Events of last September 11 stalled the recovery of what was at best jittery global markets struggling to avoid recession. With the US economy now officially in the tank, sharp and quick economic recovery on the back of tax and interest rate cuts, plus government spending initiatives, seems less definite.
Faced with this uncertainty, many American and European companies have assumed similar corporate mantra: trim away excess staff, refocus on core business, cut inventory levels/operating costs and attack the debtors’ ledger. Should local businesses assume similar hunkering down strategies or, should they defy the global downturn and plan for growth?
The good news, according to BNZ chief economist Tony Alexander, is that New Zealand is relatively well incubated from much of the global market slowdown and therefore the economy could be in for 3-4 percent growth by year-end. Economically speaking we are at present “favourably out of sync” with the rest of the world, according to Reserve Bank governor Don Brash.
But what about the bad news? Well, if Alexander and his economist counterparts are right, we could be in for short, yet sharp revenue shock (as the lag catches up with local businesses), before this growth materialises.
Lurking within the tea-leaves of Alexander’s prognostications is the view that global growth should accelerate in 2002. When it does, the New Zealand economy will also pick up. That said, if the world economy bounces strongly, it would be better to have high staff numbers, full inventories, and ample production capacity. Unfortunately the jury’s out on exactly when the global economy will improve. and by how much.
Faced with such uncertainty, economists believe businesses should take decidedly wait-and-see approach to 2002. “We think it’s better to be under-prepared for the hoped up-turn. It’s more prudent to engage in hiring and production catch-up than to prepare for growth and risk large losses and capital base erosion,” says Alexander.
What all this tells us, says Maurice Ellett, managing director of Auckland-based Signium Executive Search International, is that pragmatism is likely to rule in 2002. Ellett’s reading of the market suggests few companies see little demonstrable reason to significantly alter their strategic approach this year. With the war in Afghanistan relatively short-lived, the impact on local firms will be minimal. Most of the companies he deals with see 2002 as “business as usual”.
Ellett’s own view of management strategies for 2002 is different. Instead of focusing on tactical cost-cutting and hunkering-down initiatives, local firms need strategies to capitalise on opportunities the prevailing economy might bring. “Cost reductions don’t answer what many companies fail to ask – what business are we in and are there any activities that we can outsource?” he offers.
Slowdowns present golden opportunities to do good deals – like snap-up good retail and industrial property, cut good deals on imported capital equipment and bring more skilled people on board, says Ellett.
He expects companies to go to greater lengths this year to fill strategically important roles. “From first quarter 2002, companies will start looking for more qualified staff. But these people will be harder to dislodge, as they become more reluctant to make switch until the market improves.”
Multinationals with local offices are the enterprises hardest hit by the events of 2001. “On risk and cost basis, multinationals are simply saying no to international travel, unless absolutely necessary.”
Multinational moves to rationalise is simultaneously putting local leadership increasingly under the microscope. This will, according to Ellett, lead to cleanout of non-performers – just as we’ve seen with non-performing CEOs in the US. “Companies with strong management skills are the most skilful at pushing for growth. Those that aren’t growing will look to leadership – both management and board leadership – for answers,” says Ellett.
But management’s principal nemesis will remain the same as it was last year, according to Ellett. “Companies still need to realise that managers must work harder if they’re going to survive. The 40-hour week has gone for most executives.” Though he adds by way of elaboration, “they don’t necessarily need to work longer, just smarter”.
New Zealand Post CEO Elmar Toime thinks the fallout within multinational ranks poses serious consequences for New Zealand. “Companies with overseas headquarters will rationalise. That will lead to more decision-making from outside New Zealand. The impact of overseas management groups putting New Zealand lower down the list of things to do will lead to cut backs on local involvements, like sponsorship.”
Ironically, local firms could find it easier to attract offshore talent. “The threat of protracted conflict, tighter global economy, plus rationalisation of overseas offices means we’ll ultimately end up with good talent-pool to choose from,” suggests Toime. He also suspects that New Zealand’s reputation as safe place to live and work could help lure growing management talent-pool from overseas. “We’ve just received 230 strong applications from around the world for our general manager HR role. That number reflects the attractiveness of living in New Zealand.”
Whether the company attracts more management talent from overseas or not, New Zealand Post is also allowing for channeled growth in this year. “Nothing leaps out at us as being the single biggest challenge in 2002,” says Toime. “For two years we’ve seen slowdown in market growth. We aren’t sitting back with an environment of growth in front of us.
“We have been pragmatic and tried an upbeat approach. But we don’t allow an upbeat sentiment in our planning, unless the managers responsible for change can show their ability to bring it about. We’re not caught up in saying, ‘we’ll win this project’ and then allocate resource to it.”
With much of Post’s fortunes directly wired to GDP growth, Toime is more concerned with being ready for unplanned events than following macro-economic trends. “We model ‘what if’ questions to find out how prepared we’d be for them. When anthrax hit we put together contingency management team to ensure we’d incur less cost and disruption than if we weren’t ready.”
Toime’s strategy for 2002 is continuation of the existing strategy. Post’s twin strategy focuses on growth and productivity. Underscoring its approach to the year are five flagship cornerstones – four are growth-related projects and one concentrates on controlling costs. They include:
• Implementing the new bank.
• Targeted international aspirations (advisory work).
• Reviewing fixed cost structures.
• Projects to develop new markets.
“We’ve seen structural changes in our market. We see growing sophistication in major customer demand for services, and the substitution of traditional for electronic methods. They are going to market and asking for ‘one end-to-end process’. It now takes more sophisticated marketing to look after these customers’ needs.”
Like Ellett, Toime expects greater migration to outsourcing in 2002, especially in IT and supply-chain management where firms now have systems to manage the consistency of the end process.
Based on four-to-one ratio, growth versus cost containment, Toime says Post is not so much hunkering down as concentrating resources. “That means targeting our best opportunities on those projects that will make difference if they’re successful.”
Within the current environment, he believes companies are being forced to become more judicious over where they place funds. To Toime, that means remaining opportunistic and having the depth to commit funds to new ideas, to invest in acquisitions or R&D for new service – if and when necessary.
And while there might be more foreign or even returning expatriate management talent available and i