What have companies learnt from this crisis? Little, says PACG

LONDON | Companies are only now finding out that the conventional response to recession of waiting for business as usual to return is a formula for failure. Most companies were too cost focused, too slow and too passive, according to a PA Consulting Group survey  Managing Uncertainty of over 200 business leaders.

Those companies that cut costs drastically performed worse than those that adopted a moderate approach to cost cutting; many companies took 18 months to respond and they performed worse than those who acted quickly; while the minority who saw the crisis as a time to gain market share performed very strongly.

“Most companies had the wrong overall approach to the crisis; these companies need to change their mind set now to prepare for the emerging crisis. Only a third of companies saw the 2008 financial crisis as an opportunity, but those that did had a higher TSR by 10 per cent,” says PACG.

The survey also shows that decisions made quicker are better. Companies that made quick decisions had a  total shareholder return (TSR) 13 per cent higher. The survey demonstrates that those who cut costs so extensively that they slashed staff had a 10 per cent lower TSR than those that contained or avoided staff cuts.

Mark Thomas, business strategy expert at PACG, says:

“Just as politicians are beginning to realise that their natural response to the financial crisis has been inadequate, many companies are discovering that the conventional response to recession guarantees that a business will lose […] They are designed for conventional inventory-cycle recessions, and a balance-sheet recession is a completely different beast. ”

“The highest-performing companies took a different approach: they identified the crisis early and responded quickly.”

PA surveyed 205 c-level and director-level representatives of companies over a range of geographies. The analysis has been produced using the survey data and also by comparing responses against TSR for listed respondents (92 in total). As TSR looks at the value the market places on a company’s stocks and shares over time, it is a good measure of medium and long-term performance. We have used data from the period 2007 to 2010 to cover the main timeline of the financial crisis.

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