A recent study by McKinsey¹ identified specific characteristics and behaviours of companies who over-performed during the last downturn. Referred as “Resilients”, by the economic trough in 2009 earnings of these firms had grown by 10% while their industry peers had fallen by 15%. Moreover, they came out the recession quicker and stronger, with continued above trend earnings growth.
So what made Resilients different? From the report we identified 7 key points relevant for finance providers:-
1/ A focus on earnings not revenue. While the revenue of Resilients dropped in line with competitors, earnings remained strong.
2/ Creating financial flexibility ahead of the downturn through debt reduction and accelerated divestment of underperforming assets
3/ Cutting costs ahead of the downturn – plan early, move fast and cut deep. Focus on operational effectiveness to reduce the cost of sale, which provides a counterbalance against revenue falls
4/ Heed economic and risk signals. Clearly define leading indicators.
5/ Create a leadership group and simplified organisation capable of making rapid decisions, driving decisive action and operating effectively in periods of uncertainty
6/ At the first sign of recovery shift quickly into M&A, using superior cash reserves to acquire assets competitors are under pressure to dump
7/ Balance these actions as a phased, overall strategy – piecemeal efforts risk being counter-productive
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