As featured on BusinessMirror: Securing value in slowdown
Even before the current economic volatility, business leaders were grappling with a range of disruptive trends that were reshaping entire industries and sectors. The economic situation has only raised the stakes. Now, decisions become more critical as investment risks increase; and strategies need to account for more and more unforeseen implications.
With the rapidly evolving economic landscape, business leaders in the Philippines have always put premium on understanding the current and forecasted environment they operate in, changing needs and preferences of their customers, and operational and employee concerns affecting their business. This involves investing in research and data and analytics and mapping out a responsive and agile strategy for their organization.
In the face of economic uncertainty, organizations may need to pivot their business model to remain competitive. To meet emerging trends and opportunities in their respective industries, organizations can take the following approaches - explore new revenue streams, redefine their target market, or plan a strategic shift on their business processes.
Imelda H. Corros
Management Consulting Partner
KPMG in the Philippines
Navigating the downturn
Business leaders are asking their advisors to predict what type of downturn they might be facing.
Will it be a:
- V-shaped recovery — like the ‘COVID recession’ that lasted for just a few months in early 2020?
- U-shaped recovery — a deep and prolonged downturn, like the one that began with the financial crisis of 2008?
- W-shaped recovery — a recovery followed by another contraction?
- Or should business leaders anticipate a recession that doesn’t conform to established patterns?
The shape matters
Companies planning for a severe or U-shaped recession would slash costs, horde cash, and hunker down. KPMG International's Global CEO Outlook survey indicates that the majority of CEOs are planning to do just that: many say they plan to freeze hiring and reduce their workforce; more suggest they will increase prices to manage increasing supply chain costs.
Or perhaps the recession turns out to be mild and short, rewarding those companies that invest in growth strategies, capabilities, or innovation. Some CEOs are thinking more strategically about their technology and transformation investments and objectives in the face of economic uncertainty. But how can they be confident these investments will pay off?
M&A in times of a slowdown
Dealmaking was once almost exclusively about generating growth: quickly and inorganically. More recently, CEOs are shifting the reasons why they make deals.
- Operational changes to counter the challenges of today
- Seek opportunities and prepare for what may lie ahead
- Digitally transformation by acquiring critical capabilities
While there has been a general cooling in deal markets in 2022, there is good reason for optimism: annual deal volume in 2022 exceeded every year prior to 2021. With much deal activity focused on digitizing and transforming organizations, we expect to see this strong activity continue into the year. However, given the correlation between earnings expectations and dealmaking appetite, we have reason to be cautious as well.
CEOs expecting high earnings growth over the next three years were more likely to report a high appetite for dealmaking; those with low growth expectations reported a low appetite for dealmaking.
Five key steps to confident decision-making
Triangulate the trends
Start by assessing the externalities that might influence your decision-making. But go deeper — explore each trend and consider how they might evolve to find the opportunities and the risks, identify the interdependencies between them, and understand the degree of influence they have on different parts of your business and strategy. You may want to consider broadening your perspective to help identify and explore any blind spots. Then consider what is driving your business strategy — Is your organization purpose-driven? Are shareholder returns paramount? Are you using this opportunity to transform? And if so, towards what? Is the transformation triggered by the need to unlock additional value or is it an existential threat? That can help you understand what trends matter and what weight they should be given.
Quantify the opportunities and map the scenarios
Now that you have a strong understanding of the future opportunities, risks, and trends that influence your organization, you can start to properly quantify their value within various scenarios. You need to know what to measure and what metrics actually matter. You need to quickly get down into your transactional-level data to understand where you are today. And then you need to combine that data with rich sources of market data and sector/functional insights to assess the potential value they could deliver across a range of scenarios. The goal is to attach a reliable and practical dollar amount to each opportunity, providing decision-makers with a real baseline against which to assess their options.
Prioritize the list and recognize the triggers
You know your stakeholder expectations. You have a robust list of value-creation ideas or turn-around opportunities. And you know exactly what each will cost and what they will deliver. Now is the time to prioritize your list. Lean on functional implementation experience to realistically assess your organization’s capacity, capability and timeline for change. Recognize the interdependencies between trends and objectives. Know which levers to pull to achieve the impact you measured. Try to find a good balance between short and long-term activities in order to unlock in-year savings that can fund out-of-year objectives. The outcome of this step should be a practical and achievable list of specific actions you can take and the value that should be generated.
Accelerate the execution
At this point, you need to execute the plan cleanly and confidently. Make sure you have the right skills, capabilities and talent to not only deliver your objectives but also to sustain them. You need to know which capabilities you are going to need. Then you need to be able to identify the gaps. That can give you the level of detail you need to engage a top-notch team of execution professionals with the experience and sector insight to deliver your plan within the context of your specific organization. Look for opportunities to put your people in control through knowledge transfer and upskilling. And leverage opportunities to speed up the pace of execution in order to help minimize the potential impact of future disruptions. And don't wait for a 'perfect plan' or delay until you have mitigated every risk — strive to ensure your governance model allows you to learn as you execute in an agile fashion to keep the pace going and to continue delivering value.
Continuously measure the value and course-correct
Don’t just set goals and then ignore them. Your quantification process gave you clear metrics and outcomes to measure. This is not just about reporting back to stakeholders and approvers about whether goals were achieved, and the ROI delivered. It’s about being able to rapidly course-correct when new trends or disruptions emerge — based on reliable data and a clear understanding of the business objectives. Develop the capability to continuously evolve how your decision-makers view your baseline organizational data to unlock a perpetual cycle of value measurement and management. Lessons can be learned and shared across the enterprise. With a granularity of data, new opportunities to create incremental value can be uncovered. Measurement is a key to value creation and should never be left as an afterthought.
The excerpt was taken from the KPMG Thought Leadership publication: https://kpmg.com/xx/en/home/insights/2023/02/securing-value-in-slowdown.html
© 2023 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
This article is for general information purposes only and should not be considered professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.