Navigating Uncertain Times
June 20, 2023
This article is part of the campaign Transforming in Turbulence: Tackling the Squeeze on Corporate Profitability1 and focuses on the four key dimension to manage today’s disruptive forces. It was published in Expansion,2 Spanish economic and business newspaper, in May 29, 2023.
As a result of recent global crises, companies face increasingly volatile scenarios.
The pandemic forced a rapid transformation of work methods and caused profound disruptions in the supply chain, as well as significant and lasting social impacts.
The war in Ukraine disrupted the post-pandemic recovery, pushing inflation to decades-high levels and prompting an increase in interest rates. A bleak overall economic outlook and the threat of economic downturn hovers over numerous regions.
Consumers have reacted to the increased costs of essential products and high interest rates by constraining their discretionary spending, causing business revenues to plummet. And while transportation costs have gone down, commodity prices remain high. Businesses have also been forced to increase wages substantially in the context of inflation. All of this has created the most complex set of challenges for companies in recent memory.
What can companies do to thrive in this difficult business environment? Focusing on four key dimensions can help companies navigate the current uncertainties successfully:
- Financial and operational processes: Companies should develop a more robust and detailed review and budgeting process, monitor profitability and balance sheet movements more frequently, and pay special attention to costs and working capital. Companies need to think from a short-term perspective, reviewing and forecasting on a weekly or monthly basis, to ensure they rapidly detect and respond to any issues that may arise.
- Revenue and margins: To sustain sales, companies should focus on their range of products and each product’s profitability, pricing and margin erosion, marketing investment returns, and sales team effectiveness. Furthermore, to ensure they are flexible and can respond to changing consumer demand in such an unpredictable environment, businesses must improve forecasting of their sales volumes, production, and inventory.
- Operating model: Addressing core costs will require streamlining the organisational structure, increasing productivity, and improving management processes and the overall operating model. Once again, companies should adopt a short-term tactical perspective.
- Supply chain: Managing and improving the supply chain should include, among other things, reviewing supply agreements, bidding for contracts, selecting new suppliers, and negotiating better terms, as well as terminating certain agreements. In general, essential elements to examine will be delivery costs, the mix of internal and external suppliers, expenditure ratios, and overall supply chain efficiency.
Given that the current environment is uncharted territory for many executive teams around the world, these leaders must embrace a radically new way of directing and managing their companies.
Companies that do not adapt may face a significant reduction in their operational and financial performance within months, leading to a drastic weakening of liquidity and cash flow.
Few businesses are already operating the way they’ll need to for success in these dynamic times. Many companies need to adjust their practices and get in shape if they want to survive.
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