4 Steps to Growth During a Recession

Posted by Michael Roberto on April 8, 2008 11:00 AM

Can companies actually grow stronger during a recession? What can they do to capitalize on the problems that their rivals encounter during tough economic times? Suppose you have a sturdy balance sheet, low debt, and plentiful amounts of cash. How can you employ these strengths to take on rivals who have been weakened considerably?

I'm reminded of the importance of considering these questions when I read Steven Jobs' recent quotes about Apple's strategy in the days and months ahead. Jobs promises to expand the firm's research and development efforts this year, even if economic growth does turn negative. Here is what he told Fortune magazine a few weeks ago, reflecting on the last recession as well as the current economic climate: "In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that's exactly what we did. And it worked. And that's exactly what we'll do this time." Of course, Apple sits in an enviable position. They have an impressive balance sheet, mountains of cash, and no debt. If your firm also finds itself in such a position of strength, remember that it too can use the recession to become even stronger relative to the competition.

Here are four steps your company should consider now:

First, invest heavily in research and development now so that new products and services are ready for launch as the economy begins to grow again. Your competitors may be inclined to cut R&D, particularly if they face high interest payments, substantial drops in revenue, and the like. If so, your acceleration of investment now will yield a strong product advantage in the coming years.

Second, spend some time learning about the customers of your weakest competitors. You might be inclined to go after their largest and most attractive clients. However, be aware that your rivals are probably working desperately to save those customers. They might not, however, have the time and resources to focus on smaller clients. Focus your attention on these potential new customers, particularly those with attractive growth prospects and strong balance sheets.

Third, identify your most critical suppliers and distributors, and determine if any face the possibility of severe impairment to their business due to the economic downturn. Assess the risk to your business if they should falter badly or even fail completely. Then, examine ways in which you might help those supplies and distributors weather the downturn. Even the smallest gesture can sometimes build an enduring loyalty that will pay off for years to come.

Finally, think carefully about your talent needs. As weak companies lay off employees, many good people will find themselves searching for work. Other skilled workers may still have a job, but they may be disenchanted with their struggling firms. Capitalize on this opportunity to identify and attract talented employees, while slack exists in the labor market.

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Comments

Good Summary. However the critical requirement mentioned in the note is you need to have a sturdy balance sheet. I think it would be nice if we can consider pointers applicable to all companies - strong or weak financially.

Even if your financial position is weak, you can consider "spend some time learning about the customers of your weakest competitors" and "identify your most critical suppliers and distributors". In fact one should work on these points all the time and not only during economic downturn.

Also even if your balance sheet is weak, you can consider working on forth point mentioned in the note by retaining key talent. You need to understand what will keep them motivated, realign their profiles and communicate company strategy very clearly during economic downturn

I am not sure attracting talent from your weaker competitor is a right strategy. Is money going to govern motivation and efficiency ?

Shrikant
Clover Infotech

- Posted by Shrikant Navelkar
April 10, 2008 10:15

The typical reaction of most companies is to cut back on costs and investments in R&D. I see this as a weakness in a company's strategic risk management process.

Challenging times can also throw up business opportunities. This may be a good time for companies to take over underperforming / under exploited assets at discounted values from competitors or other companies that are in turmoil.

Also important is for the CEO to clearly communicate, as Steve Jobs did, the company's strategy to manage the downturn. This is a time of great uncertainty for employees, who fear for their own jobs, so sending a powerful message on how the company intends to use the recession to their advantage will go a long way in motivating and energising your employees.

- Posted by Uday Gulvadi, Director Internal Audit Services -Eisner LLP
April 10, 2008 10:35

Great article and valuable points to ponder.

I see this article addressing "Steps to Sustain & Strengthen a company during Recession" but the gorwth aspects are not covered enough.

Sriram Palghat
SEEC Inc.

- Posted by Sriram Palghat
April 10, 2008 11:37

In addition to the points crisply brought to fore by author, I want to add to the last point about counter-cyclic training. The recession period is best to train existing employees and upgrade their skills.The work load is comparatively less and organization can utilize the time effetively and keep their work force engaged in more productive activities. This all would help in competing when the economy growth is back on track.

- Posted by Amit Kr Garg
April 10, 2008 17:58

Nice analysis.

Can protection for intellectual assets or decide to rely on secrecy ?
business opportunities !

Merci

- Posted by ATIG
April 10, 2008 18:13

The comments in the article are worth analyzing profoundly. Evaluating the "spend some time learning about the customers of your weakest competitors", why not also recommending firms to center on analyzing and serving their own clients better? Mostly, clients go elsewhere when they are badly served. Should firms invest so much on someone elses's clients when theirs are underserved?
Precisely, SMEs advantage should be differentiated services. They become weaker at clients optomized services as they grow. Moreover, it will be unusual for a well served client to go to a competitor, unless prices are lower. Firm will save invested $ more if they go back to emphasizing word of mouth and excellency. Regarding evaluating suppliers, it is always valid. But, there are more reasons. Wha tabout evaluating who is out there with competitive pricing and quality offers. Remember, Mattel?

- Posted by Leonora C. Hamilton
April 14, 2008 13:58