It’s a commonplace that when a recession hits, strategy goes on the back-burner. Or rather, everyone adopts the same strategy, which is to batten down the hatches, conserve cash and do your best to survive. But as time goes on, is this enough? Or is it time to start looking for new opportunities?
Chris Ogden, founder and managing director of consultancy BusinessNext, agrees that recently, “in terms of strategy, people haven’t been doing any—they have been keeping their heads down while this thing grinds on” but believes that now is a good time to start thinking about the future.
“The thing I always tell people about strategy is that it shouldn’t be something that the CEO and his direct reports do themselves, it should be distilled from the ideas of a wider group.”
This will lead not just to tactics to survive but to innovation:
“Every year produces a new crop of young people who don’t operate by the same rules,” he says. “The technical drivers are also still there: tools like Twitter and other social media have really taken off during this period as a cheaper way of marketing.”
Andrew Cave, head of policy at the Federation of Small Businesses (FSB), agrees:
“It’s an old adage that those businesses big or small that cut back on marketing fail to get through recessions, while those that spend more become the market leaders.”
This is now feeding into online promotion, as smaller companies have found the Internet to be a godsend:
“We are seeing a lot more optimism among businesses that are trading online,” he says. “These kinds of business models have not existed in previous recessions, but it’s a good time for them. They can buy up stock cheaply, they have less call for finance and can potentially see faster growth coming out of the recession. We have a huge number of members who operate in retail but are not online, they see the online sector as rivals—we are now encouraging them to get online.”
Peter Tyndale, large practice representative for IBC, agrees that there is a growing sense of the need to move forward:
“For SMEs where they’ve done the re-organisation, the cost cutting, made all the savings, it’s as lean as it’s going to get,” he says. “They need to move forward, and they know their competition has got to do the same. It’s like a long-distance race—who’s going to make the break first?”
But he warns that there is still a mood of caution hanging over large projects:
“I genuinely believe people are scared of doing the wrong project,” he says.
“In the private sector what we’re seeing is that projects are being temporarily suspended while cost benefit analysis is carried out, so that they can check whether the markets they are going for really exist.”
The projects that are getting the green light are those that have the quickest payback:
“If you have two projects, one that delivers in nine months and one that delivers in 18 months, then the 18-month one hasn’t got a snowball’s chance in hell of getting through,” he says. “The timescale gets factored in as a reduction of risk, because the market is too volatile, they do not know what’s going to happen in 18 months.”
Even in the short term there are many tactical things that companies can do to reduce costs without destroying their capacity to react to an upturn. Honda, for example, has gone to great lengths to maintain its skillbase in Swindon through extended shutdowns and reduced working hours. The FSB points out that nearly £400m in small business rate relief is unclaimed, and companies are finding previously overlooked savings by renegotiating with suppliers of everything from software licences to utilities. But with every month the recession lasts, companies that fail to re-examine their business models risk being left behind.
“It’s like a postal strike,” says Dr Colin Coulson-Thomas, author of Winning Companies; Winning People. “If it’s only for a day, people adapt, but if it goes on for longer they start looking at alternative delivery methods.”
According to Coulson-Thomas, one of the key strengths of successful companies is their ability to spot the difference between cyclical fluctuations and long-term trends.
“More-successful companies are always thinking about what long-term trends are going on and preparing for the upswing,” he says. “That can be galling for companies who get to the stage where they’ve achieved all the cost reductions they want—when the economy takes off there is often a rush of orders and they aren’t ready.”
This difference comes, Coulson-Thomas believes, from a profound difference in focus between more-successful and less-successful companies:
“The least-successful companies stop doing new and different things, they focus not on what’s happening externally but on what’s happening internally,” he says. “They look at numbers, look at headcount and take a negative, cautious view. They postpone investment and people aren’t encouraged to come forward with new ideas.”
More successful companies may still have to go through many of the same exercises, but approach them from a different perspective:
“The reaction of winners to a recession is not necessarily to think purely about themselves,” says Coulson-Thomas. “Their first thought is often that this recession is hitting our customers, what are the things we can do to help our customers survive the downturn.”
Where they do look at headcount and costs, they will do it in a way that avoids negative impact:
“They don’t want to take people who are good or have potential out of the organisation and pay a long-term price for a short-term gain,” he says.
According to Coulson-Thomas, some companies may not even see the recession as a disadvantage:
“When the going is good any fool can make money,” he says. “Some of the biggest gains in market share you can make come during periods of downturn as the recession takes out your marginal competitors.”
The one fly in the ointment is that this time round the recession is still accompanied by a credit crunch, making some of the opportunities—cheap premises, the opportunity to acquire competitors and staff cheaply—difficult to capitalise on. There’s still a great deal of uncertainty about—the FSB’s Cave warns that the recent rise in business confidence may just be a function of people becoming used to the situation, and that many businesses are still running through savings.
But it’s clear that now is the time for companies to at least look beyond the bunker and start thinking about what the future may hold. As Chris Ogden puts it:
“Some companies are still hunkered down asleep—they don’t realise the world has changed.”