Defensive Strategy Options by ERA
While continuing expansion may be the go-to solution for many established businesses, the importance of a solid foundation on which to build is more important than ever before. According to Deloitte European CFO Survey, overall business strategies are becoming more of a defensive strategy, with cost reduction being the top priority in almost half the countries surveyed.
The growing consolidatory nature of business operations is evidenced by the survey’s findings concerning risk appetite amongst CFOs. According to Deloitte, the risk appetite amongst Europe’s CFOs has decreased to as low as -65%, down from -32% at the beginning of 2018.
This pessimistic outlook is felt most amongst the continent’s leading exporters and those vulnerable to political challenges. In Autumn 2019, the two most risk-averse EU countries were the United Kingdom (-87%) and Germany (-84%).
Across Europe, just 18% of CFOs at the end of 2019 believed it was a good time to take risks. This figure has declined since a peak of 34% in Spring 2018. Fueled by growing macro-economic uncertainty, more business leaders are considering consolidatory strategies to help traverse this uncertain period.
Unlike the top offensive strategies which vary depending on the industry and company in question, defensive strategy options employed by major companies are a lot more uniform. The most popular defensive strategy remains cost reduction, with 9 out of 19 countries citing it as their top priority overall going forward.
Nearly three quarters of countries surveyed see expense reduction as the primary defensive strategy over the coming period.
Increasing cash flow is seen as the next most important consolidation plan for major businesses, as CFOs seek to ensure capital is available to protect from any further sudden downturns. Similarly, the third most popular defensive strategy in the Autumn 2019 report is decreasing leverage, prioritized by 14% of countries surveyed.
There is a range of other defensive strategies that also appear in Deloitte’s survey, including balance sheet optimization, working capital efficiency and cost control. It should be noted, however, that many of these concern similar sectors of the business.
As with the offensive strategies outlined previously, the vast majority of defensive strategy options will involve scrutinizing the supply chain. Considering all the answers highlighted by Deloitte, over three-quarters of defensive strategies favored by European CFOs going forward will have a direct or indirect impact on supply chain operations.
CFOs that wish to focus on balance sheet optimization and cost control will be inclined to consider their current supply chain processes and procedures to create more streamlined practices. Meanwhile, large-scale improvements in efficiency and productivity will often be derived through effective supply chain management.
Without expert management, it is hugely difficult to deploy defensive strategies that will have a material impact to the balance sheet, whilst also maintaining an optimized supply chain. As a cost reduction services group, we provide Training and Support through all of this when you partner with us!