Assessing the impacts of the Euro crisis on your enterprise
With extreme uncertainty plaguing all enterprises operating in the Eurozone, executives must act immediately to safeguard their enterprises from the risks of government/bank default, euro break-up, counterparty bankruptcy and employee/customer distress.
"Unlike recent economic difficulties, today's crisis has the potential to totally undermine the Eurozone, the whole EU and beyond," said Andrea Di Maio, vice president and distinguished analyst at research firm Gartner, Inc. "Spurred on by the pervasiveness of the Internet, the crisis negatively affects every enterprise or individual doing business in or with the region."
Gartner analysts said there are four broad challenges that the Euro crisis raises:
Challenge 1: market volatility
Most enterprises are burdened with significant numbers of bureaucratic processes and latent decision-making mechanisms. Today's market conditions require business and government executives to radically restructure their business practices. "Change management capabilities will be critical. The foundation to achieve effective change management will demand information, analytics, HR flexibility and a more decentralized command-and-control management structure," Mr. Di Maio said.
Challenge 2: capital costs
The costs of and access to capital across Europe will likely continue to worsen until there is a significant redress in structural imbalances between countries and organizations. Unwillingness or inability to write off debt and restructure public- and private-sector balance sheets is a substantial barrier to market efficiency. Lines of credit will likely become uncertain or removed, forcing corporations to reduce inventory. "If a market meltdown occurs, then critical resources and supplies may be at risk. Executives must develop contingency plans to ensure multiple backups."
Challenge 3: human capital management
Millions of people are out of work in Europe. Formal government austerity packages and informal corporate restrictions on salaries, benefits and working conditions, combined with high costs of living, are stressing workforces. This situation is compounded by retirement funding shortfalls, extensions in the working age and loss of benefits. "Business executives face significant HR issues in terms of rewarding and motivating staff, securing funds to hire appropriate new talent, and dealing with the personnel hardships of individuals entering the work environment, which impair productivity," Mr. Di Maio said. "They must also plan for retention issues of foreign workers moving to better opportunities or the removal of non-EU work permits and visas in response to political backlash from rapidly rising unemployment, resulting in a 'brain drain'."
Challenge 4: risk management
The capital markets (and many corporations) believe that the risk of government and counterparty default is substantial. Receivables management is being stressed, and the likelihood of internal and external fraud rises. From an IT standpoint, operational risk is heightened via issues such as changes in contractual obligations and business continuity. Added to this is the continued increase in regulatory compliance initiatives across industries, which exacerbate the pressure on audit and risk management assessments and workflows.