‘How to maximise opportunities in recession’
Ahead of the expected economic recovery, maintaining costs that give competitive advantage, and the capacity to exploit unique opportunities have been listed as veritable tools to navigate the situation.
On the other hand, there is a need to reduce operational costs that lead to inefficiencies, which calls for intelligent investment in innovation, research and development, sales and marketing.
H. Pierson Associates, in a report, pointed out that while the economy is still in recession, the natural inclination for companies is to continue to cut costs to minimal levels, especially through aggressive lay-offs and investment and assets down-sizing.
However, the report urged companies to scrutinise their entire business model for areas that require enhancements and provide significant cost-savings, including organisational structure and possible realignments.
“Also included in the smart cost cutting are areas of duplicated activities and processes that in the past were key, but currently have little relevance or value. The message therefore, is to be careful of extreme cost cutting that kills capacity to exploit opportunities in the forecast recovery.
“Recessions create new dynamics in the market place, such as shifts in customer needs and buying behaviour. The ability of the leadership to quickly scope these changes in customer needs and position the institution to exploit such emerging needs through new products and new markets is fundamental.
“These are very key in providing the needed visibility and capacity needed as the tides turn. Against this background of changing customer needs and opportunities, there would be need for the organisation to carefully identify and implement requirements for strategic staff hiring, as well as training and development.
“Interestingly, these tend to be the first doors that get shut, in the aggressive cost cutting reaction that comes with the onslaught of a recession,” the report stated.The company had earlier in this recessionary era, urged leaders of companies to keep their organisations afloat amid the challenges, and strive to be imbued with governance as the economy emerges into more positive territory.
“According to a Harvard business Review Report covering a study of how 4,700 companies performed through three recessions - 1980-82, 1990-91 and 2000-02, about 80 per cent of the companies studied had not regained their pre-recession sales and profits even after three years post-recession.
“However, about nine per cent came out of the recession much better, topping their peers in sales and profit growth. Interestingly, neither the firms that had the fastest and deepest cost cuts nor those with ambitious spending did great after the recession.
“In fact, 85 per cent of the companies that were top of their league table pre-recession were significantly weakened during the recession and thereafter.“Characteristics of the post-recession winners therefore, were the ability to strategically identify areas of selective cost cutting to boost efficiency, together with holistic future-focused enhanced spend on marketing, research and critical new assets,” it added.
According to the company, organisations must position themselves for recovery by ensuring appropriate efficiencies, while building appropriate capacity towards a successful win in the ‘new’ market place as the upturn begins.