Are you prepared for the economic downturn?
The signs of an upcoming economic downturn are intensifying, leading to increased uncertainty. This is why company leaders are well-advised to check their structures and processes for their suitability in difficult economic times. The top priority is to make the company more efficient and scalable. But how? hpo’s enterprise design offers a solution for this.
Enterprise design enables new flexibility and scalability
The strategic enterprise design of hpo is a unique and scientifically-based methodology for the design of companies: to do the right thing (positioning) better (responsible organisation).
The enterprise design gives each company a clear purpose and develops a clear value proposition. The company is consistently designed based on this promise: hpo develops the structure of the products and services using strategic positioning and the value proposition. From this, in turn, we can derive efficient processes with clear value-added steps and end-to-end responsibilities as well as a corresponding logical management structure.
The hpo enterprise design approach is individually tailored to the client’s needs, implementation-oriented, and continuously developed with the latest findings in the industry. The enterprise design offers the optimal solution based on a scientific design approach in which each step is derived logically from the previous one:
- Strategy and business process design for better added value;
- Business model and innovation design for the development of innovations;
- Cultural design for the empowerment and motivation of employees.
Enterprise design means doing the right thing better.
The enterprise design brings new flexibility and scalability, enabling a company to respond quickly. The enterprise design ensures optimal performance and thus creates the conditions for a high-performance organisation in the 21st century.
Dr. Fabienne Meier, Strategic Marketing
The prospects of an economic crisis are increasing
According to hpo forecasting1, what are the four reasons for an imminent economic crisis?
1st The analyses by hpo forecasting show that consumer and industrial cycles have reached or clearly exceeded their peaks in all major economic regions as expected. One year ago, Peter Meier wrote in an NZZ article that this is a reliable indicator for an impending economic crisis that occurs only every 7 to 12 years.2 With the Peter Meier Forecasting Model, hpo forecasting was able to predict and accurately date the impending crisis about two years ago.
2nd We now see falling figures for incoming orders in almost all capital goods sectors, but still at a high level. Incoming orders have already declined significantly in early-cycle industries such as the semiconductor industry. In the last two quarters, global demand for semiconductors has already shrunk by about 20 percent – the biggest decline since the crisis in 2008.
3rd In the past quarter, we have observed a steep decline in business confidence in Europe, the USA, and Asia (see chart). In the past, such a synchronized and drastic drop in business confidence was usually observed only before major economic crises. The Business Confidence Index (BCI) in the USA and Europe reached level 100 at the end of April 2019. Values below 100 mean a negative outlook.
4th The American yield curve, which has been much discussed in the business press, has flattened considerably and fell into negative ground on 13 May 2019.3 In the past, an inverse yield curve has announced economic crises with a high degree of reliability.
However, for a reliable signal it would have to fall even stronger and longer into the negative range. According to hpo forecasting, the fact that the financial markets have not yet come under higher pressure has much to do with the monetary policy of the central banks and little to do with the real economy. How long will the financial markets be able to withstand the pressure of the real economy? The next few months will show.
Companies heavily exposed to the economic cycle must prepare themselves for a longer-lasting downturn. This mainly affects sectors such as mechanical engineering. As the economy weakens, there is also an increased risk of various bubbles bursting in the financial market. These bubbles have their origins in the extremely expansive central bank policy of the last ten years. The risk of a new financial crisis is increasing, and this would then also have adverse effects on almost all other sectors.
1 hpo forecasting ag is a sister company of hpo management consulting ag and is specialized in economic forecasts: hpoforecasting.com
3 Analysis: Government bonds with a term of 10 years vs. 3 months
Enterprise design enables efficiency – this is particularly important in a downturn
Why does a company need to adapt its performance to economic changes? Because each company has an operating point at which performance is optimal.
All companies are subject to economic fluctuations. Naturally, they tend to find it easier to tackle the challenges of an upswing than to deal with the consequences of a downturn.
Challenges of economic change
When the economy changes, the key challenge for every company remains to maintain its efficiency. Thus, the company’s performance and the preservation of the company value are always the main focus. Each upturn or downturn causes the company to deviate from its ideal operating point. The operating point is the point at which the output/input ratio is at its optimum. Once companies are outside a tolerance range of +/–10 % above or below this operating point, the performance changes. It is interesting to observe in hpo projects that a slight overload has a better effect on performance than a slight underload.
Consequences of an economic downturn
During an economic downturn, a company often deviates from the optimal operating point. Consequently, plan deviations quickly occur and usually have drastic consequences for the overall company performance.
The main reason for this is relatively simple: Companies are not designed to react to volatility in the long term. The reasons for not being designed to respond to volatility are complex. It can usually be equated with a “system error.” Companies that are better able to cope with volatility will survive in the long term. But this also means that a company must question itself in its actions and be open to new approaches. One way to prepare for the challenges of volatility is to implement a strategic enterprise design.
Strategic enterprise design as an ideal starting position
A strategic enterprise design ensures that a company can achieve its full performance capability, both at the planned “operating point” (measurable point for optimal performance) and when economic fluctuations cause deviations from the planned operating point. A strategically designed company can adapt its system (consisting of employees and processes) more quickly to the new situation.
The strategic enterprise design ensures that the following elements are coordinated and have a positive influence on performance:
- Value creation: The entrepreneurial risk can be reduced if the service provided by the company is clearly aligned and differentiated.
- Core competencies: The development of own differentiating capabilities and the decision to make or buy (i.e., produce or buy services yourself) guarantees a focus.
- Business processes: The processes defined to create added value are aggregated, consolidated, and coordinated in a superior business process model.
- Cost structures: A flexible cost control system, which quickly measures changes in the ratio of variable to fixed costs, enables rapid response in the event of deviations.
- Agility: The permanent staffing of success-critical positions (e.g., trend recognition and evaluation), as opposed to an annual survey, ensures the optimal response to changes
With a stringent enterprise design approach, companies can be positioned optimally for the challenges associated with volatility. This creates the prerequisites for a sustainable high-performance organisation that can assume responsibility and works agilely, even in turbulent times.
Stefan Zirhan, Partner
“By supporting hpo, we were able to harmonize higher-level business processes, from sales and engineering to delivery and innovation processes, while uncovering inefficiencies. At the same time, we have optimized interfaces and initiated implementation in the form of the introduction of new processes and adaptation of organisational units.
Our employees were supported by training courses and guided through various workshops. The systematic and integral method of hpo and the necessary tact in empowering our employees have generated the decisive momentum for the long-term strengthening of our company.”
More efficiency by identifying key growth levers for a financial service provider
Practical case (anonymized)
A financial service provider was taken over but only partially integrated by a universal bank about three years before the cooperation with hpo.
Aim of the project
The objective is to (re)focus on the efficient provision of core services that had not been transferred to the parent company. This would involve an increase in their agility, a stronger focus on resources, and better use of economies of scale.
The first step was to identify the actual client’s needs – of the parent company and external clients – and to define a suitable value proposition. Key issues included: What does the parent company expect from us? Which new client segments could be targeted? This was followed by defining the roles and deriving the service offering for internal and external clients, including the necessary core activities. Key issues, among others, were: Which internal role do we want to take on in the future (service provider and/or partner)? What skills do we need to achieve this?
Benefit for the client
Three key growth levers were identified in the area of the product range. The precise structure of future products or services makes it possible to define very precisely the activities that are necessary to provide the services offered. The highly efficient business process model derived therefrom creates the prerequisites for a scalable organisation that can be optimally adapted to demand fluctuations.
Dr. Oliver Kohler, Managing Partner
More efficiency through a strategy-based ERP system in an industrial company
Practical case (anonymized)
The introduction of a new ERP system* is not only a resource-intensive but also a long-term investment. To create the right basis for the introduction, it is crucial to think about the basic functioning of the company and the business processes to be digitized. In an initial project, the company can carry out a strategic enterprise design. In this, the company determines a value proposition structure derived from the strategy, the business process model (to provide the services as efficiently as possible), and the required management structure. The results of the project are the basis for a successful introduction of an ERP. The following project description is intended to provide insight into the course of a project at an industrial company.
Aim of the project
The management of a manufacturer of electric drives recognized that the introduction of a new ERP offers a unique opportunity to redesign the historic process landscape. A strategy-based business process model was to be developed as the basis for the ERP and, in the further course of the project, the management structure was to be reviewed accordingly and adjusted if necessary.
- Phase 1: Analysis of the actual situation
Identification of process-related and structural gaps based on industry-specific design criteria and presentation of optimization potentials.
- Phase 2: Development of the business process model
Development of the business process model according to defined design criteria and derivation of the optimal management structure (including job descriptions for the functions critical to success).
- Phase 3: Business process design
Anchoring of the business process model in work processes and work instructions, comparison with design possibilities of an ERP (to obtain the optimal starting position for the specification of the ERP), and determination of the resource allocation.
By involving the service providers, it was possible to develop a broadly based solution that made a relevant contribution to implementation security.
Thanks to a clear and systematic approach and the involvement of the service providers, a business process model was developed and designed according to the “high performance” design criteria. The top-down approach resulted in a focus on the processes on the essential activities. This eliminated idle powers and redundancies and, in addition to an optimal starting point for ERP implementation, also achieved an efficiency increase potential of over 10 %.
Stefan Zirhan, Partner
* ERP system stands for “Enterprise Resource Planning.” ERP systems are business management software solutions for controlling business processes.
More efficiency through modernization of health care structures
Practical case (anonymized)
Although the health care system is little affected by economic influences, cost efficiency, and quality assurance have been the order of the day in this sector for years. In our consulting activities, we repeatedly encounter organisations with historically grown structures. This is also the case with a cantonal psychiatric clinic. Before the project began, the organisation was characterized by a high degree of complexity and a stringent organisational and procedural separation between outpatient and inpatient service provision. This led to many duplications and a lack of continuity in the various forms of treatment.
Many employees in the clinic were aware that there was a need for action concerning organisation and processes; at the same time, a great deal of skepticism towards organisational changes was noticeable among the staff and management. The management decided on an offensive and involving approach to address the problem. The top medical and nursing management was invited to join a workgroup to jointly develop new processes and structures that could better address the needs of patients.
hpo accompanied this process. In this role, we conducted many bilateral discussions, developed methodically stringent proposals for optimized processes and structures together with key persons, and moderated the workshop group with determination and the necessary tact and sensitivity. hpo not only supported the development of the target model but also accompanied the psychiatric department in the detailing and implementation of the reorganisation as a partner in all aspects of the transformation process.
The organisation has now been working with the new structures and processes for several years. The implementation has been a complete success:
- The merging of the outpatient and inpatient sectors has massively improved cooperation – continuity of treatment across different settings (outpatient, day-care, and inpatient forms of treatment) is now a matter of course.
- The creation of centers with clear priorities created the basis for a clearer orientation of the institution and a further increase in the quality of treatment.
- Various measures were taken to improve both quality and efficiency. One crucial step, for example, was the creation of a central admissions department with highly qualified and experienced staff. This measure ensures that patients are cared for by the right specialists from the first day, if possible. The centers are relieved of the time-consuming triage process (professional assignment of patients to the most suitable center).
- Despite significant changes, these were well supported within the organisation and carried by a broad base.
The house of adult psychiatry
Benefit for the client
The creation of clear structures and processes has massively reduced organisational complexity. The framework conditions for real treatment continuity across all phases of the patient’s care have been created. The introduction of a central admissions department with highly qualified and experienced staff led to significant improvements in terms of efficiency (relief for staff, fewer transfers, shorter waiting times for patients) and quality (patients are cared for from day one in the environment that is best for them).
Josua Burkart, Partner
“The University Hospital Zurich combines top performance in medicine and research for the best possible and efficient medical treatment of its patients. The USZ secures this position with a long-term strategy – a complex task given the more than forty clinics and institutes that belong to it.
Thanks to hpo, we have successfully developed our corporate strategy in a transparent process. Many stakeholders were involved in the process within a short space of time, and our high demands on the quality of the strategy and the implementation preparations were more than fulfilled. In cooperation with us as an expert organisation, hpo has set standards with its experience and its systematic approach.”
Your partner for strategy and enterprise design
Who is hpo?
hpo makes companies more successful and more innovative. The strategy consultancy for enterprise design boasts more than 20 years of experience in the creation of strategies and organisations spanning many different industries. The management consultants at hpo specialise in the meticulous development of strategies, processes, business models, innovation and culture, and in the consistent alignment of these together with their targeted implementation.
The hpo design approach enables companies to better cope with strategic and organisational challenges and to realise substantial competitive advantages. The basis of the industry-spanning design approach is an academically grounded methodology with which companies are shaped and which is continually further developed with the latest findings from research and practice.
The management consultants at hpo come from a commercial or technology background and stand out with their high level of analytical and emotional intelligence. They are passionate in their dedication to the client’s concerns and enjoy working in a team.
hpo – we design organisations