Navigating the corporate ship through “Austerity”

We survived the recessionary “perfect storm” which was deeper and longer than any this working generation has faced before. GDP dropped 6.4 percent compared to 2.9 percent in 1991-2. The financial tide is well and truly out and few survived the storm unscathed.
Most organisations took the usual steps of headcount reductions and the suspension or reduction of capital expenditure with the usual impact on cash reserves. The market is still tight, margins are still being squeezed. We are now seeing the new coalition government start to tackle the UK PLC debt mountain, with an initial step of £113bn in cuts, with many more to come. It is called “Austerity” and we are all now entering unchartered trading waters.
Austerity will be very different from recession. The biggest difference is that it is not a 12-18 month challenge. The impact of reduced government spending, rising unemployment and increased taxation is going to affect the market for a minimum of five years. Blunt, basic short term tools used to manage a recession are not appropriate for this new trading environment.
There is no doubt that “Austerity” is going to provide new business opportunities as the state passes the provision of some services back to the private sector and it will clear the “dead wood” of businesses that cannot adapt.
Pressure
What is absolutely clear is that maintaining corporate liquidity is going to be critical, whether for survival or to maximise the opportunity for expansion. The long term pressure on cash through reduced new business opportunities, profit margins squeeze, delayed payments, bad debts, the availability and cost of finance and impact of inflation on staff costs will all take their toll.
The ability of the business to take complete control over corporate spending, moment by moment, is going to represent survival for some and significant competitive advantage for others in the months and years to come.
Whilst budgets may be agreed annually by the board, the responsibility for spending is delegated to the departments and out into the organisation. Each department acts independently and the finance department is left to quantify and report on what actually happened, some considerable time after the spending event occurred, leaving nobody is in control of corporate spend.
Outdated
Worse, businesses only know where they have been and have to estimate where they are now and where they will be through the use of accruals because the current processes are simply too slow and cumbersome to provide “real time” information. The result is the company is basing its decisions for the future by using outdated information.
Over the next five years of “Austerity”, the lack of real-time information will represent a ship wreck for some and a missed opportunity for the majority. The corporate ship must ask the question why the business still uses predominately manual processes for every aspect of their purchasing processes, budget management, purchase invoice approvals and relies on accruals each month to estimate their cash position and management accounts?