The ongoing global economic crisis has impacted most of the companies in the world as they have to not only reckon with falling sales, stagnating demand, oversupply and inflation all at the same time mean that businesses are operating in chaotic and uncertain environments. Learn about the management strategies to follow and implement during a downturn like we are facing right now.
Like dangerous curves on a racetrack, economic downturns create more opportunities for companies to move from the middle of the pack into leadership positions than any other time in business.
The typical response of businesses during recessions is to lay off workers, accumulate cash and retain liquidity, and put off expansion plans until the business environment improves. While these are certainly understandable strategies, our contention here is that these strategies are counterproductive. Unlike straight-aways where leaders can thrive on raw power alone, steep curves require strategic finesse. That often results in dramatic differences in performance as leaders steer out of the curve.
For instance, downsizing might seem attractive because it enables businesses to cut costs. However, the companies have to realize that once they downsize, the best along with the worst of the employees leave the company. The latter because they are laid off and the former because they see that in future they might be the targets. Of course, the companies can retain the best performers by increasing their compensation but this strategy is pointless when the whole objective is to cut costs.
Next, research has shown that American companies are sitting on a cash hoard, which means that they have accumulated enough cash reserves just in case they face a liquidity problem in the same manner in which banks found themselves in the aftermath of the Great Recession of 2007 when liquidity dried up and nobody was lending to anybody. Again, this is legitimate as long as the companies do not keep cash without making use of it productively. In other words, if the firm is simply having lots of cash in hand, it is akin to individuals keeping the money without generating returns. Moreover, this strategy also means that recovery is delayed and no matter how hard the government tries, businesses simply do not want to spend cash.
Recessions hit some industries harder than others, so staying alert matters. The variations get amplified in a globalizing, interdependent economy. That adds both opportunity and complexity. The opportunity is to shift focus to economically healthier regions. The complexity arises from having to make long-term investments in global operations with less certainty than ever about where you will be exposed when the next downturn hits.
Many industry leaders fall from the top during recessions because they assume that a strong market position is an insurance policy against trouble. That approach breeds overconfidence. Executives postpone taking precautions or reach for the same levers they pulled in the past — like hedging their bets by diversifying. When the downturn hits hard they usually over-react. They slash costs and staff indiscriminately, cut capital expenditures, squeeze suppliers, and avoid strategic acquisitions. Then when conditions improve, they must spend heavily to regain momentum.
Responding to a crisis with the help of Build Business Results
In our experience, these management strategies can help businesses of all kinds. We outline them here as an aid to leaders as they think through crisis management for their companies. These are only guidelines which could help you outgrow your business plans and strategies to survive through in this humongous adversity:
Reviewing your marketing strategies can help you come up with new ideas to increase sales and find better ways of using your marketing dollars. You should focus on communicating your competitive advantage.
Your unique selling proposition should also assist you to stand out from the crowd. Alongside this, it's important to develop strategies to measure the effectiveness of your marketing.
Make sure you have an up-to-date human resources (HR) plan. Use your plan to detail your staffing costs, which in turn will allow you to accurately cost your products or services.
Build morale and motivation by clearly communicating with your staff what is happening within the business. Try to involve them in decision-making and finding solutions.
Networking during an economic downturn can be useful to understand how other businesses are coping. You may also discover new opportunities, customers, staff, suppliers and business partners with minimal cost to your business.
Consider forming alliances with other businesses, for example, by offering complementary services and discounts.
The better approach: slow in, fast out—like a good driver heading into a sharp curve. Winners in recessions tend to brake quickly heading into a downturn by managing costs carefully and consistently. It’s like downshifting to a lower gear to slow momentum and increase responsiveness. They focus on what the company does best, reinforcing the core business and spending to gain share. They aggressively monitor the competition to ensure they have the best possible line through the curve. That sets them up to accelerate at the apex of the curve when the economy starts to improve. The farther you can see and the quicker you can turn, the faster you can safely corner.
Another characteristic of companies adept in a downturn: they make bargain acquisitions to build up their core, even when it means taking calculated financial risks. As markets improve, they are well-positioned to accelerate.