Past research says that only a few companies come out of a recession stronger than they were before. Rest of them either went closed/bankrupt or it took them a minimum three years to get into their pre-recession sales and profit.
Inaction is a riskier response to a crisis, however, a firm that aggressively cut costs had only a little chance to overcome the recession. The same for who went boldly invest to seize all opportunities. And for the companies that flourished during the recession, couldn’t regain the momentum after the recession.
What went wrong with them? Let us examine.
When a recession comes to them, business owners believe that their first priority is to reduce the operating cost to survive the slump. However, focussing only on reducing cost numerous problems. First, it is sending a pessimism signal across the organisation. Second, they try to do more with fewer resources, it will reduce the overall quality. Later they must spend far more than they saved in order to recover.
Some cash-rich business leaders try to reach more close to customers by aggressive investment. They try to create an aura of optimism. They didn’t notice that even customer has budget cuts due to shrinking cash reserves with them. They are looking for lower-priced products and services with value for money.
What’s the right way to move forward?
A combination of both, a little cut and a little investment. Companies that following the combination are doing well after the recession. You should cut to improve operational efficiency rather than reducing the number of employees. And similarly, you should invest in R&D to improve your product and service offerings. Employees at these companies appreciate top management and they try to be more creative in reducing the costs.
This approach helps to fight the recession and also can path a strong foundation for continued success after the recession ends.
Thank you and Good luck.
(Mohammed Nizam: Principal Consultant – Mission Means Consulting)