Companies trying to ride out the COVID-19 crisis – an event that may trigger the most severe recession in decades – need to take decisive actions now to come out standing, and the top firms to survive the last recession offers key lessons.
That’s one of the main findings in an executive briefing by consultancy McKinsey & Co., calling on companies around the world caught in the drastic downturn to “act promptly” and “take steps to protect their employees, customers, supply chains and financial results.”
A key aspect for companies to look at in the firms who emerged from “The Great Recession” in the late 2000s, the report said, is those firms’ resilience in addressing near-term cash management while simultaneously dealing with unexpected disruptions affecting the medium to long term.
The McKinsey report pointed to the automotive sector emerging post-2011, where the top 20 per cent of the highest-performers in total-returns-to-shareholders (TRS) significantly outperformed the bottom 80 per cent coming out of the recession.
“Two words... define their success: Speed and discipline,” the report said. “These [resilient companies] didn’t have any particular starting advantage... Instead, they managed to achieve a small lead, which they then extended over the next 10 years.”
What the top 20 per cent “resilients” did, the report said, was to identify/prioritize risks and exposure to the current crisis, develop a company-specific range of scenarios from the highest risks, then implementing tighter cash controls to mitigate. Companies then kept a “dashboard” of indicators that is updated regularly to monitor potential changes in the marketplace as the current crisis evolves.
The cash-control initiatives are separated into three categories: Fast actions that are painful but necessary (such as writing off old stock), immediate cash opportunities (like payment terms re-negotiations), and long-term structural change (like automating reorders/billing systems and standardizing parts).
The key is speed, the report said: “Compared to non-resilients, resilience increased revenue by 30 per cent, reduced operating costs by three times and moved 12-24 months earlier.”
The full report is available at broadcast.mckinsey.com/107/3058/uploads/covid-19-facts-and-insights-march-25.pdf.