Service overview
How to survive in an
economic downturn
and be even more competitive when
the economy recovers
Service overview
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regaining strength after a recession.
This white paper explores BearingPoint’s views and experience on
how to survive the crisis and become even more competitive – in a
sustainable manner.
2 Insight | Perspective
While quick-fixes and cost cutting may offer short-term relief,
they often undermine future performance
In the current economic downturn, the moderation of growth and slow recovery since
2007 is worrying executives and experts alike. Despite several major stimuli actions
worldwide, the fear remains that we are heading toward a double-dip recession. Some
experts even state that this stage has already been reached and that the evidence is
clear. In this harsh business climate, the right strategic actions – and a sustainable
approach to managing costs – are crucial.
In BearingPoint’s experience, the initial actions that companies implement when
economic conditions are difficult to forecast are often short-term in nature. Companies
are forced to be reactive; they need quick wins to secure current cash flow, and they also
experience difficulty forecasting the magnitude of the economic downturn and the
impact it will have on their company. Common quick-fix actions include delayed
payments; spending freezes; and cost-cutting in non-core areas such as marketing,
staffing, procurement, travel expenses and training. While these actions do offer
short-term relief, there is a considerable risk that they may actually undermine the
underlying factors that drive success and profitability in the long run. Too often
measures are applied evenly across organizations without paying enough attention to
the as-is situation in different parts of the business. In addition, companies must deal
with the challenge of exchange-rate losses on international markets where firms that do
business abroad may be disappointed to see their short-term savings consumed by their
exchange-rate losses.
Three previous global recessions – the real-estate crash in the early 1990s, the Asian
financial crisis in 1997, and the dotcom bubble in 2000 –clearly demonstrate that
cost-cutting alone is not enough to ensure long-term profitability. Nissan Mutual Life
Insurance, founded in Japan in 1909, provides a good example of this lesson. During the
Asian financial crisis, the company struggled, implementing cost-cutting programs to
remain in business. In the end, however, it was the unaddressed underlying structural
flaws in the company and industry that forced Nissan Mutual to declare bankruptcy in
1997. Sony is another example of this tendency. In the early years of the previous
decade, the global electronics company undertook major restructuring through
cost-cutting programs, including an 11-percent cut in its workforce. This resulted in an
improved profit margin, but also a major drop in growth. Today Sony continues to
struggle to match the performance it had before the dotcom bubble burst in 2000.
COMPANY PERFORMANCE
Figure 1. Company performance pattern in an economic downturn
Growth
Recession
Growth
Cash flow
problems results
in quick-fix cost
cutting
Recovery
Double-dip
recession?
Moment
of truth
Performance
free-fall
TIME
Point of view 3
Service overview | How to survive in an economic downturn
Reaping the benefits of an economic crisis
Depending on the company and the situation, different opportunities will be viable in
times of economic uncertainty. A company with a solid underlying business should not
settle for weathering the storm through short-term cost-control measures. How, then,
can executives of successful companies go beyond short-term fixes, even reaping the
benefits of an economic crisis? During a recession, the market struggles, and almost all
companies need to restructure and adapt to the changing environment. These prerequisites present an opportunity for successful companies to further strengthen their
position and competitive advantage. But to achieve these objectives, they must avoid an
excessive focus on the short-term.
Excessive cuts can be dangerous.
The risks of hindering the business and
damaging its competitive edge are on
every executive’s mind.
For companies with unresolved problems, such as ageing infrastructure or unbalanced
product portfolio, an economic downturn has the potential to act as the trigger for a
free-fall in performance. The decline may be evident even before or in the very early
stages of the crisis. In this case, the initial objectives behind a cost-reduction program
are geared much more toward survival. These companies face the challenge of developing cost-management strategies that do not have an overly negative impact on their
business – they must determine how to cut costs without losing the ability to invest in
new opportunities, meet customer demand or react rapidly to market changes.
Regardless of whether a company faces underlying problems or enjoys a stable business,
an economic downturn can result in a loss of ability to perform. Actions that have an
excessive focus on the short-term can lead to internal turbulence in which employee
satisfaction, leadership and innovation capabilities are damaged. Fortunately, both
successful companies and struggling ones can identify and grasp the opportunities
available to them in this situation – if a sustainable approach to cost management is
taken. Companies can, in fact, emerge from an economic downturn with outcomes such
as improved organizational efficiency, greater readiness for future challenges, improved
profit margin and more competitive customer offerings. Further, they may enjoy
long-term benefits such as better stability and control, improved capacity to perform,
greater efficiency and sustained on-target performance.
Using a structured three-phased appoach to drive
improvements that are sustainable in the long-term
BearingPoint has extensive experience of helping companies to address the challenges
they face in the marketplace. Taking the industry, company and business situation into
consideration, we know how to realize short-term savings while creating operations that
are sustainable in the long-term. We work hand in hand with companies to guide their
businesses through these challenges, drawing on core beliefs based on our experience
and knowledge. Using a structured approach with three phases – perform, gain and
sustain – we help the company’s business progress toward the desired state by taking
the following steps:
1.Establish a core team with company representatives to gain better control of the
business. Perform root-cause analysis to understand why the company is in its current
situation. Identify key facts and causes of difficulties. Define clear actions, targets and
a long-term goal so that progress can be measured throughout the change process.
2.Drive quick wins and follow-up actions on a daily basis to build momentum and
stabilize the business short-term. Create the conditions and platform needed to
address underlying structural issues and to facilitate long-term enhancement in
business performance.
3.Realize the transformation based on a solid business case. Link operational improvement activities to financial value-creation drivers to increase leverage from the efforts
made.
4 Service overview
4.Undertake continuous coaching to push business improvements forward without
losing time. Lasting results will only be achieved by complementing structural
changes with adaptations in behaviors and mindset.
5.Monitor improvement progress and start expanding the business. Shift the main focus
from cost management to growth acceleration.
Figure 2. Improve company performance through a structured approach
COMPANY PERFORMANCE
PERFORM
GAIN
SUSTAIN
5
Drive operational
improvements
4
3 Drive quick wins and
create conditions to
perform
2
1
Continued
performance
improvement and
coaching
Program
finalization and
growth acceleration
Companies can, in fact, emerge from an
economic downturn with outcomes such
as improved organizational efficiency,
greater readiness for future challenges,
improved profit margin and more
competitive customer offerings.
Establish control
and targets
3 months
6 months
6 months
TIME
If it is to achieve the desired results, a cost-reduction program must include attention to
the entire business. Efforts that are not based on a holistic approach will eventually
result in an unbalanced organization and lead to new difficulties. With external support,
BearingPoint clients gain a complementary view of the challenges ahead and a vital
push to drive the change forward.
BearingPoint’s experience
BearingPoint has long experience of helping clients to manage their cost base during
uncertain market conditions. Examples of recent cases include:
European consumer-packaged goods and food corporation
A leading European consumer-packaged goods and food corporation faced decreasing
profit margins within its industry and was forced to take steps to significantly reduce
costs and achieve operational excellence. To meet these challenges, site-specific
operational excellence programs were implemented to address performance improvement, management control and employee behavior. The result was total cost reductions
of more than 500 MEUR.
Global aluminium-profile producer
A global aluminum-profile producer was experiencing an excessive level of fixed costs in
combination with a maturing market, putting urgent pressure on margins. Project
results included revenue and profitability enhancements, a 30-percent productivity rise,
a 15-percent boost in asset performance, and the creation of a lean improvement
program to achieve continuous growth and increased profitability.
Key supplier to a leading global consumer goods company
A key supplier to a leading global consumer goods company had been suffering from
weak profitability for nearly a decade, and struggled to handle increasing volumes,
inflation and greater credit exposure. To turn the company around, actions were taken
across the entire business – from leadership and performance management to procureService overview 5
Point of view | How to survive in an economic downturn
ment, planning and production – to reduce costs quickly while creating the conditions
required for the company to improve performance as soon as it had stabilized the business.
The outcome was a 40-percent production increase with a 20-percent reduction in direct
staff employed, and a profit-margin boost from 3.4 percent to 10.4 percent.
Global specialty chemicals producer
A global market-leading specialty chemicals producer was struggling with heterogeneous
organizational structures and increased pressure to reduce production costs. BearingPoint
supported a complete turnaround of operations at a production site, including strategies
for organizational set-up, business processes and detailed cost management. These efforts
yielded 10-percent cost reductions across several areas and the establishment of continuous improvement programs.
Nordic specialty retailer
A Swedish, market-leading specialty retailer faced new challenges resulting from extreme
market changes which required a total transformation of operations to support a new
business model. BearingPoint supported the retailer in charting a course and setting a
direction for the transformation, which included a total turnaround of store operations
yielding a 15-percent reduction in personnel costs with improved sales and service levels.
European grocery retailer
A leading European grocery retailer was facing a shift in customer patterns which was
having a drastic impact on operations costs. To counteract external factors, the company
needed to implement radical cost-cutting in its supply-chain operations. BearingPoint
supported the company by providing a wall-to-wall analysis of operations and, together
with the client, defined a multiyear program to transform them. The project resulted in a
five-year net present value of more than 300 MSEK and a sustainable platform for the
future which secured and strengthened the retailer’s market position.
Our value proposition
At BearingPoint, we believe in close teamwork and are convinced that every company and
challenge has its unique attributes. We combine a holistic view with extensive experience
from both functional and corporate improvement programs. With continuous coaching
and close collaboration, we accelerate benefit realization. Through value-based offerings
that are driven by business cases, we work with our clients to help them achieve both
short-term savings and sustainable profitability.
References
Roaring out of recession, Harvard Business Review, March 2010.
Summertime blues: the slowdown is spreading around the world, The Economist, Sept. 1,
2012.
O what a miserable life: Japan’s planned Big Bang will barely touch its troubled life
insurers, The Economist, June 16, 1997.
BearingPoint subject-matter advisors
6 Service overview
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We are BearingPoint. Management & Technology Consultants.
BearingPoint is an independent management and technology consultancy managed and
owned by its Partners throughout Europe. Serving commercial, financial and public services
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