What is the best way for companies to react to economic fluctuations?
All companies are subject to economic fluctuations. However, they tend to find it easier to tackle the challenges of an upturn than to deal with the consequences of a downturn.
Successful companies can quickly respond to volatility
Challenges of economic change
When the economy changes, the main challenge for every company becomes to maintain its efficiency. Thus, the company’s performance and preservation of its value are always in the foreground. Each upturn or downturn causes the company to deviate from its ideal performance level (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 very often deviates from the optimal operating point. The result is a rapid change in plans, which usually has drastic consequences for the overall company performance. The main reason for this is relatively simple: Companies are generally not designed to respond to volatility in the long term. The reasons why companies are not geared towards volatility are complex. It can usually be equated with a “system error”. Companies that handle volatility more effectively will survive in the long term. However, 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 point
The strategic enterprise design ensures that a company can achieve its full performance, both at the planned “operating point” (measurable point for optimal performance) and in the event of a deviations thereof caused by economic fluctuations. In a strategically designed company, the system (consisting of employees and processes) can adapt more quickly to new requirements and opportunities.
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 differentiating skills and the decision to make or buy (i.e., produce or procure services) guarantees a focus.
- Business processes: The processes defined to create added value are aggregated, consolidated, and coordinated in a superordinate business process model.
- Cost control system: A flexible cost control system, which quickly measures the change in the ratio of variable to fixed costs, enables a rapid response in the event of a deviation.
- Agility: The permanent staffing of successcritical areas (e.g., trend recognition and evaluation) instead of an annual survey ensures the optimal response to changes.
A stringent corporate design approach allows companies to be prepared for the challenges of volatility. This creates the prerequisites for a high-performance organization in which employees can take responsibility and work agilely even in turbulent times.
“To increase the efficiency of our globally active group of companies in the long term, we were looking for a partner who would support us in achieving fast and sustainable results as well as in enabling our employees to continue optimization measures independently. The approach of hpo seemed to be predestined for this. With the support of hpo, we were able to harmonize the superordinate business processes from sales, engineering to delivery and the innovation processes, thereby uncovering inefficiencies and identifying the resulting potentials. At the same time, we have optimized interfaces and initiated implementations in the form of introducing new processes and adapting new organizational units.
Our employees were supported in this process by training courses and accompanied in various workshops in the phases of analysis and target design through to the implementation planning. The systematic and integral method of hpo and their necessary tact in empowering our employees have generated the decisive momentum for the longterm strengthening of our company.”
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 25 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 accompanying the transformation.
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 high performance organisations 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