Saturday, December 6, 2008


This is a follow-up to my earlier post: "Tough Times Call for Tough Actions- Not Panic".

Small and large businesses are struggling to survive this recession. But SMART businesses continue to thrive (and not just survive) in these tough times. Of course, it isn't easy -else it wouldn't have been a problem for many. But SMART businesses take smart and BOLD measures -sometimes even challenging status-quo of "recessionary" thinking. It requires business leaders to undertake a new strategic thinking rooted in courage and hopefulness - not fear and rejection.

STRATEGY: Strategy is about choices. Understandably, not many businesses would plan for growth in a time of recession and decline. Their response is instinctive and fearful -"let us cut our losses". They are "preparing to die: slowy but surely".

Shouldn't their response be : "let us find ways in which we could maintain steady growth" that is needed to weather-out the tough storm.

Strategy demands a focus of efforts - deciding where your priorities lie. Three key areas of business operations - Marketing, Finance and Operations - require strategic re-thinking...explained below.

MARKETING: Marketing is all the more important in tough times as it directly contributes to the top-line (Revenues). Following actions are required:
1) Identify your niche: If you haven't found it already, it is about time! Niche marketing optimizes market efforts and budget. Once a niche is found, it secures your customer-base from competition. Your target customers identify with your product/service brands. I don't think people who buy iMacs would start buying DELL notebooks -even during a recession.
2) Analyze your marketing ROI: Make sure you are getting most bang for your buck (dollars). It is important to measure marketing's ROI and optimize your marketing programs.
3) Re-negotiate sales compensation/bonuses : Rather than laying-off your sales team and guarantee revenue losses, take this opportunity to re-negotiate sales compensations.
4) Show "Love" to your Key Customer : Hire key account managers for your large customers. Depending on industry, most companies find 80% of their revenues coming from 20% of customers (it is a generalization of Pareto's80/20 rule --- could be 70/30 or even 60/40 mix between large and small customers)

OPERATIONS: Responsible for cutting costs and improving the bottom line.
1) Cut wasteful spending: Cut unwanted and wasteful expenses - for example, corporate travel expenses could drop by as much as 50% if companies use remote web-meeting tools like WebEx or GoToMyPC
2) Consolidate assets: Lease and not buy fixed assets like office computers, furniture etc. Consolidate your data-center, storage and other IT assets.

FINANCING/INVESTING: Recession is a great time to make smart purchases. More companies would sell-off their non-core businesses and/or assets in economic downturn- as everyone is selling off, buyers get a bargain for their purchases.
1) Buy or Build "Stars": Invest more in your profitable business line (unit). Even purchase assets that offer strong strategic-fit.
2) Sell-off "Dogs": If you could not turn around a sick/unprofitable business unit in good times, it is clear that bad times would make things worse only. Sell off unprofitable and/or non-core assets. You may end up settling for cheap sell but you will save money by focussing your resources on the "stars" and "cash cows" of your company.
3) Financing strategy: Look for both public and private financing options when you need funds to purchases needed assets. Remember that cost of capital (debt+equity) must be below hurdle rate of your investment for a profitable venture.

These are strategic choices and require strong management decision-making. But in all this, you know, companies can grow without laying-off people or other assets. Tough times call for strong introspection and stronger decision-making.

RECOMMENDED READING: Couple of interesting books on this subject.

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