The Hackett Group's research is focused on specific areas of best-practices scholarship to develop advisory insight and tools to support clients as they work to achieve world-class performance.
A slowdown in economic growth normally means weaker customer demand, lower margins, reduced profitability and lower free cash flow. The industry sector, global revenue diversification and capitalization strategy will dictate a company's individual circumstance and corresponding actions. Hackett believes the following actions are critical considerations whose priority will be determined by circumstance, but at the end of the day it is profit growth and the corresponding free cash flow that drive shareholder returns.
- Inefficiency kills competitiveness: In order to maintain profitability and cash flow in times of weaker demand and margin pressure, it is imperative to understand and target inefficiencies throughout the organization. Some combination of both rapid and strategic cost reduction initiatives is critical to short-term results as long-term competitiveness.
- Cash is king: freeing up unnecessary working capital is the cheapest form of financing. During periods of economic growth the focus on the balance sheet wanes, leading to increased inventories, receivables and inefficient management of sourcing relationships and payables.
- Accurate and timely information is critical: Having timely and correct information is critical during volatile economic times. Ensuring that information allows you to understand how demand is changing and impacting your business is critical in planning and forecasting, which in turn are critical to decision-making.
History shows that companies that react swiftly have a far better chance of preserving profitability during business downturns. Equally evident, however, is that indiscriminate, across-the-board cost cutting often results in unsustainable savings, or worse, depleted capability to serve clients and respond to the next wave of opportunity.
Rather than view the current economic downturn as something that you can only "ride out," seize the moment and use the sense of urgency created by it to drive changes in the organization that will quickly reduce operating spend to appropriate levels and free up cash, which can then by invested in projects that will create competitive advantage.
To learn more about how The Hackett Group can help companies prepare for recession, contact us.