Top 200 : Deloitte Message – Be Bold, Be Different

When we were developing the theme for this year’s Top 200 Awards earlier this year we knew that business was in for some difficult times. Be Bold, Be Different was challenge to business to take advantage of adversity. There have been many examples in the past where businesses have taken major strategic moves in times of turbulence that have improved their competitive position. We did not foresee just how challenging those times would become.
Over the past few months the world has experienced financial crisis of severity and scale unseen since the 1930s. Governments and central banks have been vigorous in their response as they seek to unlock credit markets, underpin trust in key financial institutions, and mitigate the flow-on effects to their real economies.
New Zealand is not immune. We have had three quarters of negative growth and the slow-down underway in the global economy will delay the hoped for export-led recovery, perhaps until late next year or longer. Bank lending criteria have tightened, retail sales are weak and unemployment is on the rise. The weakening dollar is rare bright spot.
The hunt for scapegoats is on in earnest. Irresponsible ­financial institutions, loose monetary policy, highly paid chief executives, and even accounting standards setters have all been implicated by politicians and the popular press. There have been few mentions of the role of consumers and their appetite for living beyond their means, or the role of governments (including our own) in encouraging financial institutions to lend to people who could not afford to borrow.
This is not the end of capitalism or the market-based economy that many critics would welcome. Markets will remain better than governments at allocating resources and better than governments at alleviating poverty. But there will be changes. There will be calls for return to some of the failed policies of the past and greater government intervention. These must be resisted. Increased regulation of financial markets will be inevitable. Risks will be redistributed now that governments have guaranteed deposits in financial systems. There have even been bizarre calls to regulate the salaries of financial institution executives. Many of the regulatory responses will have unintended consequences, and most of them bad.
But in any crisis there are always winners – companies and countries that improve their competitive position or take their performance to another level. As rafts pass through white water the order changes. Who would have imagined that TradeMe would have emerged so strongly from the carnage of the tech wreck in 2001, or that Michael Hill Jeweller would have prospered after floating at the time of the sharemarket crash in 1987?
What can companies do to win? Often responses are limited to slashing costs, cutting investment, scaling back ambitions, hunkering down and sticking to the basics. Of course it is prudent to manage costs and review investments – cash is important in times like this. But these actions should not be at the expense of taking opportunities that present themselves. Assets are already cheaper than they were year ago and they will get cheaper still as the deleveraging pro­cess underway continues. There will be some real bargains for those companies with strong balance sheets and an ambition to grow their core market share or enter new markets cheaply.
Even cost reduction will bring benefits. Not only will it help retain margins but when demand recovers companies will be leaner and will look forward to increased returns. Some employers will benefit from looser labour market. As always the key is to trim fat not cut into muscle.
And while general demand is weak and putting pressure on revenues there will always be market segments that are growing. Being granular enough to identify these pockets of growth and then nimble enough to divert resources to capture market-leading position in those areas will set the winners apart.
New Zealand business is in great shape to win. Corporate balance sheets are generally sound. strong dollar in recent years has forced our exporters to run lean operations. Our financial system has avoided the worst excesses of the unsustainable leverage provided by the derivatives markets. None of this means success is assured. There will be failures and they are an essential part of maintaining robust business sector. But opportunity will be everywhere. Will we be bold enough to exploit it?
Let’s not waste good crisis!