Expansion Strategy Options by ERA
For some businesses during this uncertain time, the best defense is a good offence. The Deloitte European CFO Survey for Autumn 2019 states that despite reduced overall confidence, “the mindset remains slightly tilted towards growth-oriented strategies, with more expansionary rather than defensive strategies among the top three priorities of businesses in 10 of the 19 [surveyed European] countries”.
The nature of a expansion strategy will differ depending on the state of the business and industry concerned. However, these findings do point to the broader business sentiment. Organic growth is the most popular expansionist method, prioritized in 81% of the countries surveyed. This fact is perhaps a sign of companies looking to make the most of what they currently have before embarking on anything more radical.
Over three quarters of European countries surveyed also see introducing new products or services as key to their success. This statistic plays into the growing concern about reductions in consumer demand, which the same survey cited as the top risk for businesses, ahead of the economic outlook and the availability of skilled labor. If demand stalls, companies must !nd additional markets in which to develop revenue streams. As with many expansionist strategies cited here, diversified revenue streams also provide extra protection against any sudden downturns, either by individual markets or on a more macro-economic scale.
Common expansionist strategies remain popular, with 38% of countries looking at digitization as a top priority. That being said, only 5% consider digital transformation as a critical driver of business expansion. Introducing more digitization can help make significant improvements regarding productivity and efficiency for major companies. However, there is a reluctance by businesses to fully dive into radical new technologies at this time, at least until their practical potential is evidenced. Expert advice is usually needed for such a big change to a company’s operations.
Another popular expansion strategy that ERA implements is acquisition, with 29% of countries seeing this as a priority. Again, this method provides an extra level of assurance and reduced risk (depending on the acquisition) compared with other strategies.
What is clear from these statistics is that expansion remains the most popular method of survival for businesses, even in testing times. However, given the challenges faced, major companies are primarily looking to create growth internally, assuring their operations and building from within, before looking externally.
These desired expansion plans also highlight the growing importance of supply chain management for CFOs during this uncertain period. Out of the top ten expansionist strategies highlighted in the Deloitte CFO survey, two-thirds have either a direct or indirect effect on the supply chain. Whether it’s adding products to create new revenue channels, encouraging organic growth or embedding acquired competitors, it is not uncommon for growth strategies to disrupt the supply chain. Without effective management, operating costs can easily creep up.
Comprehensive management is required to ensure costs don’t unnecessarily hinder the vital work being undertaken to grow revenue. As with all business decisions during this time, trained eyes must be kept on the balance sheet.