Most corporations tend to stick to their long-term strategies during economic downturns, or do they?
We made the assertion that strategy overrides cost cutting as a key part of our 2009 State of the Industry Report. But that was last March, and our findings were based on three time frames over eight years including the Dot-Com crash.
Since then, the realization of the broadest and deepest downturn in modern memory sank in – making it essentially different from any before it.
So even report co-author Rob Osgood, whose research involved more than 100 Fortune 1000 companies over the span of eight years, admits this downturn probably tipped the scales. Unprecedented levels of uncertainty brought equally pressing need for extraordinary cost cutting and consolidation.
“It’s more likely in today’s context that more companies began to place higher-than-normal emphasis on value protection over value creation,” acknowledges Osgood, who is a principal with Madison WI-based Flad Architects.
In other words, contrary to the findings from last March, cost cutting and efficiency became more pronounced than strategy and effectiveness.
The report was also based in part on findings from our study tracking the economy’s impact on corporate real estate (CRE). We’ve run the same survey several times since the summer of 2008, preceding Black October. The latest results, gathered in September 2009, confirm Osgood’s observation.
Nearly 150 senior-level CRE executives were surveyed. They rank efficiency and cost reduction as the leading criteria, ironically, to make strategic real estate decisions in the coming 12 months. Effectiveness and productivity were ranked second, followed by other factors like employee attraction, geography and sustainability.
Unprecedented levels of uncertainty brought equally pressing need for extraordinary cost cutting and consolidation
Coming Up for Air
So while more companies – along with their CRE organizations – were hunkered down in a survival mode over the course of 2009, Osgood sees signs they’re coming up for air and are beginning to look ahead again.
“More of our clients and prospective clients are adding growth strategies to support their planning for 2010 and beyond,” he observes. At a minimal level, they’re adding contingencies to expand budgets, staffs, outsourcing and other resources that drive and support growth. If things continue to improve, they will pull the trigger on these contingencies.
The recent tracking survey supports the observation.
As of October 2009, one-fifth (20%) of respondents expected to see CRE capital budgets to increase last year, compared to 15% in April 2009. At the same time, more than one-third (34%) expected no change in the levels of their CRE capital budgets, compared to less than one-fifth (18%) in April 2009.
We get more supporting evidence that things appear to be improving on the strategic focus front from Sven Govaars, a contributing author to the 2009 State of the Industry Report. He launched Govaars Consulting Group in 2009 after leaving the strategy group of a corporate services firm.
Bridging the Divide
“When I do a diagnostic with a company, I ask for their organization charts,” Govaars relates. “Then I watch and probe how decisions are made. They rarely match. It’s what a company does, not what they say, as seen through their activities, that matters.”
The pressure of the moment pushed many enterprises into short-sighted reactions that may undo enterprise alignment. “Bottom-line, you can’t get around the need for near-term cash, even more vital today so it’s difficult staying true to a long-term strategy,” Govaars asserts, “and management rewards handsomely in the short-term.”
Companies need to both reconcile their need for cash to stay in business for a rebound, if it gains traction, and also be executing a strategy to capitalize on the opportunity when it appears, he adds.
Govaars senses it’s a good time to emphasize strategic alignment solutions again – another theme central to the 2009 State of the Industry Report.
With signs of an economic shift, getting companies to ‘walk the talk’ of strategy instead of just paying lip service to it may be improving, too.
Remember the litany of paradoxes characterizing this period? This is another one of those running contradictions. But as Govaars summarizes the situation, there are solutions, starting with balance. He believes there are many answers to address the tug-of-war between efficiency and effectiveness, starting with this one: “Reduce bottom-line costs while supporting top-line strategies.”
‘It’s what a company does, not what they say, as seen through their activities, that matters'
Workplace Strategies Are Only One Arrow in the Corporate Quiver
As our research shows from September 2009, the economic outlook is improving.
Efficiency turned out to be the main driver in this economy, yet the survey also shows effectiveness remains an important decision factor. Alternative workplace strategies have, until now, been seen in the light of effectiveness, so it’s not surprising that AWS remain one of the main economic responses, but right now it’s more about cost reduction than even productivity.
But it’s part of a mix that also includes portfolio management and flexible leasing strategies.
In fact, the rate of telework adoption actually fell slightly compared to the last time we did this survey in April 2009. It’s still way up on the CRE radar screen, as well as with the C-Suite, but other types of cost-saving actions linked to portfolio management in general are also noteworthy.
Still workplace is a big driver.
Our survey also shows expectation for recovery is more in 2011, not 2010, so cost management will remain a big factor. AWS adoption would remain robust, as part of this.
INDUSTRY TRACKER – January 2009 LEADER Magazine