Growing Profits without Growing Revenue

Define your market and grow according to A.T. Kearney

Dubai (15 March 2009) — In times of economic downturn companies must try harder to grow profits, it is the time to review business basics and become more competitive, according to A.T. Kearney, one of the world’s leading management consulting firms. While research indicates that external factors, such as economic climate, technology innovations and investor expectations do influence profits, internal value drivers, which can be controlled by the company, are far more important for company profitability.

“One of the first internal cost cutting initiatives companies often turn to is to lay off staff,” said Dr. Dirk Buchta, Partner and Managing Director, A.T. Kearney, Middle East. “However firing people is not always the best nor the only solution. A review of total operations and company business model is required. Efficiency is the name of the game in a crisis.”

According to A.T. Kearney’s research, every second less successful company highlights external factors such as GDP growth and macro trends as an excuse for not growing profits. And even when external factors are not to blame and the economy is blooming, more than one out of three companies are not sufficiently focused on optimizing the bottom line and may have over-hired, over-leveraged debt financing and lacked due diligence of acquisitions. Such companies are not well prepared for the financial crisis and urgently need to re-focus.

A.T. Kearney analyzed the success factors of more than 29,000 companies across various industries and found that profit growth required an understanding and mastering of internal value drivers and operations to increase company efficiency. Evaluating internal drivers such as company vision, strategy and corporate culture, alongside the cost structure and business processes of company operations and the current business model and financing options, can reveal economies and profit enhancing initiatives previously not thought of. In the current financial climate the first step for many companies will be how to optimize the project portfolio as well as improve cash flow and cost base, for example through strategic sourcing.

“Our study shows that nine out of 10 successfully growing companies focus on internal factors in order to secure their profitable growth,” said Dr. Buchta. “The first step for any company is to fully understand the intrinsic key value drivers of their business and, based on this, reinvent themselves to become more profitable and competitive.”

The financial crises will provide healthy effects of shaking out less competitive companies and strengthen those companies well managed. In the real estate sector, for example, A.T. Kearney expects a significant market consolidation within the next three years. Benchmarks from the US and Europe suggest that every fourth company in the real estate sector will vanish from the GCC market within the next few years.

“The strategic paradigm in the GCC markets has changed,” Dr. Buchta added. “Formerly, it was sufficient to grow revenue and profit as a by-product. Now profit and value levers need to be managed more carefully and we expect to see survival of the fittest.”

About A.T. Kearney

A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO’s agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney’s offices are located in major business centers in 33 countries. During our 80 year history, we have provided management consulting services to most major corporations and governments around the world. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of industries and services in the region. For more information, visit www.atkearney.com