Two reports by Ernst & Young in December shed light onto the economy next year and what makes businesses successful in difficult conditions.
We are in year five of the ‘new normal’, as Ernst & Young’s report Growing Beyond reminds us. Going into 2013, businesses may be confident about their own outlook and performance, but there are still lingering doubts over the UK’s economic performance.
The last quarter of 2012 shows hopeful signs of growth, rising employment and increased business confidence, although the IMF prediction for UK growth remains at 1.4%. However, many commentators are still warning that there is a risk of a third recession in the UK. One of the reasons for the depressed UK economic outlook is the continued uncertainty in the Eurozone.
The December 2012 Eurozone Forecast warns of a lost decade in Europe with a prolonged stagnated period of growth. Their prediction for the rest of the decade in the EU is 1.6%. The Euro is safer than it was at the start of 2012; concerns about a Greek exit from the Euro have declined, but there is still risk coming from a number of countries, including Spain, where government debt is rising. However, the report also warns that further austerity measures by governments may prove counter-productive.
While governments are struggling to find measures to deal with economic uncertainty, there is a reduction in infrastructure investment and many businesses are paralysed, either by lack of capital or the lack of stability in the current market. Growing Beyond concentrates on what has made star performers in the current climate.
After five years of economic uncertainty the priorities of businesses have changed. Fewer and fewer are focusing on simply protecting their business, and a growing number are now looking to pursue new opportunities. Market expansion is a top priority, developed markets will continue account for 50% of global demand, and the US and the UK are still seen by businesses as top potential markets in the next five years.
In a competitive market, success is increasingly dependent on understanding market trends and consumer demands. The survey of 1,500 executives shows that there really is a difference between how high performing organisations approach business. For high performers, customer relationships and talent take centre stage, where in low performing businesses it is cost optimisation and agility that are prioritised. The importance of improving customer reach is prevalent across all high performing businesses.
High performing businesses feel that they are faster. However, over the last five years the pace has slowed. Companies facing a long recovery are less likely to rush new products to market or into new markets, and are more likely to ‘grow at home’ and squeeze new revenue from existing products. With a longer recovery, optimistic companies are looking exposed in 2013, and being first into a new market is beginning to look more like a risk than an opportunity.