For industrial companies, the current COVID-19 crisis could lead to particularly severe economic repercussions. Now that companies have taken care of their people, managed the cash situation and ensured business continuity, cost containment rises to the top of most companies’ executive agenda.
As companies prepare to manage costs, they must ask themselves how aggressively they should cut expenses and what is needed to stabilize the business while maintaining the ability to ramp up production and capture post-crisis opportunities. While this crisis is structurally different from any other we’ve witnessed thus far, it is helpful to consider lessons learned from previous crises that have allowed companies to emerge stronger and with an advantage.
Let us look at the example of a steel and metals producer at the heart of Europe and how it transformed its cost basis to emerge stronger from the 2008 financial crisis. The situation it found itself in resonates with what the industry is facing today. Indeed, demand has plummeted, driven by capacity reductions and production shutdowns in the automotive, aerospace, mechanicals engineering or oil and gas industries. Many steelmakers have reacted by reducing capacities as well as decreasing employees’ working hours.
This is comparable to what we saw a decade ago, when crude steel production in Europe declined by almost 30% in 2009. Like its peers, our example company implemented a group-wide cost restructuring program. But management was certain that demand would eventually come back with a vengeance and therefore decided to not only cut costs but position the company for growth in the post-crisis era. Reflecting on this transformation, here are some of the elements that have made a difference and that can serve as guiding principles for industrial companies today:
Today, steelmakers and most other industrial companies – be it from engineering, machinery and equipment, industrial products and services, metals or chemicals – are again facing tough market conditions that will require hard choices.
Companies that transform their cost structure with the right, strategic mindset, that focus on capturing opportunities, and that take a courageous stance to evolve their business and organization, will emerge stronger. They will be better prepared for post-pandemic growth.
Find more of our thinking in our Fit for Growth guide to respond and emerge stronger from the crisis, where we outline comprehensive actions to transform costs and reshape your business for growth.