90% of companies re-focusing on core competencies: Ernst and Young

Lessons from Change is a unique distillation of the conversations that over 500 of our senior partners from member firms around the world have had with their international clients in the last few months.

While many companies are emerging from a crisis of financial uncertainty and starting to plan again for the future, they do also recognize that they are now operating in a very different business environment.

According to Tariq Sadiq, Middle East Markets Leader, Ernst & Young "A consensus is emerging amongst the C-level executives who were engaged for the report. They agree that many lessons can and need to be learnt from the experience of the past eighteen months. A year ago global stock market indices plunged 10% in one morning; now equity markets have recovered but while business may be back from the brink, few companies think that it will be business as usual."

It is a new and tough environment as Steve Almassy, Global Vice Chair Industry, Ernst & Young explains:

"At first sight it is a pretty grim outlook for business in this new post-recessionary world. Demand is likely to be depressed for the foreseeable future, unemployment may well remain higher, as will taxation to help fund government stimulus programs and consumer confidence will therefore take some time to recover. There is no doubt we will also see deeper and more aggressive regulation that is bound to carry with it an expensive price-tag for business."

Re-evaluating your business model

After the last twelve months, it is hardly surprising that nearly 90% of the clients we examined had either adopted or were considering adopting a strategy of re-focusing on core competencies. This is either because non-core assets are being sold or there has been a fundamental recognition that it is a high-cost and high-risk strategy to aggregate competencies.
A high proportion of companies were also reassessing their key customer strategy (84%) and reviewing segment profitability (85%).

Almassy comments, "The world has changed in the last year and so have traditional business models. Some have disappeared outright but others will have to adapt to the new rules of the game. Thriving in this challenging business climate requires flexibility, creativity and imagination."

Improving efficiency

In addition to looking at their business model and strategy for a changing world, companies were also looking at ways of permanently driving down cost and adapting more quickly and effectively to a changing market.

Over 90% of companies had either accelerated cost reduction programs across their business (74%) or were actively considering doing so (18%).
The numbers of companies who had already introduced outsourcing or shared service centers was lower at 55% but a further 31% were actively looking at introducing some sort of efficiency drive for business support functions. Companies were also actively pursuing an agenda of reducing fixed costs.

Businesses also saw the need for better forecasting and analysis (80% adopted or considering) and continuing to explore new ways of flexible working as opposed to headcount reduction (71%).

As Almassy explains, "cost reduction may be the short term goal but increased flexibility is the longer term objective for companies. The time for knee-jerk reactions is over."

Looking outwards

Added Tariq, "Perhaps one of the more surprising findings from discussions with clients was that rather than hiding behind national protectionism, as many had feared as a consequence of the recession, many corporates were already actively diversifying into new geographic markets."
When asked, 85% of companies had already done so (59%) or were actively considering such a plan (26%).

Almassy concludes, "Emerging markets have for the most part rebounded quickest from the recession and our clients can see that with 15% of the Fortune 100 now headquartered in the BRIC countries the opportunities for higher growth and potential to expand are truly global. Companies may well be focusing on their core competencies but that does not preclude them from looking for new customers and new markets."