Economic volatility, and the stress it puts on the operations of large-scale organizations, has a significant impact on the ability of these companies to excel as industry leaders. Over the past few years, we have seen unprecedented numbers in the kinds of events associated with volatility – profit warnings, cost cutting initiatives, changes in senior leadership, and many more. In most cases, events of this nature are then followed by adaptation measures such as M&A or change of geographic scope.
The businesses that are able to most quickly understand the nature of the volatility in their industry might develop an advantage over their competition – as long as they use this knowledge to quickly inform their business operations and process transformation strategy. In Genpact’s experience, this is a form of organizational intelligence that helps organizations outcompete.
Genpact recently unveiled our Volatility and Adaption Index (VAI), a framework designed to monitor the market volatility signals in large companies and help them anticipate the need for structural change. We developed it through an extensive analysis of proprietary data and primary research around the core signals of volatility and the related stress in a company’s business environment as well as the corresponding measures of adaptation.
The first two measurements from the VAI looked at events spanning January to March and April to June of 2013. These results showed that while there was a slight decrease in the total volatility from first quarter to second quarter, it varied greatly by industry. The marginal overall drop may possibly have been influenced by seasonal effects, as there is generally a slowdown in volatile activities during the summer months.
Among the key industry-specific highlights from the first VAI – retail banking decreased significantly from Q1 but was still well above all other industries. Based on our experience, a reduction in volatility in industries where volatility is still high often coincides with periods of strong focus on restructuring or redefinition of operational strategy – as executing in the middle of the storm is harder than in a lull.
Meanwhile, healthcare and life sciences sectors showed a marked rise in volatility suggesting a period of structural operating adjustments is likely to follow. The main volatility themes that were having the biggest impact across industries throughout the first two quarters were financial pressures and acquisitions or expansions. The latter suggests that there continues to be a redefinition of the operating perimeter of many companies, as well as consolidation to benefit from scale, scope and access to new clients. This measure is corroborated by Genpact’s own operational measurements derived from the sample of processes and operations the company transforms or manages on behalf of clients as part of outsourcing agreements. The measures indicating selectively sustained volatility include mortgage operations in banks, and life sciences’ and CPG’s keen interest in operations transformation services.
As the VAI gets updated each quarter, the value of the insights it delivers will continue to grow. By understanding volatility, Genpact believes companies will be better positioned to build or transform their operations into the flexible systems needed for success in our times – from increased adoption of advanced operating centers to expanded global shared services or outsourcing.
The best way to handle change is through understanding and preparation – and for large enterprises, that’s becoming just a little bit easier.