The rules of the game have permanently changed - Ernst and Young

The comparisons with a similar study in January also reveal that while the white heat of the crisis has passed, the majority of companies worldwide are still focused on survival although there is a significant minority who are looking to take advantage of the situation to pursue new opportunities.

Nearly half of those surveyed (43%) said that their operating model had been permanently altered by the events of the last 18 months. A further 45% said there had been a temporary impact. Similarly 56% of the executives surveyed said that their risk management processes had been permanently altered, 33% temporarily. For 45% the regulatory framework for business had also fundamentally changed.

Other alterations to their business model - price sensitivity, profitability, competitive sensitivity and economic stability were viewed by respondents as more temporary although a significant minority - above 20% in each case - viewed the changes here as permanent as well.

John Murphy, Global Vice-Chair Markets, Ernst & Young says,

"Not only does this research show the permanent impact of the change that has taken place in the last twelve months it also demonstrates how rapid that change has been and how very few people saw this coming. More than three quarters of the executives we surveyed were surprised by both the severity and speed of the downturn."

It is still really tough out there

Ernst & Young carried out a similar study five months ago. The corporates we talked to then, and the thousands of companies we have discussed the research with since, are still seeing considerable competition on price. Companies around the world are still seeing significant numbers of bankruptcies and competitors withdrawing from their sector. However, there was also an increase in those organizations reporting new entrants in their sector.

The overall mood is still sombre. Although 64% of executives said they had been able to make cost reductions - 31% said they had improved revenues and more than a third said the environment was more positive in terms of making strategic acquisitions - a majority of executives had seen deterioration in revenues (58%) and profitability (56%). Only 20% had seen an improvement in investor confidence and a similar low number saw any improvement at all in accessing affordable capital or credit.

Murphy adds, "Given the pressures that these corporates are under it is remarkable that a slim majority had seen their business either improve or stay static over the past 12 months. The management challenge over the coming year will be to act even more quickly and decisively. "

Cash is actually tighter

Back in January over a quarter of executives surveyed said cash was not an issue. That proportion has slipped to 18%. Respondents also highlighted an increase in communications to lenders and rating agencies. There was, however, less talk of companies disposing off assets purely to raise cash.

Instead more companies were focusing on renegotiating their debt covenants. Three quarters of respondents said their company had undergone a top down review of working capital management and cash flows. Murphy comments, "Without easy access to credit, cash management becomes an even more essential discipline - sharpening the focus on customers, tightening the approach to suppliers and constantly reviewing the amount of cash that is 'stuck to the machinery".

How have companies responded in the short term?

Over the last year 86% of executives said they had accelerated cost reduction programs, 52% had speeded up their restructuring plans and 38% had pushed the button on a "significant employee reduction program". When asked about their key drivers in the short term there was increased scrutiny on profitability (73%), pricing strategy (55%) and 52% on their relationship with customers. Internally it was no surprise that 38% had seen more investment in risk.

Accelerating the change

Companies across the world and across all sectors still report being surprised by the speed by which the downturn has happened. It is more severe, and has impacted their businesses more profoundly than they originally expected. This is true of the Middle East, which was initially very much cushioned against the shock of the global downturn. However, when the effects cascaded, setbacks unfolded in quick succession. This has heightened calls for quick, decisive action and a marked departure from strategic and operational conventions.

Fouad Alaeddin, Middle East Markets Leader, Ernst & Young Middle East, said, " We have noticed that the dominant trend in the past six months has been an acceleration of management's efforts to improve business performance. This is irrespective of the economic scenario - be it the prospect of continued recession or the possibility of a rebound in the near term. The focal points of management decision during downturns have undergone a fundamental shift - the pursuits of new market opportunities seem to be more prominent in an organization's thinking."

And when will that upturn be?

There was a range of views from our respondents with a quarter saying the worst was now behind us and 42% saying that some signs of life in the global economy are evident or will be by the end of the year but a strong minority of 21% saw no recovery before the second half of 2010 at the earliest. There are some sectors that are more optimistic than others - Telecoms, Power, Oil & Gas in particular - but others see a longer downturn, notably Asset Management and Real Estate and Construction. Respondents in Europe were more negative than in Asia or the Americas.