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Seize the advantage in an economic downturn
23-Apr-2009
Taking no action is the greatest risk in an economic crisis, but taking rash or disorganized actions can be nearly as damaging - according to the Feb 09 issue of Harvard Business Review. Here’s a summary of the article:
Many companies fail to see the opportunities hidden in a downturn, but in order to take advantage of opportunities - first you need to secure your survival:
Studies show that companies whose early responses to a downturn are tentative (e.g. modest belt tightening), typically over-react later on (e.g. making severe cost cuts which impact future competitiveness).
1. SECURE YOUR SURVIVAL
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Do a thorough strategic assessment - take action to mitigate weaknesses and threats.
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Quantify the impact of a worst case scenario and be prepared to confront this reality - (e.g. what effect would a long-term 20% decline in revenue, and a 5% drop in prices have on your profit and cashflow?)
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Report rolling cashflow forecasts on a weekly basis – know your cash position
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Negotiate better purchasing terms with suppliers and reduce inventory holdings
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Tightly manage customer credit and speed up the collection of accounts receivable
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Reduce debt levels, and secure access to additional lines of funding
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Divest non-core assets and non-core activities that deliver little value. Don’t delay in the hope of getting a better selling price in the future
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Identify and retain high margin core customers. Divest low margin, high risk customers
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Rather than discounting – explore innovative pricing strategies and terms for your customers
2. INVEST FOR THE FUTURE
- Keep investing in marketing. (Firms that slash their marketing spend, typically have to spend far more than they saved in order to recover later)
- Assess your industry – what strategic moves are other key industry players likely to make, and what strategic moves do you need to make to position your firm for future success?
- You may need to totally rethink your business model in light of expected industry transformations
- Make calculated investments in Research & Development
- Develop the core competencies that will create your future sources of competitive advantage
- Develop your people – and upgrade the quality of your management team
- The best deals for strategic acquisitions of other firms are made during downturns
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