Recession Rx: Take Stock, Shore Up — and Make Big Bets
Every organization with an institutional pulse has been struggling to figure out the right response to the current economic crisis. An article I’m currently working on aims to help companies move from ad hoc remedies — a series of often isolated conversations and initiatives — to a comprehensive recession treatment plan.
The piece (which will appear soon at www.hbr.org) is based on a series of white papers by David Rhodes and Daniel Stelter, both of the Boston Consulting Group. They believe that we face a severe and prolonged recession. (One particularly disturbing data point: As the economy began to seriously stall earlier this year, consumer and corporate indebtedness in the United States totaled about 380% of GDP, nearly two and a half times the level at the beginning of the Great Depression.) But as anxiety about the economy heightens, companies too often engage in rash or scattershot actions that target the wrong problem or overshoot the right one. This generates a sense of panic in the organization, which in turn distracts people from seeing the hidden but significant opportunities nestled among the bad economic news.
To take advantage of those opportunities, the authors recommend that you first ensure that your business is in good shape to ride out the recession. This goes far beyond the obvious cost-cutting and efficiency improvements. First, seriously assess your exposure under various scenarios. For example, a still-healthy company, with operating margins (before interest and taxes) of around 10% may be surprised to discover that a 20% decline in sales volume and a 5% decline in prices could turn current profits into huge losses and send cash flow deep into the red.
Second, work to reduce your exposure. That means going through a checklist of actions to strengthen both your financial fundamentals (for example, by freeing up cash through the reduction of working capital) and your business operations (for example, by rethinking your product mix and pricing strategy to maximize revenue). Combine these moves with efforts to boost your share price relative to rivals’ (for example, by opting for confidence-boosting dividends over question-raising share buybacks).
This will prepare you for the final stage of your recession plan: the launch of bold strategic moves. These include long-term investments in product development or new processes that set you up for turbocharged growth when the economy recovers. You may be able to reshape your industry through the acquisition of struggling rivals at bargain-basement prices. The crisis may even present opportunities — or force you to realize the need — to reinvent your entire business model.
The authors’ advice is directed primarily at large enterprises. But the basic framework is also relevant to small businesses — which got me thinking:
Does this approach also offer something that can help an individual survive and thrive during a recession? Does the downturn — and the almost universal threat of being laid off — lend some urgency to what should be a regular stocktaking of our own careers? Does it remind us of the need to bolster the skills that make us valuable to an organization, whatever the economic climate? Does it present us with opportunities to reinvent ourselves through investment in an entirely new set of skills that will be more compelling — or simply more personally satisfying — in tomorrow’s economy?
What do you think? Do the storm clouds of the current crisis hold a silver lining for your career?
Recession Rx: Take Stock, Shore Up — and Make Big Bets
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