Three Firms, Three Plans for Managing the Challenging Economy

By Jacqueline Durett

It’s never easy going into a year hardly anyone has hope for; 2009 has already seen layoffs, more projected layoffs, lots of scary days on the Dow and unemployment numbers that continually rise.

Consulting firms, of course, understand the pressure companies are under and have had to balance tough love in the present with a eye toward a future turnaround. Here are three consultancies’ take on how they will manage—and even master—one of the roughest projected years in memory.

IBM: Get Smart, Get Market Share

Three Firms, Three Plans IBM’s goal is to help clients take the long view, even if that means some challenges in the near term. Saul Berman, global leader of IBM’s business solutions practice, sums up the firm’s take on the environment, saying “We think that we’re into a different kind of downturn and a different kind of world than in the past. We think we’ve got unprecedented, at least in our lifetime, constraints on access to credit and capital. We’ve got falling demand, increased price sensitivity [and] disruptions in the supply chain. We think it’s a time of transformation, restructuring of industries. Firms will fail, some will be sold off, some will be spun off.”

And that means, he says, that the traditional answer isn’t always the right answer. “[Firms] need to become smarter. We’re living in a world that’s smaller and flatter with more pervasive connections and communications, emerging markets, open trade and it’s like a domino effect—somebody hiccups in one part of the world and the rest of the world reacts,” Berman says. “And it’s a world where we have smarter instruments, smarter interconnectivity, smarter intelligence, and we’re saying that people who go into this downturn correctly can come out of it more advantaged in the future.”

So IBM is telling clients to focus on three things: value, namely doing more with less; eliminating anything not core to the company’s future; and exploiting opportunities—now. “Because times of disruption and change are times of market share shift. And we think that some of our clients are going to be very successful at capturing share, disrupting their weaker competitors, taking advantage of them, making acquisitions. And we see them building future capabilities,” Berman says. “We see it as a time to protect and acquire talent, develop the required assets and technologies and skill sets for the future and time to reshape the industry. It’s a time for bold moves and to position yourself globally.” He also says that managing change is vital to staying strong in this challenging economy.

Clients, he says, respond to this advice in a variety of ways. And it largely comes from their position in the marketplace. “Some of them are worried about where the next dollar is going to come from, some of them are worried about why their stock price is so undervalued. Some of them are saying well I’ve got those problems, but I’ve got cash, so now’s the time to be opportunistic.”
IBM, Berman says, is currently is seeing two primary types of engagements—transformative projects and shorter, more crisis-focused engagements, and he doesn’t see that trend changing any time soon. But while Berman isn’t a fatalist—“I don’t view it as the Great Depression”—he says much of what the firm is seeing is unprecedented. “We weren’t in recent history dealing with major cost capital questions; clients always want to reduce their overhead. But nobody was saying I need to reduce it by the order and magnitude now that clients are starting to realize they may have.”
And when will the economy turn around?

“The sooner the better!” Berman says.

Kurt Salmon Associates: No Relief for Retailers

Cash is king, says Jerry Black, CEO of Kurt Salmon Associates.

“This [recession] is so different. [Companies are] trying to preserve cash,” Black says. A huge part of KSA’s business is in retail, a sector extremely affected by this economy. “This [recession] is hugely driven by liquidity, so you see clients trying to get out of leases. Some of them are deferring maintenance by two, three, four months—simple things like painting parking lots or upgrading flooring and doors, those kinds of things. In the past, they weren’t so much worried about capital because … it didn’t have a huge impact on P&L, but this one is so much about liquidity and preserving cash as well as the P&L.”

The industries leaders Black has spoken with also are very concerned about retention in this economy. “Part of that is driven by bonus programs [that] are shot to hell for the current year; the stock market is down so far that things like equity retention programs … employees don’t place a whole lot value on [them]. So there are a lot of questions about how we make sure we come out of this having retained high potential, high performing employees.”

Retailers, he says, are among the first to have seen the recession coming, which is