BOSTON and MUNICH, Sept. 24, 2020 /PRNewswire/ — The sudden shock from the COVID-19 pandemic means that conserving cash and containing costs are urgent priorities, now and for the near term at the very least. For industrial companies, this means cutting back on crucial areas of Research & Development (R&D) and Capital Expenditures (Capex).
According to new research from Bain & Company, Focusing R&D and Capex to Win, industrial companies plan to pull back significantly more on research and development, and nearly as much on capex investments, as they did during the Great Recession. The lessons from previous downturns suggest that many companies will waste valuable capex and R&D. In an analysis of 516 industrial companies, Bain found that 26 percent spent above the average on R&D and capex over the past decade but didn’t turn that into superior results for their shareholders. On the flip side, one in four industrial companies spent below the average for their peers, but still managed to generate above-average returns. These “efficiency heroes” provide valuable lessons on how to allocate both cuts and spending well.
“As tempting as it may be to make cuts across the board, leading companies can position themselves for a rebound by thinking about where they want to be after the crisis and then reallocating resources to make sure they can get there,” said Thomas Lustgarten, global head of Bain & Company’s Advanced Manufacturing & Services practice and one of the authors of the report.
Looking at more than 900 industrial companies, Bain & Company found that R&D spending is set to drop by -10 percent to -15 percent and capex by an even sharper -20 percent to-30 percent in the aftermath of the pandemic. In order to cut costs without affecting the business’s ability to lead in its field there are five points to consider:
“The COVID-19 pandemic has upended the world as we know it but now is the time to think ahead and to think boldly,” said Mark Gottfredson, co-head of Bain & Company’s Americas Automotive and Mobility practice and a co-author of the report. “The industrial leaders of tomorrow will be those that clearly define their strategy and know where to cut but also where to invest.”
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SOURCE Bain & Company