Whether or not organisations think the US or Europe are in a recession, just headed towards one, or that the economies never left the recession just shallowly recovered, there's no getting around the fact that the global is experiencing an economic downturn.
Declines in consumer confidence and decreased sales threaten all businesses, but small businesses are particularly vulnerable as they often don't have the reserves to help them weather difficult times.
In times of global downturns, organisations need to batten down the hatches and focus on the simplistic principles of good operations and do this exceptionally well.
1. Protect your cash flow.
Cash flow is the bloodlines and arteries of a business; to keep maintain organisational health, cash is king and needs to be flowing. As long as the organisation operates, expenses exist. But the harder times get, the harder it can be to keep the cash flowing in. Recession-proof strategies are required to maintain cash flow moving is essential. Rapidly secure funding to maintain liquidity is an absolute must. Cash might look a poor investment with low interest rates, dollar devaluation and rising consumer price inflation. But in a world characterised by asset price deflation then cash is still rising in value relative to everything else, except perhaps food and energy. Another way to look at this is to say: now that prices of houses or shares have fallen my cash will buy more of them. But it is hardly any wonder that even professional investors are confused about which way to jump at the moment.
2. Review your inventory management practices.
Reducing inventory costs without sacrificing the quality of goods or inconveniencing customers must be adopted. Often organisations in good times order too much of too many and this flows through to when times become tough. Organisations need to transform supply-side relationship and procure goods more creatively and only just what is needed. Just because you've always ordered something from a particular supplier or done things in a particular way doesn't mean you have to keep doing them that way - especially when those other ways may save you money.
3. Focus on your core competencies.
In times of a downturn, the diversification strategy sends dangerous alarm bells. Many articles on diversification as a strategy for organisational success in recessionary times are far and few between. Of course, innovation can flourish, even in the toughest economic, financial and regulatory climates. It is during tough economic climates, like recessions, depressions, regulatory constraints, and political/environmental instability where new companies or innovations by existing companies launched during these times transform current markets or create new ones.
For example, 25 of the companies that made up the Dow Jones Industrial Average in December 2008 were formed since the National Bureau of Economic Research (NBER) started tracking economic cycles in the US. 13 of those 25 including 3M, General Electric, Microsoft and Walt Disney were formed during a featured economic downturn or industry tipping point for transformation.
Many other notable companies came into their being in economically or regulatory difficult periods. A partial list of companies formed in the US in a year featuring a recession include:
Organisations | |||
Ann Taylor | Digital Equipment Corporation | Marvel Entertainment | Starwood Hotels & Resorts Worldwide |
Bain & Company | Dow Chemical | Mattel | |
Black and Decker | Dow Jones | McKinsey & Co | The Hershey Company |
Bridgestone | Electronic Arts | Merrill Lynch | Toys ‘R’ Us |
Church & Dwight | Eli Lilly | Newell Rubbermaid | Whole Foods Market |
Colgate Palmolive | Post Cereals | Scott Paper | |
Compaq | Harley Davidson | Progressive | Johnson Controls |
ConAgra Foods | iRobot | RCA | Cummins |
However, these companies are the exception to the law. Just adding other products or services to your offerings is not diversification and is a gamble. Chances are if an organisation is not delivering strong results in its core during a tough time, then branching out and focusing on something peripheral is even a bigger risk. At best, it's a waste of time and money. Worse, it can damage the core business by taking the focus, time and money away from what the organisation does best and/or damaging brand and reputation. Drop the extras and focus on what the organisation does best can be the most recession-proof modus operandi.
4. Develop and implement strategies to competition's customers.
If organisations are going to prosper in tough times, expansion of the customer/client base is crucial for success - and that means drawing in customers from the competition. How can this be done? Whilst diversification is not an option, differentiation from competitor is a solid avenue to capturing market share. Organisation’s need to make the intangible tangible to customers, and providing something unique either a new service, product augmentation or add-on feature. By offering something more or something different than the competition does. Researching the competition and determining what can be offered to entice the competitor’s customers jumping ship is a must.
5. Make the most of the customers/clients you have.
The old adage that a bird in the hand is worth two in the bush is paramount here. The bird in the hand is the existing customer or client and he or she is an opportunity to make more sales without incurring the costs of finding a new customer. Customer retention is far more profitable than customer acquisition and in lean times, a customer is always more inclined to jump ship to satisfy their needs faster, cheaper and more effectively. Loyalty often falls by the waistline during tight, tougher times. Hence organisations need to ensure the customer they have today, will remain their customer tomorrow.
Even better, he or she might be a loyal customer, attracting more sales opportunities through a share of wallet type arrangement where many varied products and services are accumulated by the existing customer. If organisations want to proof themselves for recession, they can ill-afford to ignore the potential profits of shifting their sales focus to include established customers.
6. Continue to market the organisation
In lean times, many organisations make the mistake of cutting marketing budgets to the bone or even eliminating it entirely. But lean times are exactly the times organisations need to enhance marketing. Consumers are restless and looking to make changes in their buying decisions. Organisations need to help them find their products and services and choose them rather than others. Quitting marketing is not an option. In fact, if possible, reinvesting more heavily in marketing efforts is the way forward.
7. Keep credit in good shape.
Hard times make it harder to borrow and with the recent US credit rating downgrade and uncertainty around European downgrades moving forward, loans are often among the first to disappear. This is particularly more important given major lending facilities are hoarding cash and only investing in lower-yield, lower-risk, longer-term opportunities. With good personal credit, organisations stand a much better chance of being able to borrow the money needed to keep their business afloat.
[1] Dow Jones analysis, 2010
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