LABOUR PRODUCTIVITY M&A PERFORMANCE TRANSPARENCY WATSON WYATT
Global - Being able to identify factors that lead to good performance can help firms plan for challenges ahead, says Neha Sand, an economist with Watson Wyatt.
Some of the pre-crisis factors that separated best performing companies from poor organisations in the period following the collapse of Lehman Brothers were higher labour productivity, conservative M&A practices, higher credit ratings and greater transparency.
According to Directions, a Watson Wyatt global research publication, these factors may also help businesses master the difficult business environment likely to prevail over the longer term.
"Even though the clouds of the current economic crisis have not yet cleared, there are already valuable lessons we can draw from the behaviors of those companies that have successfully navigated the initial storms," says Carl Hess, global practice director of investment consulting at Watson Wyatt.
Common characteristics like higher labour productivity and conservative M&A practices before the crisis helped boost performance in Asia and Europe during the crisis, implying that improving human capital efficiency and focusing more on organic growth paid off. However, international diversification only worked for Asian companies, while a lower debt ratio helped European firms to navigate the crisis. In US, greater transparency and higher credit ratings were the only pre-crisis factors which appeared to boost performance during the crisis.
Aggressive M&A activities before the crisis did not help firms outperform their peers during the crisis, reports Directions. Instead, deals centered on core business or regional diversification were more rewarding. In addition, pre-crisis investment in intangible assets helped cushioned the blow in returns, where human capital had the biggest positive impact. During the six-month period under study, intangible assets like intellectual capital and firm reputation did not seem to show any impact as well.
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