Are there signs of unsustainable profitability or growth that companies can watch out for, as early warning?
Unsustainable growth is easier to track. Growth is about new market opportunities. We know how to analyse the risks here through robust what-if-analysis. Unsustainable profitability is the harder one to track. Sustained profitability comes from a firm’s distinctive competencies. In the current environment, under the pretext of cutting fat, overzealous management teams can begin to cut the firm’s muscle as well. For example, outsourcing may be a good way to boost profitability in the short term, but are the savings sustainable when the economy recovers? Can the talent that is shed be easily replenished when needed? Ensuring that a firm’s distinctive competencies are not compromised in any cost-cutting initiative would be a way to sustain profitability. Your views on the economic downturn and the countermeasures taken by various governments. (A perspective that can be relevant to CEOs.) Instead of seeking an outright bailout, enlightened CEOs should seek governmental incentives that ride
