Prelude
Recession or not – companies are taking preparatory actions for it – they are resorting to cost reduction measures that will ultimately bolster the company through an extreme economic decline.
Economic Recession is accused of business cleansing.
The aftermath is a catastrophe for many business organizations. Victims will plead for justice! Someone must be held accountable!
Is there a Strategy for Recession Management?
What’s interesting about recession is that when it strikes – it hits everyone, the big and small, everyone gets slapped by the invisible hand.
However, not all companies disappear during recessions, there are those who seem to survive and even gain competitive edge for the years to come.
The Definition of Recession Strategy
Operational excellence is a change for better, bigger and faster. In essence, it’s performance boosting. However, operational excellence has a weak point – its inability to cope with reduced trade and industrial activity during recessions.
Studying the companies that performed oddly well during the 2008 recession, it becomes clear that a recession strategy was implemented.
To manage a company during a recession, the leadership needs a complete positioning strategy, not just to improve overall performance.
Recession is a major macro-economic trend and not the good kind.
Companies know that and they devise various strategies to get through it. Unfortunately, most companies don’t make it or lose a significant market share which they can’t recover afterwards.
Each industry has its own specificities, but all companies – regardless of the industry they’re in – need a top-down complete re-organization across 4 dimensions: Performance, Capital, Product and Customer.
Complete Strategic Re-organization for Recession Management
1. Performance
e.g. reducing operational costs by using different means of transport
2. Capital
e.g. laying off employees
3. Product
e.g. developing a new (cheap) product
4. Customer
e.g. focusing on a different segment
How Recession Strategy helped McDonald’s survive and crush competition by re-organizing across all 4 dimensions
A successful recession strategy means re-organization of the company across all four dimensions.
McDonald’s has upset the industry by devising a good recession strategy – re-organizing across all dimensions – keeping a positive balance sheet during 2008. McDonald’s came out the recession as the definite industry leader.
With a complete recession strategy that re-organizes all 4 dimensions, the company will gain competitive advantage and differentiate quickly from the rest in the industry.
However, if the company doesn’t succeed at complete re-organization, it will converge with the rest in the industry; losing market shares at best. A worse scenario is filing bankruptcy.
Human Resource Management in Recession
There is no way around it. Major trade-offs will be made to cope with the recession. Trade-offs must occur across all (re)organization dimensions. A particularly painful trade-off occurs in the capital dimension. More precisely: Human Resources.
Recession management is not just about performance improvement; it’s all about strategic positioning. As the company assumes a new market position, it will no longer use some of the resources.
Firing might backfire!
Employee appraisal metrics are often misleading, one common mistake HR managers make is the so called “fundamental attribution error.”
Where does HR Management fail during Recession?
This is a cognitive bias – where HR managers assume that the lowest performers of the year will always be the worst performers and to fire them as a result – an assumption that overlooks the impact of good or poor management, not to mention business conditions that are beyond employees’ control.
Recession-strategic companies, like McDonalds was in 2008, avoid the fundamental attribution error – by re-organizing human capital from top to bottom.
How Ford prospered from managing HR differently and applying the Recession Strategy while at it
Ford, the car manufacturer, is no exclusion. The top-down HR re-organization during the 2008 recession was the right move.
A new CEO came along and implemented many strategic changes. Three years later (which is a very short time in the automotive industry), Ford had made it with an amazing turnaround!
New executives and new managers bring a new energy to the game. They quickly develop a new culture with new rules to guide the company through crises. They help employees on the frontline to understand their newly formed roles and finalize tasks with maximum efficiency.
Moreover, top-down re-organizations often bring hope to employees at the bottom of the hierarchy. That drive and motivation can be leveraged in the coming recession.
Recession Strategy For Entrepreneurs and Small Business Owners
This article discusses how big companies have succeeded despite their size and enormous losses during Recession.
For Entrepreneurs and Small Business, transforming the organization around the 4 dimensions (performance, product, capital and customer) will be much less complex. Often this transition doesn’t include massive sacrifice or unethical practices (laying off a business unit suddenly).
How Successful Entrepreneurs increase Performance?
When you hit a bottleneck, instead of getting all worked up and angry about the issue, go and discuss with business partner how to improve efficiency at that particular point of delivery!
Focus on delivering your product and services FASTER.
This is the best performance booster! If you can deliver Faster you can move on to the next dimension:
How Successful Entrepreneurs improve their Product?
Learn where your product is failing and what Consumer Demands are not met by your offer.
Whether you are selling a product or a service, always look for CUSTOMER FEEDBACK.
Instead of focusing on procuring cheaper material, try to develop better solutions with what you have. It is harder said than done, but it is exactly what separates a successful Entrepreneur from a failure!
How Successful Entrepreneurs use Capital during Recession?
Hiring a business management trainee during the Recession is a great way to go about it!
You will have someone who’s sole purpose is to Consult you on how to manage your assets in a way that will save your business!
If you are running a small company or a start up, you should not hire only specialists; you need people with diverse background and various skills.
But if you don’t have a Business Management Trainee, it’s OK! You can get the job done with employees who have multiple skills and are able to do many different tasks.
What Customer Segment do Successful Entrepreneurs target during Recession?
During recession, many of your customer will lose their power to purchase your products. Customer Persona is, thereby, changing according to new properties.
Most Successful Entrepreneurs look for – a cheap alternative for their products – something that they can deliver to the market and still profit from it.
Other Entrepreneurs and Small Businesses, that have Sponsors and Investors backing them up, they prefer to INTEGRATE FORWARD.
Forward Integration is getting closer to the end-user of your products and services. In a way; Forward Integration is cutting the middle man out.
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