CONFIDENTIAL

Imperatives of Management In The Face Of the Current Global Economic Crisis

Imperatives of Management In The Face Of the Current Global Economic Crisis

Mr. Kehinde Lawanson ED, WestFirst Bank of Nigeria PlcAugust 15,2009

2

OutlineOutline

Introduction1

The Global Financial Crisis and its contagion effects2

Management Lessons from the Crisis3

Strategies for Coping with Post Crisis Conditions 4

3

OutlineOutline

Introduction1

4

Business enterprises in pursuit of their growth objective are affected by a myriad of forces, internal and external to their systemBusiness enterprises in pursuit of their growth objective are affected by a myriad of forces, internal and external to their system

General Environment

Task Environment

Internal Environment

Business

Industry competition,Customers, Competitors,

and bargaining power of market

players

Macroeconomic,Technological,Socio-cultural,

Political & legal,Demographic and

International dimension

Organisation of the firm, Employees and resources

5

Though managements concentrate on the task environment, ignoring the general external environment may prove fatal to their businesses’ survival Though managements concentrate on the task environment, ignoring the general external environment may prove fatal to their businesses’ survival

• There is need to pay adequate attention to changes in macroeconomic variables which reflect the general state of health of the economy within which the business operates such as Inflation; Interest rates;Exchange rates etc.,

• Competitive pressure and market share erosion could result from:Unexpected changes in demographics;New technologies; and/orNew developments in the general external dimensions (including

regulatory changes)

6

Management needs to take account of all external variables in order to match businesses’ internal strengths to existing external opportunitiesManagement needs to take account of all external variables in order to match businesses’ internal strengths to existing external opportunities

7

Globalisation has made the international dimension of businesses even more critical as success factorsGlobalisation has made the international dimension of businesses even more critical as success factors

• The temporal and spatial barriers to businesses’ ability to compete in overseas markets has been aided by:Technological advance especially in the ICT sector;The almost seamless mobility of all forms of assets

(capital, labour, and management know-how); andRegulatory changes which have de-emphasised the

home-bias

• Still, in some circumstances, the activities of a strong foreign competitor in the local market can distort competitive dynamics.

8

Management of firms need to see globalization through the lens of the business modelManagement of firms need to see globalization through the lens of the business model

• Management’s ability to design and adjust a firm’s internal variables to take advantage of opportunities offered and control threats posed by the external environment would determine its success.

• Business leaders need to reflect on globalisation as it affects their business:What new business opportunities are being created?:−Business process outsourcing; and/or−Offshoring?What new sources of threats have emerged?:−Have old sources of threats changed in response (and how)?Should the business model change?:−How far; and−In which direction?

9

OutlineOutline

The Global Financial Crisis and its contagion effects2

10

The current global economic crisis has snowballed into one of the most devastating financial and economic crisis since the Great Depression of the 1930sThe current global economic crisis has snowballed into one of the most devastating financial and economic crisis since the Great Depression of the 1930s

• The recent crisis: Started with the deflation of the housing bubble in the United States; Was compounded by high default rates on sub-prime and adjustable rate

mortgages (ARM); and Led to the collapse of a number of big banks, mortgage institutions and

other financial institutions in the US.

• It swiftly developed into a global crisis : With a number of European banks going under; Which drove major reduction in the of various stock exchanges; and Significant drop in the market value of most equities.

• The combination of these phenomena: Drove severe liquidity crunch in financial systems; Interbank funds markets dried up; Perceptions of counterparty risks were distorted/heightened as

uncertainty grew; Financial institutions in the United States and Europe deleveraged as

part of their balance sheet management.

11

The tightened liquidity condition depressed consumer demand and reversed the commodity price boom that many developing economies had enjoyed for some years

The tightened liquidity condition depressed consumer demand and reversed the commodity price boom that many developing economies had enjoyed for some years

• The resulting credit crunch in the advanced economies has translated Into a severe fall in demand for goods and services; andMassive fall in the prices of commodities, after the record highs

reached in the earlier part of last year.

• Falling commodity prices adversely affected the revenue prospects of produce exporting underdeveloped economies

• The liquidity crunch in the advanced economies has led to shrinkage of private inflows (especially home remittances) and foreign direct investment into economies such as ours.

• Narrower revenue bases have reduced liquidity levels in emerging economies compared with the boom period.

12

Secondary effects of the crisis have truncated the macroeconomic stability enjoyed by underdeveloped countries and also affected businesses in these economies Secondary effects of the crisis have truncated the macroeconomic stability enjoyed by underdeveloped countries and also affected businesses in these economies

• The stable exchange rate regime that some developing countries have enjoyed in recent past have been undermined by: The fact that the financial crisis in the advanced economies has

triggered reduction, re-pricing and in some cases outright cancellation of credit lines from foreign banks to developing economies;

Capital flight by foreign institutional investors helped transmit the liquidity crunch to the developing economies

• Along with dwindling government revenue from exports this reduced the level of liquidity available for business growth within these economies when compared with the commodity boom period.

13

OutlineOutline

Management Lessons from the Crisis3

14

A number of lessons have emerged for the practice of management from the crisis, especially it affects on the husbandry of People, Processes and SystemsA number of lessons have emerged for the practice of management from the crisis, especially it affects on the husbandry of People, Processes and Systems

Flawed Governance & compensation system

Faulty Business Model & strategy

• Boards of directors must ensure an appropriate compensation structure that is aligned with prudent risk taking and long term objectives of the firm are in place.

• Shareholders need to be more proactive in their roles as owners, understanding what the business is all about

• Management of firms should not be restricted to just looking at result, but paying detailed attention

• Boards of directors and institutional shareholders paid little attention to the heightened levels of risk exposure that their businesses were taking on and exhibited limited knowledge of how firms operate

• Pay and bonus systems were linked to short term performance and not in line with long term sustainability of the firm

• The flawed incentive system encouraged excessive risk taking that led to the crisis.

• Business models and strategies built round the assumptions of buoyant future can be accurately predicted, without volatility.

• Business models and strategies should be designed to withstand and cope with uncertainty and volatility in the business environment.

15

The main shortcomings in management practices have not been the result of organisations failure, but relate to questionable behaviour patterns The main shortcomings in management practices have not been the result of organisations failure, but relate to questionable behaviour patterns

Innovation not based on sound economic principle

Emergence of globalization as an important factor

• Products and services should be designed based on sound understanding of the economic dynamics that drive demand for the products and risk management.

• Products and services were designed based on flawed assumptions that associated risks were diversified .

• The contagion effect of the financial and economic crisis of the developed economies has extended to even under developed countries that are not completely open and has impacted business activities negatively

• Managements need to constantly review the opportunities and threats posed to their business by globalization.

• Firms internal processes should be adjusted to cope with the changing dynamics in the global economy

16

OutlineOutline

Strategies for Coping with Post Crisis Conditions 4

17

Businesses must commit to the following, if they must have any hope of success in the post-crisis conditionBusinesses must commit to the following, if they must have any hope of success in the post-crisis condition

• Develop a get through the downturn plan

• Build a management team that shares your vision

• Empower and inform managers to effectively communicate with their subordinates on the present situation and plans of how to come out top

• Cut costs – prune expenses

• Diversify and develop new products/ services

• Identify new market niches

• Look for creative ways to retain top performers

• Get rid of low performers.

• Address tough issues with straight talk and transparency

• Customer service is supreme

18

Thank

You