Executive Summary
If you are a chief executive officer, a business unit general manager, or a line officer in any major company around the world, the events of October 2008 should cause you to rethink the strategy for your business. The purpose of this article is to explain why this is so important and what to do next.
As a business leader, you need to readjust your mind-set for a future that looks very different than it did just a few months ago. In the last decade, there have been three bubbles in rapid succession—in Internet and telecom companies, real estate, and commodity prices. During bubbles, the pressures on the strong and the weak are the same: to ride the wave of growth, regardless of whether it’s based on permanent value or transient speculation.
But the speculative bubbles have burst, and now, the most critical thing is to see the dynamics clearly—not as an investor, but as a decision maker with a company to steer.
Given the potential for discontinuous changes in the structure of your industry, playing your hand well means changing your stance. It also means preparing your company to move aggressively to seize strategic opportunities. These opportunities will likely present themselves sooner rather than later. That’s why the preparation cannot be postponed. The prescriptions for the weak are different from those for the strong.
Making Sense of the Storm
How quickly the world’s expansion, driven by the spiral of easy credit and rising house prices, has come to a crashing halt! The world economy is falling into a pronounced recession, with the Organisation for Economic Co-operation and Development (OECD) economies leading the way. Even China’s economy is slowing enough that its government recently announced a stimulus package worth more than half a trillion U.S. dollars. Consumers in the U.S. reported in the Booz & Company Consumer Spending Behavior Survey, conducted in October 2008, that they have cut back their spending in significant ways and they expect to cut back more in the months to come (see Exhibit 1).
In response, policy makers are reacting much more swiftly than they did to similar circumstances in Japan in the 1990s (see Exhibit 2).
Already it’s clear that the banking system will not be destroyed, as it was in the 1930s. The activist Federal Reserve System in the U.S., and its counterparts in other countries, will get legitimate credit flowing again. But recovery will be neither fast nor easy. Recessions are usually deeper and longer than anticipated, and this one is generally expected to be at least as bad as that of 1982.
The weaker players should be scared, but the strong should not. For the latter, the meltdown could prove to be a blessing in disguise. Both strong and weak should prepare to move quickly, but only the strong can invest for the longer term.
Implications for the Weak
If your company is not well positioned right now, it is time to face the facts. You are probably going to be up against the wall—or, at best, your business will be much reduced. It doesn’t matter how you rationalize the circumstances that brought you here. The important thing is to prepare to take bold action to save as much value as you can. Denial will not add value.
The most precious thing you have is time—and you may not have much. Do not waste it as some others recently have, notably at The Bear Stearns Companies and Lehman Brothers Holdings. Instead, look dispassionately at your business. Judge its relative position honestly, by answering a few tough, value testing questions:
- Could you survive the worst downturn in volumes and prices in your industry since World War II, and for how long?
- How good are your business positions? Are you number one or number two in your market? If your business went away, could others fill the gap?
- How will capacity be rationalized in your industry or industries? Who is the marginal player? Is it you?
- In this environment, into which of your businesses would you invest your own money?
If you honestly conclude you are weak, time is of the essence. Figure out how to best position your assets and your people and take the right steps to give every piece of your company its best chance to succeed, even if under different ownership.
For the Strong—And Those Who Can Be Strong
For everyone else—all those companies that aren’t up against the wall—the first objective is to become as strong as possible, as fast as possible. We are entering a period in which it will be enormously valuable to be able to act decisively from a position of strength and in a long-term, genuinely strategic manner.
These times call for a new kind of leadership on your part. Gone are the days when you could let the action agenda bubble up from the middle. There’s not enough time for that. Instead, you must drive the new agenda from the top and quickly refocus your key decision makers on the issues that are now paramount. Five main lines of action are worth embracing (see Exhibit 3).
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Instructions: Click on a theme below to see a list of related Booz & Company thought leadership. |
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| THEMES | ACTIONS | RELATED CONTENT |
| Focus on Your Future |
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Select a theme from the |
| Prepare to Weather the Storm |
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| Anticipate the Future Industry Structure |
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| Resolve Your Game Plan |
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| Prepare to Take Intelligent Risks |
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