Excel in an Uncertain Economy

Managing to Excel in an Uncertain Economy

By Martha Hooper, Hooper Consulting International

The global business and financial crisis reminds us that managing during times of economic turmoil is a something that depends on the capability of the company. Uncertainty and fear dominate during these times.  Yet some companies are able to meet the immediate challenges while also positioning themselves to rebound more quickly than their peers when the economy recovers. How do they do it? How do some companies manage downturns effectively while others falter or even fail?

What will make the difference between Turkish companies who simply weather the current global economic storm and those who achieve excellence?  Does any Turkish CEO or holding company chairman have the courage to plan for high performance in his business?

To help answer this question, Accenture analyzed another difficult economic period: the recession of 1990 to 1991.  While the recession of the early 1990s had very different origins and impact than the current global financial crisis, there are some interesting lessons learned that may have implications today.

Accenture’s  research found that companies that emerged as winners from the recessionary period in the early 1990s had distinctive strategies and management behaviors in three general categories:

  1. Conservative financial management focused on generating cash flow.
  2. Resilient strategies emphasizing organic growth.
  3. Rapid and decisive execution based on knowledge of how the company creates value.

Financial Management
Winning CEOs understand the importance of freeing up cash and buying down debt to enable better decision making when a downturn occurs. Eighty-three percent of the executives Accenture surveyed described their approach to financial management as conservative. In contrast, only 45 percent of the poorly performing companies use this approach.

Strategic Positioning
Across all the companies in the group that performed well during the recession, CEOs structured their companies to succeed in a recession before it actually arrived. Companies that repositioned during good times did better than those that waited for a downturn to rally the will for strategic change.

Winners forged resilient strategies and stuck with them; they focused on managing fewer businesses well; and they emphasized organic growth over acquisitions unless they were in a position to consolidate their industry.

Distinctive Execution
The more successful companies execute in several distinctive ways during recessionary periods. Accenture found that winners:

Act Decisively When Trouble Is at Hand
The best performers watch for downturns and take action quickly. By contrast, CEOs in more poorly performing companies may accept that their industries are slowing down but hold their breath in the hope that things will get better before any difficult actions are necessary.

Set Priorities Based on a Detailed Knowledge of How the Company Creates Value
The winning companies did not just cut costs during the downturn; they cut the right costs. And they diverted resources to activities with the best chance of creating value. How did these companies make the correct calls? Unlike most executives, the leaders knew explicitly how they make money, and they made sure everyone else knew that, too, not just those in the finance organization.

Collaborate with Enterprise Customers to Improve Value Propositions
The winners reach out to their enterprise customers to better understand the pressures they are facing. This allows them to provide new products and services that meet customers’ needs and cement relationships. Companies taking this approach improve performance during both good times and bad.

Price for Profitability
Winners work themselves into an advantaged cost position during good times and then use their pricing flexibility to pick up market share during a downturn. One transportation executive noted: “We lowered our prices to gain market share. We took some business from the truckers and some from the railroads. We won it on price.”

A veteran executive from a North American high-tech company added, “Our competition is smaller companies that do not have our scale or manufacturing flexibility. We pick up market share by booking four- or five-year contracts at prices they cannot match.” However, in the downturn, winning companies walk away from bad business, and losers do not. The companies that perform poorly accept unprofitable sales in an attempt to hold onto market share. An insurance company CEO lamented: “We had conflicting goals. We wanted to grow, but we had to meet the competition in price. As a result we put business on the books that was under-priced.”

Turkish Companies: Which will survive?

“Turkey has a special advantage of paying strong attention to cash,” according to Carlo Gessi, Country Managing Director for Accenture Turkey.  Accenture Turkey analyzed the top Turkish companies and found that they typically have more cash than comparable companies in other countries.  Therefore, Turkish companies have less need to leverage on their debts like other companies – this is a key indicator that they will survive the crisis.

Cost-effectiveness rather than cost-cutting is another area where Turkish companies can spend more wisely and position themselves to perform with excellence.  Carlo Gessi adds that “local companies learned cost-effectiveness as a benchmark with their European peers, achieving a higher level of efficiency, even under-investing in certain areas.”  A key area where cost-effectiveness can be seen is by “optimizing supply chain,” he adds.

When it comes to which sectors will thrive in Turkey, Carlo Gessi firmly believes that telecommunications will continue to grow and enjoy the current level of profits, largely due to “being more careful and not engaging in major price wars.”  Banks are solid, due to less consumer credit on their portfolios than banks in other countries.

Consumer goods is a very risky sector in Turkey right now.  As people have less access to credit, there will be problems in production companies.  The excess capacity will bring down prices, making it tough to compete with other emerging markets.  The contraction of capacity and production are very dangerous for Turkish consumer goods firms.

Media is another risky sector, with the loss of advertising revenue.  Of course publishers can discount although the marginal costs are minimal – this is a dangerous mix for profitability.  Media should use innovation to discover new ways to generate revenue and come through the financial crisis poised for excellence and a strong future.

The way out: foreign direct investment

With Turkey’s dependency on foreign direct investment, and the flight of foreign investors since the global financial crisis hit, along with the uncertain and volatile political climate here, there still was an unprecedented amount of FDI last year overall.  Carlo Gessi does not expect FDI to drop much further than last year.  “Turkey has high potential in consumer goods, financial services, and telecommunications.  These sectors have good internal growth, although it remains at a lower level,” he adds.

The Mandate for Turkish CEOs

In Turkey, the CEO needs to get out of the big trap of discretionary spending.  The main temptation is to cut all the costs that can be cut while maintaining current infrastructures.  What happens is that innovation dies.  How can a company grow in such a way?

Turkish CEOs need to focus on “organic growth,” according to Carlo Gessi.  There are two main ways to achieve this:  through customer acquisition and retention and through effective mergers and acquisitions.  In the short term, growing and keeping a customer

base is a way to save on profits, particularly in the banking and telecommunications businesses.  Telecommunications CEOs that take care of their market share will survive the crisis.  Opportunities still abound in wireless, as the uptake on number portability in Turkey has been remarkably low since the 3G licenses were granted recently.  A danger is that churn in mobile marketing in the Turkish market is extremely high.

CEOs are not powerless to instigate mergers or acquisitions if their companies have capital.  There are good opportunities at good prices, and CEOs should take advantage of them for the future of their companies.  Again, the Turkish telecommunications sector is well positioned to survive through natural selection and avail itself of the divestitures of the huge international telecommunications companies.

Last, CEOs should review their companies’ price management policies and find ways to make price management more effective in certain product lines.  The companies who focus on the cost plus approach instead of classic demand and supply will survive only if they have a wise approach to pricing.

Emerging as a High Performer
By cultivating financial flexibility, creating resilient strategies and executing decisively based on key value drivers, strong CEOs shape economic downturns into significant opportunities for their companies. They successfully gain market share, forge new customer relationships and strengthen product and service capabilities in support of current profitability and future success.