New research from Deloitte issued today shows that although most major companies surveyed believe that the U.S. economy will start improving in early 2010, many of those same companies will lag behind the general economy when the rebound occurs. The reason: Too much focus on short-term, tactical actions and little attention to structural changes and strategic investments that are needed to support growth in the new business environment.
Approximately 55 percent of companies surveyed feel the U.S. economy will start showing signs of recovery in the first or second quarter of 2010; though 25 percent think relief won’t come until the third quarter or beyond.
Industry research firm IBISWorld forecasts the US economy will decline by 3% in 2009, and will not return to its normal course until 2011. Believing unemployment will continue to rise into the first quarter of 2010, Dr. Richard Buczynski, chief economist at IBISWorld, believes it won’t be until 2011 that overall economic activity will again surpass 2008 levels.
After implementing initial cost cutting measures when the economy first began to tumble — such as reducing salaries, layoffs and plant shutdowns — many companies are now are confused about their next steps,” said Kelly Marchese, principal, Deloitte Consulting LLP. “We believe these businesses should stop focusing on short-term concerns and look at their business in this new reality. Businesses need to focus on areas such as talent, growth and structural change so that their business doesn’t just survive — it thrives.”
Deloitte also identifies the following three key economic phases and their timeframes that businesses need to recognize, and provides recommendations for corporate leaders to consider as they focus their business revitalization efforts during these uncertain times:
Phase 1: Over the Edge: companies were focused on shuttering their business, generating cash, and looking at tactical cost reduction. Survival was priority number one.
Phase 2: Lumpy and Bumpy: the current phase of the economic downturn where companies need to place the focus on structural changes, strategic investments and a resetting the profit model.
Phase 3: Growing into a New Reality: this is what companies need to prepare for; where the new economics, market realities and competitors emerge.
“Like any recession, this one will play out in stages and will vary by industry,” said David Brainer, principal, Deloitte Consulting LLP. “And, regardless of which stage your company fits, or the speed of change, you must move beyond tactical, reactionary moves and make structural changes needed to support growth. To make this shift, companies need to be proactive and prepare now for the new growth environment, whatever it may look like.”
As Deloitte sees it, every organization grows at its own pace, determined by factors as large as the global economy and as personal as its current balance sheet. But, every business must grow — the only question is how. Getting it right requires deep industry and business insights that help identify smart, well-timed investments. But, that’s just the beginning. Profitable growth also involves effectively assimilating and integrating those investments, something far too many companies fail to accomplish. It’s not just about strategy; it’s also about practical execution.
For more information and a copy of the Deloitte survey visit: www.deloitte.com/us/heretodaywheretomorrow
For IBISWorld’s economic forecast “Economic Crisis: When Will It End?” visit: http://www.ibisworld.com/recession2009/default.aspx