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Managing Growth While Balancing Opportunity and Risk in Today's Climate

by Cindy Jutras | insiderPROFILES

July 1, 2010

Optimism is high: 80% of surveyed companies expect to grow revenues in the coming year. But is it safe to assume this growth? Aberdeen Group’s research points to opportunities on the horizon, but it also emphasizes the need for companies to properly manage risk and cost avoidance in their pursuit of growth and profits.
 

Some businesses have enjoyed growth in spite of the struggling economy, and a small few have actually benefited from it. But the vast majority of companies have faced troubled times. The events of 2008 and 2009 may not be remembered with the same clarity as the stock market crash of 1929, but this “Great Recession” will certainly go down in history.

However, based on thousands of survey responses collected in late 2009 and early 2010 for the quarterly Aberdeen Business Review, it seems that the upcoming year is already optimistically marked for economic recovery and significant opportunity.*

 *“The Economic Outlook for 2010: High Growth? Low Growth? No Growth?” available at www.aberdeen.com/aberdeen-library/6475/AI-economic-recovery-recession.aspx (December 28, 2009)

A First Glimpse of Economic Recovery

The change in overall revenues from 2008 to 2009 came up flat; the average growth rate was a tenth of a percentage point. Operating profits increased slightly at 0.5%. In the context of the worst recession since the Great Depression, these numbers could have been far worse — but business leaders took early action in staving off losses by reducing headcount and budgets, and the last few months of 2009 were marked by relative stability.

In late 2009, responding companies projected a turnaround in revenues and profits to the tune of 10.5% and 8.6%, respectively, while increasing their payrolls and overall budgets by a healthy 4.3% each. See the chart below for a glimpse of how companies are already demonstrating the start of an economic recovery.

From past to present

Upturn Optimism Confirmed in 2010: Opportunity on the Horizon

In light of this relative optimism, Aberdeen decided to keep a close eye on quarterly trends and, in March of this year, asked for the same revenue and profit predictions for 2010. While we would not have been surprised to see this optimism tempered after the start of 2010, in fact we’ve seen predictions creeping up, not down. See the chart below to see the projected average growth rate for businesses in the coming year.

Optimism remains high

Is It Safe to Assume Revenue Growth?

These trends signal that businesses see opportunity on the horizon. At Aberdeen, we would assign a fairly high level of business risk in assuming this level of growth. A full 80% of surveyed companies expected to grow revenues in the coming year, and 51% noted revenue growth as one of their top two business goals for 2010. Yet, when asked to rate the challenges they faced while trying to meet their goals (on a scale of 1 to 5, where 5 was their top challenge), the challenge that emerged at the very top was economic conditions, with an aggregate score of 3.6.

Immediately, this identified challenge raises a red flag. It implies that the economy must recover in order for many of these companies to meet their goals. However, only 21% of respondents believe the recovery is already underway, and 36% believe the economy will not recover until 2011 or beyond. Plus, few believe the recovery will be anything but slow. See the chart below to see respondents’ thoughts on the current and future state of the economy.

When will the economy recover?

Time to Rethink Business Strategy: Managing Security and Risk

Another source of risk is a company’s inability to execute against its business strategy. Indeed, this was ranked second in terms of challenges to the achievement of business goals, with a score of 3.1. Even as the global economy works its way out of a recession, business executives have to rethink their attitudes and approaches to financial strategy and planning, as well as their ability to manage governance, risk, and compliance. With the economy in flux, adaptability and agility in financial planning and forecasting continue to sit atop the corporate agenda.

Coupled with the current regulatory climate, unstable economic conditions only serve to exacerbate an already challenging environment. Accordingly, this introduces new risk elements beyond that of simply not meeting market expectations or adhering to the financial community’s guidance. Elements of security and fraud start to emerge, and additional risk factors can come from a variety of sources.

For example, in a recent survey of financial executives on the topic of global payments, 38% of respondents had been the subject of attempted or actual payment fraud in the last 12 months. More than half (54%) of these attempts came from employees or external users (business partners). These results clearly demonstrate the need for improved access and process controls — many companies are turning to software tools such as SAP BusinessObjects governance, risk, and compliance solutions to meet these needs.

Examples of risk span the enterprise. Today’s global supply chain is a massive network of third-party suppliers, contract manufacturers, service providers, and customers. Regulatory requirements are increasingly going into effect — and there’s no one-size-fits-all regulation that spans industries. Noncompliance in the supply chain leads to inefficiencies such as poor service levels, increased expenses, and costly penalties, which in turn could tarnish a company’s brand and name. Further examples of vulnerabilities come from the results of our fourth quarter 2009 Aberdeen Business Review research, in which 57% of all surveyed companies indicated that they had responded to the economic downturn by reducing personnel costs (along with other cost-saving efforts). Of these respondents, more than half (56%) had executed a workforce reduction through layoffs.

Security concerns related to both access and process controls are only heightened when workforce reductions are the result of such an unpleasant situation as layoffs. Not only does financial performance and regulatory reporting come under intense scrutiny, but the overall risk of unauthorized access becomes a legitimate threat to the business. SAP BusinessObjects Access Control, SAP BusinessObjects Process Control, SAP BusinessObjects Global Trade Services, and SAP BusinessObjects Risk Management are among the tools companies can implement to combat these threats.

As You Pursue Growth, Don’t Lose Sight of Risk

At the start of 2010, the projection for the economy remained precarious. But by the second quarter, many companies were optimistic about prospective growth opportunities. Above all, it is important to not lose sight of the risks inherent to growth on top of such an unstable base. At Aberdeen, we would advise companies to properly manage risk and cost avoidance in their aggressive pursuit of growth and profits.

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