Viewing offline content

Limited functionality available

Dismiss
Deloitte South Africa
  • Services

    What's new

    • Deloitte Digital

    • Deloitte Africa Centre for Corporate Governance

      The Deloitte Africa Center for Corporate Governance offers a number of resources for executives, directors, and others who are active in governance.

    • Corporate Reporting Reform

      View our latest events on corporate reporting reform.

    • Audit & Assurance

      • Audit & Assurance Insights
      • Centre for Corporate Governance
    • Consulting

      • Strategy
      • Customer and Marketing
      • Core Business Operations
      • Human Capital
      • Enterprise Technology & Performance
      • Managed Services
      • Growth Platforms
    • Financial Advisory

      • Mergers & Acquisitions
      • Turnaround and Restructuring
      • Forensics
    • Risk Advisory

      • Internal Control & Assurance
      • Regulatory Risk
      • IT & Specialised Assurance
      • Cyber Risk
      • Analytics
    • Tax & Legal

      • Outsourced Tax Compliance
      • Tax Technology Consulting
      • Tax Advisory and Transactions
      • Mobility, Payroll, Immigration
      • Workforce, Analytics
      • Reward, Employment Tax
      • Legal Services
      • South African Budget
      • Tax News and Trends
    • Deloitte Private

  • Industries

    What's new

    • Deloitte perspectives

      Leadership perspectives from across the globe.

    • Future of Mobility

      Learn how this new reality is coming together and what it will mean for you and your industry.

    • Deloitte Africa Insights

      Access the latest thought leadership on industry insights, country reports and economic developments in Africa.

    • Consumer

      • Automotive
      • Consumer Products
      • Retail, Wholesale & Distribution
      • Transportation, Hospitality & Services
    • Energy & Resources

      • Energy & Chemicals
      • Mining & Metals
      • Power, Utilities & Renewables
      • Industrial Products & Construction
    • Financial Services

      • Insurance
      • Banking & Securities
      • Investment Management
      • Actuarial & Insurance Solutions
      • Real Estate
    • Life Sciences & Healthcare

      • Life Sciences
      • Health Care
      • The Africa Deloitte Health Equity Institute
    • Government and Public Services

      • Infrastructure, Transport & Regional Government
      • Central Government
      • Defence, Security & Justice
      • Health & Human Services
    • Technology, Media & Telecom

      • Technology
      • Media & Entertainment
      • Telecom, Media & Entertainment
      • Predictions
  • Insights

    Deloitte Insights

    What's new

    • Deloitte Insights Magazine

      Explore the latest issue now

    • Deloitte Insights app

      Go straight to smart with daily updates on your mobile device

    • Weekly economic update

      See what's happening this week and the impact on your business

    • Strategy

      • Business Strategy & Growth
      • Digital Transformation
      • Governance & Board
      • Innovation
      • Marketing & Sales
      • Private Enterprise
    • Economy & Society

      • Economy
      • Environmental, Social, & Governance
      • Health Equity
      • Trust
      • Mobility
    • Organization

      • Operations
      • Finance & Tax
      • Risk & Regulation
      • Supply Chain
      • Smart Manufacturing
    • People

      • Leadership
      • Talent & Work
      • Diversity, Equity, & Inclusion
    • Technology

      • Data & Analytics
      • Emerging Technologies
      • Technology Management
    • Industries

      • Consumer
      • Energy, Resources, & Industrials
      • Financial Services
      • Government & Public Services
      • Life Sciences & Health Care
      • Technology, Media, & Telecommunications
    • Spotlight

      • Deloitte Insights Magazine
      • Press Room Podcasts
      • Weekly Economic Update
      • COVID-19
      • Resilience
      • Top 10 reading guide
  • Careers

    What's new

    • Job search

    • Experienced Hires

    • Executives

    • Students

    • Life at Deloitte

    • Alumni

  • ZA-EN Location: South Africa-English  
  • ZA-EN Location: South Africa-English  
    • Dashboard
    • Saved items
    • Content feed
    • Profile/Interests
    • Account settings
    • Subscriptions

Welcome back

Still not a member? Join My Deloitte

Building business resilience to the next economic slowdown

by Dr. Michela Coppola
  • Save for later
  • Download
  • Share
    • Share on Facebook
    • Share on Twitter
    • Share on Linkedin
    • Share by email
Deloitte Insights
  • Strategy
    Strategy
    Strategy
    • Business Strategy & Growth
    • Digital Transformation
    • Governance & Board
    • Innovation
    • Marketing & Sales
    • Private Enterprise
  • Economy & Society
    Economy & Society
    Economy & Society
    • Economy
    • Environmental, Social, & Governance
    • Health Equity
    • Trust
    • Mobility
  • Organization
    Organization
    Organization
    • Operations
    • Finance & Tax
    • Risk & Regulation
    • Supply Chain
    • Smart Manufacturing
  • People
    People
    People
    • Leadership
    • Talent & Work
    • Diversity, Equity, & Inclusion
  • Technology
    Technology
    Technology
    • Data & Analytics
    • Emerging Technologies
    • Technology Management
  • Industries
    Industries
    Industries
    • Consumer
    • Energy, Resources, & Industrials
    • Financial Services
    • Government & Public Services
    • Life Sciences & Health Care
    • Tech, Media, & Telecom
  • Spotlight
    Spotlight
    Spotlight
    • Deloitte Insights Magazine
    • Press Room Podcasts
    • Weekly Economic Update
    • COVID-19
    • Resilience
    • Top 10 reading guide
    • ZA-EN Location: South Africa-English  
      • Dashboard
      • Saved items
      • Content feed
      • Profile/Interests
      • Account settings
      • Subscriptions
    10 minute read 07 May 2019

    Building business resilience to the next economic slowdown Perspectives from CFOs

    10 minute read 07 May 2019
    • Dr. Michela Coppola Germany
    • Save for later
    • Download
    • Share
      • Share on Facebook
      • Share on Twitter
      • Share on Linkedin
      • Share by email
    • What drives resilience? A review of what we know
    • There is a pattern in current responses by business
    • Companies bet on three different resilience strategies
    • Conclusion

    Many pressures are crowding in on business leaders. Deloitte asked more than 1,000 European CFOs what they are planning to make their companies more resilient.

    The world economy has done quite well recently. The US economy has enjoyed one of its longest expansionary phases in recent history while the eurozone has entered its sixth year of uninterrupted growth. Unemployment rates in many countries are at historical lows and inflation has been muted. The major stock indices are at almost record levels and the financial markets are operating, it would seem, on the assumption that the risk of recession remains very low.

    Learn More

    Explore the EMEA economics collection

    Visit the Leadership collection

    Subscribe to receive related content on Deloitte Insights

    Yet sources of concern are plentiful: increasing trade tensions around the world, rising debt on company balance sheets, Chinese economic growth that is overly dependent on credit, large public sector debt coupled with weak banks in countries such as Italy and Greece, no end in sight to the political uncertainty challenging national and international institutions, to name just a few. These increasingly intertwined, cyclical risks come against a backdrop of long-term forces – from demographic trends to technological change – that are disrupting current business models. And, learning from the past, we can expect structural change to accelerate rather than slow down during periods of economic downturn. Take e-commerce for example. Many took the bursting of the dotcom bubble in the early 2000s as a sign of the sector’s imminent death. However, the contribution of e-commerce to total retail growth not only continued but actually accelerated during the Great Recession in 2008-9, accounting for nearly all of the retail growth in that period.1

    For business leaders the pressing question therefore becomes how to prepare for a potential recession and make their companies more resilient – that is, able to anticipate and react adequately to shocks, adapt to new circumstances and capitalise on threatening events.

    The Deloitte European CFO Survey

    Since its launch in 2015 the European CFO Survey has been part of a global cohort of surveys benchmarking the current and future intentions and opinions of Chief Financial Officers operating in 20 European countries. Twice a year, the survey gives a voice to about 1,400 CFOs, providing an overview of their hiring and investment intentions, views on critical business risks, current strategic priorities and which factors they consider vital for success. Due to its wide geographical reach, the consistently high number of participants and the privileged viewpoint of CFOs, it provides a reliable indicator of business sentiment in Europe across a range of different markets. The data for the spring 2019 edition were collected in March 2019. The question on resilience in a downturn that is at the heart of the analysis in this article was not asked in all the participating countries. Out of the 1,473 CFOs participating in the survey, 1,047 answered this question.

    What drives resilience? A review of what we know

    Corporate and academic interest in conceptualising and understanding what drives organisational resilience has grown steadily in recent years. The most recent business and academic research suggests three major areas are key to enabling companies not only to survive a downturn but turn the unfavourable conditions to their own advantage2: the ability to anticipate possible future developments and create alternative action plans; the availability of a broad set of resources; and leveraging an external network of relationships.

    Anticipation capabilities and collateral pathways: An ability to see the unexpected faster than others is a cornerstone of resilient organisations. This implies scanning the environment to detect critical developments and build multiple plans for different scenarios. Ensuring that the organisation has alternative courses of action allows it not only to act faster to mitigate potential harm but also to adjust better when dealing with the emergency. However, it is not the creation of multiple pathways per se that fosters resilience. Rather it is the ability to ‘look further down the line’ to envision how the environment is going to change after the crisis and take actions in the present to be well positioned in the post-crisis environment. For example, companies that reinvested more during the recession – a sign they were thinking ahead – achieved higher growth rates during the recovery.3

    Resources: A broad and accessible set of resources is fundamental to a quick and adequate reaction under challenging conditions. In this respect, financial slack is obviously key. Several analyses find that highly leveraged companies perform substantially worse during recessions.4 Financial resources are essential to planning and preparing for an emergency. They serve as a buffer, containing the negative effects of a crisis and protecting key activities. They are also needed to mobilise other key resources that are essential in difficult times. One of these resources is human capital. For example, analysing airline industry responses to September 11, researchers found that airlines able to retain staff were able to recover successfully, while those that responded to the crisis with high levels of layoffs languished.5 Recent research stresses that having sufficient human resources, with the required skills and commitment to the organisation’s goals, is critical to resilience. Technological resources are another example. A recent study from the Centre for European Economic Research (ZEW) shows that companies more advanced in the use of information and communication technologies were better able to withstand the economic crisis in 2008-9, as they were more efficient and able to introduce process innovations that boosted their competitiveness.6

    Network relationships: Empirical evidence shows that organisations that establish and leverage an external network are also more resilient to challenges and shocks. A social network increases the transfer of knowledge and the dissemination of innovation. Furthermore, collaboration among organisations within a network increases the resources that can be tapped and therefore the capacity of each individual company to respond.

    While each of these factors is relevant in fostering resilience, none of them alone is enough. Building resilience requires a mix of actions. The cost-reduction approach, on which many companies typically rely when coping with an economic downturn, is not sufficient. They must do more in order to deal with, and indeed profit from, the negative shock.

    There is a pattern in current responses by business

    What are businesses doing now, if anything, and what are the differences in the strategies adopted by different firms?

    In the latest edition of the European CFO survey we asked over 1,000 CFOs operating in Europe what they are doing to make their company more resilient to a slowdown in global growth. The questionnaire provided a list of possible actions among which the CFOs had to select the five most important ones, taken or in planning. Although on average only a third of the sample actually expect a recession in their own country or the whole euro area, virtually everybody is preparing for a slowdown. European businesses are focusing on their customer base. Measures to bolster it come top of the rankings (Figure 1, blue bars). Broadening the customer base is the most popular strategy, with more than 50 per cent of respondents concentrating their efforts on different market segments or different regions.

    The second prominent area of action relates to financing (grey bars). Adequate access to capital is of vital importance for a company in a downturn and even more so in a recession. It is therefore sensible to secure new lines of credit and diversify financing sources when economic conditions are still favourable. However, other measures that could improve the financial position of the company – such as divesting unproductive assets or outsourcing non-core functions – are less popular (green bars). Such decisions are generally difficult to make, but exiting from investments and activities that are not working well frees up financial resources.

    As for the last set of actions – those relating to more strategic measures (yellow bars), European companies seem to be favouring the use of advanced technologies to improve efficiency, which is the third most popular strategy, with 45 per cent of respondents reporting that they are pursuing or planning to pursue it. Other strategic measures are less in focus. In particular, very few CFOs mention the need to “build up a pool of flexible workers” as something they are considering as a way to become more resilient. This result confirms that companies tend to manage the ecosystem of alternative workers more in a tactical rather than a strategic way, as the latest Deloitte’s Global Human Capital Trends Survey reveals.7

    What CFOs are doing, or plan to do

    Companies bet on three different resilience strategies

    To understand the strategic direction that European businesses are taking we went a step further and carried out a cluster analysis of the answers, to identify and group together observations that are similar based on the set of actions to build up resilience that they have taken or plan to undertake.8 Three high level clusters emerge, corresponding to three broad underlying strategies (Figure 2).

    The first group of companies seem to be focusing mainly on their finances. The vast majority of respondents within this group see putting the firm’s financing on a solid footing and reducing debt as the best way to withstand the next economic downturn. Many companies within the automotive and industrial products and services sectors are within this cluster.

    The second group of companies focuses more on their clients, strengthening their customer base or reassessing it, and also improving the marketing mix. Interestingly, respondents within this group are also more likely to be reassessing their current supply chain. Many companies in the consumer goods and retail sectors are within this cluster.

    Finally, the third group consists of companies that are focusing on using advanced technologies to improve efficiency as they put their customer base under the spotlight. They are also more likely to be looking at strategic acquisitions. Compared to the other two clusters, respondents in this group are much less likely to be considering retiring debt and reducing leverage: only 16 per cent selected this option, compared to 69 per cent and 44 per cent within clusters one and two respectively. In general, however, the answers within this third cluster are more diverse. In the first two groups there is a clear preference for a set of actions in the same area and other possibilities tend to be neglected.

    The CFOs in the survey might have very good reasons for concentrating on a single type of strategy, as their company may already be strong in the other areas. However, that might be a sign of short-sightedness if they have not considered the other aspects that contribute to resilience. Businesses that are in cluster two or three, for example, might be missing a crucial aspect if they have not thought about how their financing will look in the event of a downturn. If they want to focus on their customers, they will need to invest, which might be difficult if access to credit is limited. Similarly, while respondents in cluster one are right in securing access to credit while conditions are still good, they might miss out on opportunities if they have not thought enough about their customers as a source of strength during a downturn.

    Conclusion

    It is unclear when the next economic downturn will hit. But companies need to prepare now if they want to escape its worst consequences and exit the downturn in a strong position financially and relative to competitors. Our survey of over 1,000 CFOs across Europe reveals that businesses are indeed already preparing, focusing mainly on three sets of strategies. While each company is unique and there is no single measure that fits the needs of all, it is important to have a broad approach when selecting a course of action to prepare for a downturn

    The following steps might help companies gain a broad view for structuring the discussion and facilitating decision making:

    1. Look ‘down the line’: Think about how relevant markets and the industry are going to evolve not only because of economic slowdown but also as a result of structural change. What are the long-term forces that will shape the industry’s future over the next ten to 20 years? Identify the strategic areas of growth.
    2. Consider the necessary resources: Create some financial room for manoeuvre so as to be able to secure the right resources, in terms of human capital and technology, and finance the strategic areas of growth. This implies not only thinking about the current level of debt and possible sources of financing, but also considering divestment of underperforming or non-core assets while the market remains strong.
    3. Reconsider the current external network: Given the relevance of external networking to a company’s resilience, it is necessary to think of it as a strategic rather than a tactical asset, building up and forging collaborations that contribute to the long-term growth objectives of the company.
    Acknowledgments

    We would like to thank all participating CFOs for their support in completing this survey. We would also like to thank the CFO Survey Teams in each of the countries that collected the data from local CFOs. We would also like to thank Vivian Pereira and Zahir Bokhari of Deloitte UK for their contributions to this article.

    Cover artwork by: Mark Milward

    Endnotes
      1. Deloitte, “The next consumer recession. Preparing now”, 2018. View in article

      2. The following section and the empirical evidence referred to is based on the work of the following authors unless stated differently: Duchek Stephanie, “Organizational resilience: a capability-based conceptualization”, Business Research, 2019; Williams Trenton, Gruber Daniel, Sutcliffe Kathleen, Shepherd Dean, Yanfei Zhao Eric, “Organizational response to adversity: fusing crisis management and resilience research streams”, Academy of Management Annals, 2017; Barasa Edwine, Mbau Rahab, Gilson Lucy, “What is resilience and how can it be nurtured? A systematic review of empirical literature on organizational resilience”, International Journal of Health Policy and Management, 2018. View in article

      3. Deloitte, “The next consumer recession. Preparing now”, 2018. View in article

      4. Deloitte, “The next consumer recession. Preparing now”, 2018; Reeves Martin, Whitaker Kevin, Ketels Christian, “Companies need to prepare for the next economic downturn”, 2019, Harvard Business Review. View in article

      5. Gittell Jody, Cameron Kim, Lim Sandy, Rivas Victor, “Relationships, layoffs, andorganizational resilience airline industry responses to September 11”, 2006, The Journal of AppliedBehavioral Science 42: 300–329. View in article

      6. Berteschek Irene, Polder Michael, Schulte Patrick, “ICT and Resilience in Times of Crisis: Evidence from Cross-Country Micro Moments Data”, 2017, ZEW Discussion Paper 17-030. View in article

      7. Deloitte, Human Capital Trends 2019. View in article

      8. Cluster analysis is a statistical technique that, based on a mathematical definition of ‘similarity’, helps to identify groups of similar observations. There are various methods to define similarity and to aggregate observations. For this analysis, we used a hierarchical cluster analysis, applying the Ward method to create clusters and Euclidean distance to measure their similarity. After removing those respondents who did not diversify their answer, instead selecting all the available options, we analysed the answers of 916 CFOs in the Deloitte European CFO Survey, Spring 2019. View in article

    Show moreShow less

    Topics in this article

    Chief Financial Officer (CFO) , Strategy , C-suite , Economics , Growth , Europe Middle East Africa (EMEA) , Leadership , Resilience

    Deloitte's Global CFO Program

    Deloitte's Chief Financial Officer (CFO) Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead in the face of growing challenges and demands. The program harnesses our organization's broad capabilities to deliver forward thinking and fresh insights for every stage of a CFO's career – helping CFOs manage the complexities of their roles, tackle their company's most compelling challenges and adapt to strategic shifts in the market.

    Learn more
    Get in touch
    Contact
    • Christopher Nürk
    • Managing partner Clients & Industries | HR
    • Deloitte Germany
    • cnuerk@deloitte.com
    • +49 7111 655 47 315

    Download Subscribe

    Related content

    img Trending

    European CFO Survey Autumn 2018

    From Deloitte.com
    img Trending

    Eurozone economic outlook, December 2022

    Article 1 month ago
    img Trending

    Global Weekly Economic Update

    Article 4 days ago
    img Trending

    The duct tape guide to digital strategy

    Article 3 years ago

    Explore the CFO Collection

    • The open talent economy Article9 years ago
    • The journey to CFO Article11 years ago
    • Navigating change: How CFOs can effectively drive transformation Article10 years ago
    Dr. Michela Coppola

    Dr. Michela Coppola

    Senior Economist EMEA Research Centre

    Michela is a senior economist and the research lead within the EMEA Research Centre. She liaises with partners around the firm to identify, scope and develop international thought leadership. Michela leads Deloitte’s European CFO Survey, working closely with local teams to ensure the European report provides relevant and valuable insights from both regional and national perspectives. Before joining Deloitte, Michela developed thought leadership for Allianz Asset Management, with a focus on demographic changes and long-term savings and investments. Michela has a PhD in economics. 

    • micoppola@deloitte.de
    • +49 89 29036 8099

    Share article highlights

    See something interesting? Simply select text and choose how to share it:

    Email a customized link that shows your highlighted text.
    Copy a customized link that shows your highlighted text.
    Copy your highlighted text.

    Building business resilience to the next economic slowdown has been saved

    Building business resilience to the next economic slowdown has been removed

    An Article Titled Building business resilience to the next economic slowdown already exists in Saved items

    Invalid special characters found 
    Forgot password

    To stay logged in, change your functional cookie settings.

    OR

    Social login not available on Microsoft Edge browser at this time.

    Connect Accounts

    Connect your social accounts

    This is the first time you have logged in with a social network.

    You have previously logged in with a different account. To link your accounts, please re-authenticate.

    Log in with an existing social network:

    To connect with your existing account, please enter your password:

    OR

    Log in with an existing site account:

    To connect with your existing account, please enter your password:

    Forgot password

    Subscribe

    to receive more business insights, analysis, and perspectives from Deloitte Insights
    ✓ Link copied to clipboard
    • Contact Us
    • Submit RFP
    • Media enquiries
    Follow Deloitte Insights:
    Global office directory Office locations
    ZA-EN Location: South Africa-English  
    About Deloitte
    • Home
    • Newsroom
    • Code of Conduct
    • Report unethical conduct
    • Office locator
    • Global Office Directory
    • Press releases
    • Submit RFP
    • Contact us
    • Deloitte Insights Blog
    • Social Media
    • About Deloitte in Malawi
    • About Deloitte in Zimbabwe
    • About Deloitte in Mozambique
    • About Deloitte in Botswana
    • About Deloitte in Zambia
    • https://sacoronavirus.co.za
    Services
    • Audit & Assurance
    • Consulting
    • Financial Advisory
    • Risk Advisory
    • Tax & Legal
    • Deloitte Private
    Industries
    • Consumer
    • Energy & Resources
    • Financial Services
    • Life Sciences & Healthcare
    • Government and Public Services
    • Technology, Media & Telecom
    Careers
    • Job search
    • Experienced Hires
    • Executives
    • Students
    • Life at Deloitte
    • Alumni
    • About Deloitte
    • Terms of use
    • Privacy
    • Cookies
    • PAIA Manual
    • About Deloitte Africa
    • Avature Privacy
    • Standard terms for the provision of goods and services to Deloitte & Touche

    © 2023. See Terms of Use for more information.

    Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities.  Please see www.deloitte.com/about for a detailed description of DTTL and its member firms.