Harvard Business Online
Bain Executive Survey: More Cuts Ahead
Bain & Company has been conducting global Management Tools and Trends surveys since 1993. The survey looks at executive use of management tools—examples include Downsizing, Mission and Vision Statements, and Benchmarking—25 in total. We've found the survey is an excellent way to gauge the business climate and identify key trends in the marketplace.
Never before, though, have we surveyed executives during a period of such economic turbulence, which is reflected in two findings:
First, a cost-cutting tool—Benchmarking—has risen to become the most popular.
Second, downsizing numbers skyrocketed: 59 percent of the executives we interviewed globally said they plan to downsize in 2009, up from the 34 percent who conducted layoffs in 2008. Of those companies that downsized their organizations in 2008, 88 percent now say they plan more job cuts in 2009. The 2009 questionnaire was completed in January by 1,430 international executives from companies in a broad range of industries.
This year's global survey, our 12th, found three strong themes: an emphasis on cost cutting, especially in North America; a lurking optimism despite the times; and a surprisingly strong showing of confidence among executives in India and Latin America.
Turning first to cost-cutting goals, seven out of 10 executives surveyed say they are worried about how they'll meet their growth targets in 2009, and six out of 10 are planning for a downturn that they expect will last at least until early 2010. As noted, this concern is reflected in the increasing popularity of Benchmarking as a way to achieve cost-reduction targets.
While executives—particularly in North America—have demonstrated their commitment to cost cutting by significantly boosting their use of Benchmarking, they are not necessarily satisfied with the results. The tool landed in the middle of our list for satisfaction. As a sign of the times, Benchmarking knocked out Strategic Planning, now No. 2, which had topped the tool usage list since 1997. Likewise, Outsourcing also has moved up from seventh to the fourth most-used tool. And Business Process Reengineering, another tool often associated with cost cutting, made the top ten worldwide.
Some tools stand out as winners and losers. Three tools with above average use and satisfaction are Strategic Planning, Customer Segmentation and Mission and Vision Statements. The last of these is intended to guide management's thinking on strategic issues, especially during times of significant change. In contrast, tools with below-average usage and satisfaction include two newer tools, Online Communities and Collaborative Innovation, as well as Downsizing—even though executives say they plan to increase layoffs next year.
When it came to executives' expectations about the future, our survey revealed a paradox. Even as executives express deep concerns about their short-term financial outlook, they are voicing optimism about their long-term prospects. Among all executives surveyed, 75 percent say they will use the recession to improve their competitive position—a statistical impossibility that perhaps shows the persistence of hope.
The global downturn definitely has taken a toll on management tool use, both in the number and kinds of tools executives are using. Worldwide, tool usage has declined, with firms employing an average of 11 tools, down from 15 in 2006. The drop suggests that firms are holding off on launching new initiatives or taking a wait-and-see approach before refocusing efforts. As we've found in the past, the larger the firm, the more tools are used. However, this year, even usage among large companies has dropped dramatically: between 2000 and 2006, they used an average of 16 tools and that fell to less than 12 tools in 2008.
This dip may be short-lived, however: Another key finding from the survey shows many companies are looking hard at how to stabilize their businesses without focusing on cost alone. To help achieve this goal, executives say they will be using more management tools in 2009. When we asked survey participants which tools they plan to use, they predicted they would be increasing their use of all 25 of the tools in our survey. Those with the biggest expected gain are ones used to promote growth: Price Optimization Models, Scenario and Contingency Planning, Growth Strategy Tools, Collaborative Innovation and Voice of the Customer Innovation.
Internationally, different story lines emerged: Confidence remained relatively high among Indian and Latin American executives in January, even as projections for GDP growth dropped in both places. Executives in China, however, who felt the pains of the downturn earlier, appeared less confident.
When asked if they are planning for the downturn to last until early 2010, 70 percent of the Chinese executives said yes, compared to only 56 percent of the Indian executives surveyed. This difference is underscored by downsizing plans for 2009: 40 percent at Chinese firms say they will have significant layoffs, but just 23 percent of Indian respondents expect significant layoffs.