With the persisting uncertainty of the global economy and the heightened anxieties around the Eurozone, the KPMG Business Leaders Agenda Survey 2012 portrays the very real issues CEOs are facing.
The results revealed a continuing focus on cost efficiencies and cash management for 77 percent of UK CEOs.
The lack of vigorous growth is compelling many to grow the bottom line through transactions (whether to acquire market share or divest of underperforming divisions) with one in three CEOs prioritising transactions and the overall deal strategy.
Although results confirm that continued economic turbulence keeps cost management and working capital at the top of the agenda, retaining talent has been highlighted as key to keeping businesses moving forward.
“For UK businesses, by far and away the biggest theme is how to change business operations to realise cost efficiencies. Almost half (44 percent) of respondents listed this as a major area for them, slightly down on the 51 percent in last year’s survey, but still a significant number.
“Despite many businesses feeling that they managed down their cost base as far and as fast as they could during the recession, slow growth in the UK economy looks set to be on the horizon for at least the next 12 months, and businesses are now having to look seriously at long term sustainable ways to reduce costs.
“In a recessionary environment, a quick way to reduce costs would have been achieved through redundancy programmes, but UK companies with growth on their mind are acknowledging the importance of retaining talent within their organisations. A third of our respondents cited this as a key theme, as they look to the future and move their businesses forward.
The Confederation of British Industry (CBI) believes that growth will restart in 2012, but high levels of uncertainty around the economic outlook, mainly driven by the situation in the euro area, mean growth will remain subdued, particularly in the first half of this year.
John Cridland, CBI Director-General said:
“Economic conditions will continue to be tough, especially in the first half of the year, and the UK recovery will depend on the successful resolution of the Eurozone crisis.
“But some activity has picked-up since before Christmas and the mood among many businesses has improved, with exception of companies serving the UK consumer where business remains flat.
“Although risks remain we expect growth this year, improving modestly in 2013, primarily driven by positive net trade and business investment.”
The Business Leaders survey provides a valuable insight into the boardroom issues concerning CEOs today; the uncertainty of the economic climate requires an agile response; by focusing on the aspects within the business’ immediate control such as costs and cash, it allows CEOs to quickly respond to the evolving external environment as required.
Uncertainty around the Eurozone is demonstrated by the 51 percent of respondents that believe we are entering a second Great Depression and 79 percent believing we will see at least one country defaulting on sovereign debt. The inability to predict the outcomes accurately over the next 12 months means companies are more likely to remain reactive to events rather than proactively establish contingency plans.
A quarter of CEOs are looking at major business model changes and this is in line with the activities we have seen around business operations, removal of duplication within the back office, creating leaner supply chains and efficient locations.
An interesting result is the issue of “people”, which received a higher priority listing than risk or innovation. This focus on talent highlights the importance of a strong motivated workforce to maintaining the business when growth is limited. 43 percent of those citing people as a major issue indicated that motivating key people is the highest priority.
What does KPMG recommend
Cost optimisation needs to be a mindset change from the top to deliver structural change:
- Are you struggling to maintain the cost cutting measures taken during the recession?
- Do you need to release funds internally to re-invest in growth areas?
- Do you understand the true costs to serve by product, customer and channel of trade?
- Is there transparency over true product, channel of trade, customer or country profitability?
- Have you embedded a culture of sustainable cost efficiency?
- Are you planning to make use of the Government’s simplified ‘one click system’, designed to cut the red tape involved in company registration – coming into force on 1 April 2012?
Done properly well executed cash and working capital focus can drive huge benefits in cash, cost and service for the business:
- Is cash and working capital management embedded as part of business as usual
- Are cash and working capital KPIs a consistent focus on management review?
- Are clear targets set for the business to improve supported by clear plans?
- Do you feel the improvements you have made to working capital over the last two years are sustainable?
- Are you seeing your working capital consumption increase as the economy recovers?
- Do you feel comfortable that you thoroughly explored all areas of cash generation opportunity in your business?
- How would you use the cash if you could improve working capital by a further 20%?
Having selected growth through transactions as one of their main business priorities, UK businesses have a number of considerations to factor in to their transactional thinking:
- How do your plans for growth stand up against Eurozone uncertainty?
- What is your M&A strategy for the coming three years?
- Have are you going to manage any planned transactions to maximise future value?
- Where will your growth come from? e.g. Domestic markets or emerging markets?
- What alternative options have you considered and what are the impacts of each of these? e.g. Joint Ventures & Strategic Alliances
- What cost and revenue synergies are available to you, are they achievable and what are the risks?
- How will you communicate your growth plans to your stakeholders?
Talent management is a key item on the agenda of senior executives, with good reason. Businesses don’t necessarily have to spend more on talent and capability development to achieve value:
- Is there a transparent link between your business strategy and learning and development?
- How effective is your measurement of outcomes achieved for your learning and development and talent spend?
- Do you know what people value most about working in your organisation – do you know what it will take to motivate and retain them during tough times, over and above any financial rewards?
- Do you know how to attract and the keep the top talent in your industry to maintain competitive advantage and ensure that they deliver the business plan?
- Are you aware of the increase to the qualifying period of unfair dismissal from 12 months to 24 months (as of 6 April 2012) and any further employment updates which may be announced in Budget 2012 on Wednesday?
How can KPMG help?
Achieving a balance between where you spend and where you save is crucially important in business – especially in these tough economic times. Businesses need to think about their cost base as an investment and continually review whether the ‘investment’ is being made in the right areas.
KPMG can help companies to improve cost efficiency, to achieve greater profit from the cost base. We also implement significant and sustainable cost reductions, either driving savings to the bottom line or redeploying the savings in under-invested activities to add value.
We draw on our extensive cross-functional experience to look at the whole enterprise to help you achieve targeted savings in areas such as operations, supply chain, procurement, IT, HR or finance. Our tax specialists can also advise you on how to make your supply chain operate more tax efficiently or how you can reduce your indirect tax bill. We can also can help companies to attract, motivate and retain the best people while mitigating the risk and cost of employing people.
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