How to Survive the Economic Downturn?

I was reading an interesting case study in HBR blogs couple of days back. The case study was about a Home improvement store chain whose sales/profits were going down. The company was faced with a tough decision to cut costs in order to survive. Headcount reduction seemed to be the only course of action. The author lays out the various thoughts of the company's leadership team and employees and asks for our opinion on what is the best course of action.

This seems to be a pretty common occurrence these days with lot of companies facing similar situation. Economic downturns & recessions are an inherent part of capitalism intended to shake up the market and weed out the weak companies. It’s all about survival of the fittest. Companies can either become stronger or weaker based on their response to the crisis and the actions take take during these tough conditions. As part of this blog I've attempted to list down the possible solutions they can adopt to survive and thrive in the downturn. These solutions typically fall under three major categories which are:

Optimization & Cost reduction solutions
These solutions are aimed at reducing wastage in the system and costs.

Solutions for fixing issues/Problems
These solutions are aimed at identifying the root-cause for sales/profit decline & fixing them.

Growth enabling solutions
These solutions are aimed at improving the competitive advantage of companies and enabling them to come out ahead of their competition.

There is no single solution that will fix the issue. Companies need to undertake a combination of all the three major solution categories listed above in order to sustain & emerge stronger from the downturn. Here are top 10 solutions that companies could adopt during tough market conditions:

1. Eliminate excess fluff

Most large organizations as part of their growth create lot of redundant roles, position and non-critical functions. All the roles and functions that are non-critical need to be reviewed and pruned down as appropriate. In addition for each of the functions we need to analyze if there are ways and means in which productivity could be improved thru automation etc and if it can be performed with reduced effort. If feasible some of the people displaced thru this reorganization should be re-trained and deployed in core functions. Companies could also explore options like outsourcing their manufacturing, services etc to low cost locations to reduce cost.

2. Weed out the non-performers

In most environments non-performers are a big drag on the system. They generally are very negative and low on morale. Not only is their productivity impacted they also impact the morale of the good people in the system. Identify the bottom x% of non-performers and weed them out of the system.

3. Reduce Wastage

Wastage of resources is a big drain on enterprises. In normal working conditions these go unnoticed. This is good time to ‘go green’ and reduce wastages in the system. Some of the examples of reducing wastage include – Utilize power saving techniques, Encourage Paper-less office (reduce consumables usage), Reduce T&E expenses (utilize collaboration tools, video-conferences etc), Optimize supply chain (Just in Time, low inventory etc).

4. Renegotiate contract with Suppliers/Vendors

This is a good time to relook at the contracts with your suppliers and see if some of the rates can be renegotiated. Most enterprises get into multi-year contracts with vendors/suppliers and are stuck with the high rates thru the conract. These rates would have looked attractive at the time of signing contracts however due to market pressures they could have reduced later. As an example during the early-mid 2000’s companies that had multi-year contract with telecom service providers realized that as an outcome of dot com burst telecom prices came crashing down due to huge availability of bandwidth however lot of companies were still stuck with old pricing. Some of them pushed their carriers to revise the pricing based on current market conditions.

5. Identify reasons for fall in sales and fix it

This is one of the most important activities that a company needs to do. In a lot of cases companies attribute fall in sales to macro economic conditions and dismiss it. A good indicator for this would be to check how your company is performing its industry and some of its key competitors. If the company sales is falling more than its competition it’s an indicator for a problem. Some of the reasons that could impact sales include Product quality, Customer service, Differentiation, Market perception of the company/product, Cost etc. A detailed root-cause analysis needs to be done to identify the problems and appropriate action items need to be taken to fix it.

6. Identify loss making division/products and fix them

In a lot of cases there might be specific products/divisions in the company that might be pulling down the whole company. Identify the non-performing divisions/products and fix them. In case some of these are non-core to the company it may be divest them. It also makes sense to run each of these products/divisions as separate profit centers.

7. Identify what’s core to your company and focus on it

One of the foremost strategies recommended during downturn is to focus on core operations of the company. Over course of time companies tend to deviate off their core offerings and venture into multiple areas. Companies need to clearly identify what is core to their operations and stick to it. In order to be successful they need to have razor sharp focus on their core operations and continuously invest in it to stay ahead of the field. All non-core operations could be spun-off and divested from the company. This would also help to generate much needed cash for running the core operations.

8. Improve differentiation against competition

In order for enterprises to be successful they need to successfully differentiate against competition. Companies need to constantly ask themselves the question - why would customers want to buy their products/services? They should identify unique value proposition that customers would get by engaging the company. Differentiation can be in terms of superior service, Higher quality, Unique features, Customer experience, Better value for cost etc.

9. Invest in Innovation and research

Innovation is a necessity in order to drive sustained growth and market domination over the long term. Companies need to be aggressive and encourage innovation and invest in research to help develop new products and new ways for delivering services to customers. Innovation could also help with operations more efficient thereby driving down cost/Time to Market etc. As an example companies like Google, Amazon, Ebay, Facebook etc kept their focus and invested in innovation and research during the dot com bust and have emerged as the industry leaders today. Similarly American car manufacturers are in the brink of collapse today as they did not innovate for the last few decades.

10. Invest in talent

Challenging market conditions are the best time to hire the top talent in the market. Lot of good talent will be available in the market due to lay-off, company closures etc during challenging times. Successful companies are constantly on the look-out and hire the best talent in the market during challenging times.

I have made the above list generic so that it will fit a wide range of Industries. Pls let me know your views on the above solutions. If you feel that there are other ideas in addition to the ones i have listed above pls feel free to add to this list.


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