The current economic climate in the UK is causing a good deal of uncertainty in the markets and amongst business leaders, most of whom now believe that an economic downturn is now less a case of 'if' or 'when’ but ‘how long will it last and how bad will it be’.

The dilemma for many companies is assessing the likely scale of the downturn and therefore the right level of response to the current situation. As the banking crisis begins to affect the “real economy” either through lack of financial support or simply a loss of confidence in the markets, there are some clear steps that businesses can take to prepare themselves for and protect themselves against the uncertain times ahead.

The temptation for many companies is to cut costs across the board to show investors they are taking action, and in the short term delivering some improvement to the bottom line. However, the danger is that a blunt tool will end up crippling the organisation and its long term prospects. Instead, the experts argue for a determined but balanced approach to ensure survival and also enhanced capability to take advantage of developing demands and the future upturn. This requires a fundamental review of current business models and a transformational change using the pressure of the current climate to accelerate the process.

Behaviours and demand patterns are changing rapidly so businesses need to think about adapting their current products and services to meet demands for cheaper, more efficient solutions with fewer expensive optional extras. Cheap no frills food is on the up while expensive luxuries are left on the shelf. Product and service rationalisation should therefore focus on identifying the areas with robust margins and dumping the lower margin or loss making, expensive to serve areas to preserve profitability and cash flow.

This will provide a buffer against the downturn while the portfolio is reviewed and new products and services developed. These may lie in areas where demand is more consistent and prices are less elastic, or at any rate, margins can be more easily preserved, and also counter cyclical areas where demand is growing despite the downturn. Leisure and entertainment may be taking a hit but cooking for friends at home could be about to become much more popular. Innovation is the lifeblood of any successful organisation and the businesses that keep innovating are likely to be the ones that will succeed in the long run.

The current climate also requires a more fundamental look at costs. With demand slowing, businesses need to transform their cost base to make it more flexible and scalable, reducing with the slowdown but capable of growth when demand starts to pick up again. Developing a more flexible internal organisation, simplifying business processes and engaging employees in the process of continuous improvement will all help to develop flexibility in the cost base. Remember too that engaged employees give better service and this is the main determinant in retaining customers.

Working in collaboration with partners and suppliers to tune the supply chain and take out complexity and cost is the next step. This is likely to require investment of time and resource to understand and jointly agree far reaching actions. Developing trust and transparency will help to deliver benefits to all parties in the extended value chain who all have a vested interest in improving performance and cash flow.

Finally it is inevitable that some businesses will become a liability to companies seeking to improve their profitability and balance sheet. This provides a great opportunity for those seeking to acquire and with the resources to do so. It only remains to be seen how long they can afford to wait to get the best price and ensure that what they get is still in good shape when the deal closes.




________________________________
How to manage successfully in uncertain times is a new white paper published by Atos Consulting, providing advice for business leaders on what they need to focus on to enable their companies to weather the economic climate and take advantage of the changing situation.

Click here to download: https://www.uk.atosconsulting.com/en-uk/points_of_view/how_to_manage_successfully_in_uncertain_times/.