presents an opportunity and not a threat.

Based on an analysis of the financial results of 850 of the largest US companies following the 1990-91 recession, and in-depth interviews with 40 senior executives from 35 companies with a range of performance characteristics, Accenture concludes:

• Savvy executives do change their company's position and create value by managing downturns effectively.
  
  
• The winners manage for value all the time and pull away from the pack when a downturn occurs.
  
  
• Winning companies make smart moves during the downturn, not to establish their strategic position but to strengthen it.

The research also indicated that a company's financial performance during the downturn greatly influenced its financial performance over the rest of the decade.

The companies that created substantial value relative to competitors in the 1990-91 downturn practiced a new brand of "back-to-basics" contrarianism.

Refusing to pursue growth for its own sake, they instead chased profitable growth. They insisted on getting value from investments, be they acquisitions or internal infrastructure. And they built solid franchises with fundamental, value-based principles instead of financial engineering or Wall Street wizardry. Three factors distinguish these contrarians:

• Focus on generating cash flow in the good times to give them flexibility and financial muscle in the bad.
  
  
• Position themselves strategically in the good times to take advantage of the bad ones, not the reverse.
  
  
• Execute differently from their peers—both in what they do, and in how they do it.

By cultivating financial flexibility, making smart strategic moves and developing an intimate understanding of the real drivers of value and executing accordingly, companies can and do shape downturns into opportunities as they progress toward high performance.

Such companies gain market share, forge new customer relations and strengthen product and service positions to provide them with a platform for profitable growth into the next expansion. Even more important, however, is managing for value consistently—especially during the good times. Companies that wait for the downturn to worry about the fundamentals are often too late. The great danger here is that good times mask poor performance.

Companies that are not well positioned can still turn the current downturn to their advantage by learning the unvarnished answers to vital questions. Examples include what is important to customers, what is essential for delivering value and what actually distinguishes their company from the competition. Organizations that act on these answers can ready themselves to take advantage of the next upturn.