I got the idea to write this post when I was writing the Recession and Falling Reserves 2013Q3 review for Barbados. I wondered if all of this doom and gloom about the economy was leading to worse business decision-making. So I did some research and I realised that within many companies marketing spend appears to be down, prices have gone up and projects have been scaled back. The response of corporate Barbados appears to be to cut costs and increase revenue quickly.
This type of reaction is not surprising. The economy is not doing well and companies are in full defensive mode. But does this make sense? Would this type of response actually help the company survive the recession? Would it position the company for extraordinary growth when the economy finally rebounds?
My short answer is no. I am not suggesting that companies go on a spending spree, or that they do not make some hard decisions. What I am suggesting is that they become more focused. So let’s put this in perspective so you can figure out how to not only survive this recession, but emerge a stronger, more competitive and more resilient company.
Improving Business Decision-Making During A Recession
1. Set your strategic goals for at least the next 3-5 years
Before you make any decisions on how your company will respond to the recession, you first need to be very clear on what your strategic goals are for at least the next 3-5 years. Try to be precise. No vague goals like ‘market leader’ or ‘well-respected’. Market leader should be drilled down to something like ‘Top 3 companies in sales of Product X’.
2. Assess the key factors contributing to achieving your goals
Once you are clear on your goals, you can now have a look at your revenue and cost structure with the aim of identifying what truly drives your company’s ability to achieve these goals. Let’s assume that you would like to lead the market in sales in your product category. You first need to understand what drives sales in your market. If it is customer service, then you may not be able to cut staff in this area. If it is product features, then you may have to continue developing that new product, even though it is expensive. If it is location, then you may have to consider pushing ahead with the new storefront.
The keys to accurately identifying these drivers are objectivity and data. By objectivity, I mean being prepared to put aside old assumptions about what it takes to be successful in your market in the search of the truth. The truth is what the data reveals. You may find that your intuitive understanding of your market and the data revelations match. But in the event that they don’t, go with the data. And be prepared to retrain your staff on how to think about their market.
But what if there is no data. First, there is always data. Most companies have accounting records, sales information, staff performance records and general economic information. Second, if the data that you want truly does not exist in your company, create it. You can carry out a survey of your customers, conduct a competitor review or identify what macroeconomic indicators appear to impact your performance.
With the data in hand, you can now test your assumptions mathematically using econometric techniques and/or game theory. Maybe you can do this in-house, but odds are at least part of this research will require the skills of external specialists (see our Market Intelligence and Research and Retainer Services for more information on how Antilles Economics can help you improve your market data).
3. Armed with an understanding of your drivers, you now know what cannot be sacrificed and what can
Armed with your insights on what truly drives your success, you can start considering what changes may be required to support your goals. The first priority is to focus on those areas that cannot be sacrificed: your drivers. This gives you clear guidance on where you must be competitive and what cannot be cut when considering where to trim expenses. For example, at a minimum my company will provide the greatest range of products in category X because customers in my market consider product selection to be the single-most important factor driving their decision to do business with my company.
Any expense or revenue earner outside of your key drivers is fair game once there is no legal reason you have to maintain it. For example, as a banker, you may not be able to lower your deposit interest expense because the Central Bank of Barbados sets a minimum savings rate. On the other hand, you may be able to raise fees, because not only is there no regulation that determines your fees, but it is also not a driver of loan sales.
4. You should focus your efforts on adding additional value to your drivers
The second step is to determine what improvements can be made to add additional value to those drivers. Even in markets with declining demand, there will be customers still seeking your products and services. The aim of this step is to remain top of mind for these customers and capture a larger share of the market. For example, providing an online catalogue of products in Category X or providing an in-store expert on Category X products. These ‘value adders’ should be ranked based on return on investment. This area may also point to an avenue where you can increase revenue. Since customers prioritise this driver, they may be willing to pay extra to receive additional value.
5. Start development on the areas that will support extraordinary growth when the country exits the recession
Your analysis in Step 2 may reveal upcoming drivers in your market. These are areas that, while not critical to the sale today, are becoming increasingly important. Examples could include more convenient opening hours, ability to purchase online, product samples, emerging attractive segments of the market, certain geographical locations, etc. An analysis of these features should provide you with an indication of what could be in research and development in your organisation during the downturn.
Starting development in these areas may not require incurring significant additional costs. You could restructure the organisation to better align it with your new direction. You could rewrite the copy for your marketing material to focus it on your new target market. You could touch base with a realtor to start looking for the location of your new store. The key to this step is putting things in place to allow you to respond and grow quickly when demand returns.
Surviving a recession requires greater precision in our decision-making than operating during a period of economic growth. But it is not impossible and recessions do not have to signal the demise of your company if you get more focused when making decisions.