Growth, not shrinkage
October 2009
A strategy for the future: In the current crisis, European firms are placing their bets on process optimization, innovation – and growth.
The mood in Europe’s board rooms is by no means as gloomy as the current world economic situation might have us suppose. This was the somewhat surprising result of a poll of 2,600 companies, conducted by Simon Kucher & Partners corporate consultants.
In spite of declines in orders received and the credit crunch, the vast majority of the European managers queried is not simply pushing the panic button on costs. Instead, they are cautiously accelerating certain activities. Innovative products and beachheads in new markets are to set the stage for increased sales in the future.
Thus, for instance, the share of sales generated by newly developed products (< three years) are to grow by a lush 35 per cent in the next five years. Managers are investing more money in research and development. Budgets in these segments are to be boosted by 14 per cent.
The author of the study, Dr. Philip Grothe, finds these results enlightening: “Businesses realize that we are in the middle of a sales and yields crisis, not a pure cost crisis. That means that cutting costs alone will not help.” About three-quarters of the entrepreneurs and executives are seeking to counter the crisis by way of higher returns and are realigning their organizations accordingly.
Only about 25 per cent were responding primarily with cost-cutting programs. Saving while growing was also nonetheless on the agenda. About two-thirds of those responding intend to improve their processes and thus, in the ideal case, to achieve enhanced results while expending less effort.
Innovation, process optimization, growth
The companies see central objectives in the fields of “customers and markets”. That means improved services and closeness to the customer, achievements in innovations, technological leadership and ongoing competitive advantages. What do these business leaders see as the necessary measures here? Eighty per cent indicated “strengthening innovative power”.
More than half mentioned “optimizing business processes” (67 per cent) and “modifying the organization” (50 per cent) as being important steps. Strategic measures such as setting up partnerships or adopting new business models play a secondary role. Viewed as the greatest challenges for future growth are effective market development and working the markets – with particular efforts in sales.
Global market perspectives
Another finding in the study: China, India, Eastern Europe and Russia are of growing interest for business growth planning and, in fact, surpass North America. Larger organizations are intending to found greater numbers of subsidiaries while medium-sized firms are giving preference to less capital-intensive approaches (expanding exports, for instance). Small companies are concentrating their attention primarily on the more familiar European terrain, while larger organizations are being drawn more to the distant Asian markets.
The survey was conducted in the fourth quarter of 2008, querying 2,600 executives in Germany Austria, Switzerland, Poland, Russia and Great Britain. Half of those canvassed achieved turnover between 50 and 500 million euros, about 30 per cent less than 50 million, about 20 per cent more than 500 million.
What are the central activities your company is undertaking to cope with the crisis?
John Galt, CEO Husky Injection Molding Systems, Canada
Primary for us is speedy implementation of our strategic planning. To do this we are concentrating on our customers, supporting them in their own efforts to survive the current challenges of the market. Over and above that, we have redoubled our investments in research and development devoted to those projects that are of major significance for the customers. In brief, it is not a question of re-evaluating our strategy but rather a matter of implementing it more quickly and more effectively.
Martin Mundstock, CEO at the Jacto Group, Brazil
The structures and the budgets for the fields of customer support and customer relations and for research and development remain unchanged. Our programs are aimed at improving processes, reducing inventories, enhancing product quality and managing the risks associated with cash flows and exchange rates.
Tetsuro Kajiya, Executive Officer, President, Procurement Division, Komatsu Ltd., Japan
We are continuing intensive product development efforts and are also taking account of the growing significance of the Asian market. To do this we are opening a new production facility in Russia and are expanding the line of excavators produced in China from 15 to 20 models. We are countering dwindling demand in Japan, the United States and Europe with reorganization in these regions, and this will bring about a 30 per cent increase in productivity.