Companies in Europe and the US are poorly prepared for a fresh economic crisis and risk repeating mistakes they made in the recession, says a report that claims that too many were caught in a “victim mentality”.
Those that adopted a conventional response to recession, battening down the hatches and waiting for business as usual to return, discovered that it was a formula for failure, argues PA Consulting Group.
The study found that companies which cut costs drastically in 2007-09 performed worse in financial terms than those adopting a more moderate approach.
Businesses that slashed staff achieved a 10 per cent lower total shareholder return (TSR) over three years than those that made modest staff cuts or none.
In a survey of more than 200 business leaders, PA found that most companies had barely begun to plan for a potential second recession, and argued that they were still too cost-focused, too slow and too passive.
The survey covered large companies in the US, UK, Germany, the Netherlands and the Nordic countries.
“My fear is that the same pattern will recur: there would be one-third who responded in a positive way and two-thirds who have a kind of victim mentality, who just look to survive rather than see how they could take advantage of it,” said Mark Thomas, a PA strategy expert.
Companies that saw the crisis as an opportunity to acquire assets cheaply or win market share achieved a 10 per cent better TSR than those that did not. Businesses that made quick decisions had a 13 per cent higher TSR than others.
Mr Thomas said that while larger companies had stronger balance sheets than at the start of the last crisis, “the biggest pitfall is that they are caught unawares.
“People are only now starting to put the scenario plans in place they should have had months ago.”
He said even an apparently disastrous eventuality, such as a eurozone break-up leading to weak peripheral currencies and a stronger euro core, held opportunities for some companies.
He said: “I have a client that makes shoes. Their main European manufacturing site is in Portugal and their largest European market is Germany.
“For them, such an outcome would be fabulous because their manufacturing becomes far lower-cost and the currency in which their main customers would be buying becomes much stronger.”
PA’s Managing Uncertainty survey, conducted this summer, asked more than 200 senior business leaders from across the world how they had responded to the financial crisis and what management strategies had proved most effective. Our analysis establishes which actions added value and which did not. Find out more here.