Turning economic tide requires reassessment of strategic priorities

16 April 2019 Consultancy.eu

Risks of a downturn in Europe continue on the horizon as various risks to (global) growth come together. A new survey of operations managers in Europe shows that around half expect a downturn somewhere in 2019, although few expect a recession. Leaders in financial services are the most pessimistic, while automotive respondents are the most likely to expect a downturn.

The financial crisis, born from a chain of activities on the back of risky lending by banks combined with poor risk governance as well as an inflated real estate market in the US, nearly collapsed the global economy. The decade that followed saw recovery, with recent years seeing sustained economic growth in Europe, booming equities and positive sentiment among companies and investors.

However, stability may be giving way to uncertainty in Europe. Global headwinds from a trade spat between the US and China, fallout from Brexit, as well as the rise of populism – particularly in Italy, Austria and the Netherlands – means that the tide is turning. Changes to monitory policy are also on the cards, with interest rates expected to rise in Europe and in the US. Meanwhile, the Chinese economy is projected to slow, while growth of other fast growing emerging market economies is stagnating.

Economic expectations - Overview

A new report by Roland Berger, titled ‘Operations Efficiency Radar’, highlights the changing sentiment among European business leaders. According to the study, the number of respondents expecting a downturn this year stands at 48%, up from 17% last year. Few, 2%, however expect a recession, comparable to the view last year.

The sentiment comes on the back of worsening key economic indicators, the researchers note. The number of restructuring cases has increased, global stocks fell 10% over 2018, and there are an increasing number of profit warnings across industries. Market volatility is also up, while business confidence and expectations have trended down over 2018. Profit warnings by companies have gone up, in particular in Europe’s largest economy Germany, and further interest rate hikes are looming around the corner.

Different industries have considerably different expectations. The most pessimistic industry is financial services – 11% of its professionals expect a recession this year and 33% a downturn. The automotive industry meanwhile has the highest number of leaders expecting a downturn, at 92%, followed by industrial products, at 56%. The most optimistic industry is chemicals/pharma, with 36% expecting a boom, followed by consumer goods and retail at 33%.

Economic expectations by industry

The changing market conditions are prompting leaders to change some of their strategic planning and priorities going forward. The automotive industry operations leaders are set to focus on production (79%), working capital management (79%), and product portfolios (77%). Aerospace and defence firms are set to focus largely on production (73%) and controlling & finance (66%), followed by procurement (64%) and product portfolios (61%). Industrial products companies are set to focus their operation priorities on product portfolio (75%), production (69%), and procurement (63%).

For four other industries studied – chemicals & pharma, consumer goods & retail, industrial services and financial services – product portfolio, which includes rationalising, optimising and innovating products, is the top strategic priority.

Commenting on the findings, the authors state, “The first consequences of the fragile environment are already visible in a number of indicators. Company leaders should use the results to challenge priorities throughout 2019, review their early warning systems, fine-tune and/or re-assess budgets and investments and consider crisis preparation scenario’s.”

Related: 13 business and technology trends for 2019.


More news on

13 business and technology trends for 2019

28 February 2019 Consultancy.eu

In a new thought paper, consultants from The Next Organization have identified 13 business trends and technology-driven developments which they predict will have a disruptive impact on society and organisations in 2019. An overview of the trends.

Better self and a better world 

Consumer wellbeing; towards a more ethical lifestyle
Consumers start to understand that the current impact of human beings on the world needs to be changed. This mean that people not only start to live healthier (nutrition), but also want to have more insights in the origin of food and goods. In 2019, the following ethical trends will predominate: plastic-free produce, plastic-free packaging, compostable carrier bags, plant-based foods, natural fabric clothes, clothing re-sale and recycling schemes. 

Middle class movements
The middle class have always been an important target group, as they are both the foundation and driver of consumer markets. The middle class rise versus retreat movement asserts that while middle classes are booming in developing countries, they are struggling to maintain the economic position they enjoyed for decades in developed countries. 

Sustainable Business Models
Growth is at the heart of the business model. But the foundation of this model was developed decades ago. Over the last year a new term has been rising up – the sustainable business model (SBM). SBM’s aim to generate profit by providing products and services that directly and/or indirectly reduce the pressure on the (social) environment. With the upcoming 2020 climate goals of the European Union and significantly increased general awareness, SBM’s are emerging rapidly. 

13 business and technology trends for 2019

People are getting more and more aware of their health and the methods they can implement in order to prevent diseases. With this movement, a new trend has emerged and will rapidly grow in 2019: biohacking. This movement basically involves controlling external stimuli leading to the creation of the optimal self. It is about hacking the body using natural or technological resources to maximise physical and mental performance. 

Immersive interactions

The experience economy
In an experience economy, organizations fulfil a different role in society and serve customers differently. Namely, they do not merely provide customers with product and services, but they focus on providing customers with personal and memorable experiences. Moving from extracting commodities, making goods, delivering services to creating experiences, that is where the origins lie of the experience economy. In 2019, the experience economy will evolve further. 

Augmented Reality and Virtual Reality
Augmented Reality (AR), adding digital elements to a live view by often using a camera on a smartphone, and Virtual Reality (VR), offering a complete immersion experience out of the physical world, have been around for a while now. In 2019, some of the technological boundaries that have prevented these technologies from really picking up steam will be removed, creating possibilities in both B2C and B2B contexts. 

Voice technology
The rise of voice technology is clear. In the US for instance, every fifth living room or kitchen is equipped with a smart speaker nowadays and 73% is using it mainly for actualities and entertainment (e.g. news and music). The technology enables voice assistance through a smart speaker which creates a three-way interaction between devices, services and people. 

Beyond human capacity 

Artificial intelligence and Machine Learning
Artificial Intelligence (AI) and Machine Learning (ML) are hot. AI refers to the broader concept; the ability of computer systems to perform tasks commonly associated with ‘intelligent (human) beings’. ML allows a computer application/program to recognise and learn from patterns in data as well as to improve capabilities without human assistance. AI and ML will both play a crucial role in delivering personalised content experiences, with marketers set to adopt AI and ML in order to stay ahead of the competition.

13 business and technology trends for 2019

3D printing
In 3D printing (3DP) – also known as additive manufacturing (AM) – a design is created of an object using software, which the 3D printer then uses to create the object by adding layer upon layer of material until the shape of the object is formed. The object can be made using a number of printing materials, such as plastics, powders, filaments, paper or fabric, but also living tissue (bioprinting). 3DP offers the possibility to create whatever you can think of, you name it and a 3D printer can make it. In 2019, 3D printers will be more visible in daily life as the technology becomes cheaper and more accessible.

Internet of Robotic Things
Internet of Things (IoT) and Robotics are trends that are not new in itself. IoT refers to a network of billions of physical devices around the globe. These devices are equipped with Internet-connected sensors that provide ongoing data collection and sharing. Combining robotics and artificial intelligence by sensor technology is also referred to as ‘Embodied Cognition’ – implying robotic systems to perform tasks that are learned by means of training (and by which they become self-learning). IoRT is the next level of IoT; integrating sensors into robotic systems. 

Secured sharing

Privacy, morality and trustworthiness
In 2019, a tipping point is expected to be reached in the area of privacy. Trust issues, for instance faced by social media giant Facebook, continue to grow in a larger discussion on moral standards and privacy, since these form the fundament for society and organisations. 

Open ecosystems
There is a shift from using closed technical infrastructures to open platforms that enable a complete (digital) ecosystem available to everyone. In 2019, ecosystems will continue to evolve. With more and more devices connected, the amount of data available is endless and with the first 5G devices entering this year, the availability and speed of data will rise. Moreover, businesses with different profiles but operating in common markets with common customer profiles will seek to strike mutually beneficial partnerships. 

Blockchain technology is a technique to store information in a decentralised manner in order to achieve transparency. Blockchain is a distributed ledger across a peer-to-peer network with miners that make sure the interactions done on the chain are legit. In the past year, more and more organisations started experimenting and building with the blockchain technology, and this trend is forecasted to continue into 2019. 

For more information, download the publication ‘Trend Report 2019: A world full of change’ from the website of The Next Organization.