Flawed strategies put business recovery at risk as recession
ends
- Grant Thornton research exposes fundamental flaws in business
models
Nearly two thirds (63%) of UK businesses are hamstrung by their
own business models and unprepared for the recovery according to
new research from leading financial and business advisers, Grant
Thornton.
In a survey conducted for the study, 396 senior UK executives
provided details on how their companies have both coped during the
economic downturn and how they have positioned themselves for the
forthcoming economic upturn.
Analysis of these responses has led Grant Thornton to identify
six primary UK business responses to the recession with just two
types, representing 37% of the companies surveyed, adopting a
strategy that is 'fit for purpose'.
"This research indicates a dangerous lack of flexibility in
management thinking. Too many of the senior executives we
interviewed appear to be comfortable with the status quo despite
the economic pressures which should be driving businesses towards
more innovative approaches to the way in which they operate and
interface with their markets. Very few senior executives have shown
any wish to challenge their current situation and take advantage of
new opportunities," says Alysoun Stewart, Head of Entrepreneurial
Advisory at Grant Thornton.
"Most companies have formulated their plans for the next 18
months on the basis of their historic practices and are exhibiting
complacency about the need to pursue innovation in their business
models, believing that simply adjusting cost structures will be
enough to see them through while market conditions remain tough,"
continues Stewart.
Furthermore, little more than one-third of companies in the UK
are pursuing or plan to pursue in the near future changes to their
core products with only 38% saying that they would make changes to
their target markets, 25% would make changes to their distribution
channels and only 30% would make changes to their
revenue-generation mechanisms. All three factors play an integral
role in how a company positions its core products for renewed
market growth, showing a clear lack of innovation or direction
change.
Business responses to the recession
In depth cluster analysis of the research shows six different
characteristic responses to the recession:
Successful business strategies:
Ahead of the curve businesses (19% of sample)
are classed as continuous adapters to market change and anticipate
doing more of the same. They understand that change is the only
constant and are continually adapting their business models
accordingly. Companies that fall into this category tend to be
younger companies, with revenues under £250m in two thirds of
cases, where change is core to their make-up.
Moving to the margins businesses (18% of
sample) are looking to reposition growth and shift their focus from
cost-cutting to building up their margins. These companies are only
moderately confident in their business models' plans to date and
ability to succeed in the future. But while they focused on cost
cutting during the recession, they are now focusing on improving
margins as market conditions evolve. Companies in this category are
established players in the market, are likely to have seen the
economic cycle come and go several times over and are quick to read
the signs and position their business for the upturn.
Flawed business behaviour includes:
Fighting the last war businesses (25% of
sample) are focused on cost-cutting and have a clear lack of focus
on future growth. However these companies are only taking care of
half of the equation. They appear to be stuck in a recession based,
cost cutting mentality, only looking as far ahead as what needs to
get done to get through the downturn.
The best before businesses (18% of sample) are
those that are at risk of their business strategy being close to
expiry. Confidence in this group's business plan is contradictory.
On the one hand resilience is moderate, yet there is a 50-50 split
on whether an overhaul is needed.
The heads in the sand businesses (10% of
sample) are mainly businesses that have unrealistic assumptions,
are complacent in their business outlook and go with what they
know. These companies consider their business models very resilient
and have strong faith in their plans' suitability over the next 18
months.
The hitting the panic button businesses (10% of
sample) have an absence of strategic clarity and lack of focused or
innovative action. These companies appear to be in a state of
general panic over their business strategies and are questioning
just about everything with little or no focus in their attempts to
bolster their plans. Whilst nearly three quarters (72%) agree that
their plan has not proved resilient, virtually none describe their
business model as set to succeed over the next 18 months.
"The businesses that have fared best over the past couple of
years are those that have been courageous enough to change the
cornerstone of their agenda, and who went into the crisis with a
very clear understanding of their core business proposition, of
their key markets and of how best to leverage their strengths,"
continues Stewart.
"These results show a certain "fear" or at the very least
complacency amongst decision-makers about taking any radical or
innovative steps to improve their business offering. Instead they
choose to stick with the more conventional methods of coping with a
downturn by cutting costs, leaving them in danger of being unable
to take advantage of the profitable opportunities that will present
themselves when the economy picks up," concludes Stewart.
ENDS
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