What short memories we seem to have. Roughly every seven years the market goes into a serious downturn, and every time it happens, people seem surprised, even shocked. Yet the cycle is relatively predictable - even certain.
Consider the most recent downturns: 1987, 1994, 2001... and now 2008. It certainly feels worse this time, with the sub-prime crisis leading to a knock-on loss of confidence in world markets, and the collapse of at least one major US financial institution and one in the UK.
But cast your mind back to 2001. Where we now have Bear Stearns and Northern Rock, then we had Enron, Global Crossing and WorldCom, to mention three. Where we had major lapses of corporate governance then, we now have over-reaching of eager investors over a period of years, willing to bet entire banks' - and countries' - future on the potential for the future value of loans to exceed their current book value.
We might be headed for a recession, or no more than a correction. What we do know is that the compliance world is going to change, and dramatically as oversight and regulatory bodies try and ascertain how they got it wrong again.
As an example, Basel II was supposed to help companies and entire industries profile their risk, in particular their capital adequacy when it comes to allowing a critical mass of customers to have access to their cash. Yet a run on Bear Stearns showed the bank to be short of cash, creating a self-fulfilling prophecy as large numbers of account-holders, spooked by rumours, sought to withdraw their investments.
The compliance world is going to change, and dramatically as oversight and regulatory bodies try and ascertain how they got it wrong again.
Adrian van der Merwe is MD of 8th Man Consulting.
History shows that intervention by authorities brought the US financial system back from the precipice, but the next two years will be tough. More than ever, organisations will need to implement enterprise performance management (EPM) to help them get through this period. Here are three key reasons:
1. Regulatory compliance. This was a clear and compelling mandate before; now, as all markets struggle to make sense of their current and future state, there will be ever-greater scrutiny of company accounts, accountability and the processes and data that support them. There will be more frequent and detailed reporting, and poring over books, with accompanying accountability and consequences. If Sarbanes-Oxley disrupted business back in 2001 (as it still does), imagine what the next wave of regulatory burden is going to bring.
2. Greater visibility into corporate performance. Only companies with the firmest of grip on their operations will come through the next three years unscathed. Apart from the spectre of a recession, there are such issues to cope with as high oil price, high inflation, weaker commodity prices, rising interest rates, soaring electricity costs and diminished availability, higher water and property rates, cautious corporate procurement officers... the list continues. Only companies which can bring a razor-sharp focus on the detail of their activities, from activity-based costing to reporting, from budgeting and planning to financial consolidation and the balanced scorecard, will pull through unscathed. Even then, it will be a close-run thing.
3. Enhanced competitiveness. Not every company will grasp the imperative to improve their processes and supporting data through this period: it will be a minor miracle if even half of them do! So those which do so today, focusing on detail and digitising their core processes through the principles which make EPM work, will be in a potent position to take market share, acquire their competitors, and generally outperform the market. Harvard Business Press reports that over time, companies which have digitised their business processes are far more competitive, profitable and able to accommodate change. This change takes the form of new regulatory compliance, merger and acquisition, entry into new geographies, new IT systems, and more.
Almost alone, EPM has the potential to fulfil all of these requirements. So there's never been a better time to embrace this most strategic of business disciplines.
* Adrian van der Merwe is MD of 8th Man Consulting.
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