Hibernate or Renovate
A recession is not a time to hibernate and wait for inevitable upturn of the business cycle. A recession is an ideal time to renovate your organization-addressing the current economic climate with a new operating strategy that positions you to perform more effectively in either an up or down business cycle.
Create a Plan
If the organization decides to renovate its operating environment to either expand or contract specific functions in preparation of growth opportunities or efficiencies, then create a plan. An effective renovation plan should include the following:
- Identify and communicate your vision and rationale for the planned activities,
- Describe in detail the desired outcome for each planned activities,
- Review and assess all risks of taking the desired actions,
- Establish reasonable estimates, in detail, of resources and timing required to complete the planned activities,
- Define the key milestones or events for monitoring and tracking of progress toward your desired outcome,
- Assign responsibilities and accountability to all stakeholders, and
- Establish change and risk management feedback procedures to handle change
An effective plan will aid in communication and managing of a renovation effort, but there needs to be a solid execution effort to accompany the plan to insure success.
Cash is King
We often find opportunities to renovate an organization during a recession by expanding functions and/or markets, or becoming more efficient. These changes are possible because we have adequate levels of a critical asset-“cash.” These opportunities may be at the expense of others in the industry that are less financially healthy. “Cash is king” and it will be always. When credit is not readily available, those organizations with adequate levels of cash should seize the opportunity to acquire inventory, equipment, facilities, new product development, and market penetration. Spending cash in this way leverages lower prices, better terms and much faster implementation schedules. You may also uncover opportunities to merge with (or acquire) competitors or competitor functions that still have value because they have to shed these functions to raise cash for themselves. In any case, the organization with the best cash position, is usually in the best position to negotiate favorable prices and terms.
If your organization is not in a solid cash position during this economic downturn, then let it be a lesson learned and work toward a new cash management strategy to be in a better position, for the next down cycle. It will come!
Workforce Assets
Organizations often declare “Our workforce is their greatest asset.” Why is it that when a significant downturn occurs, the first action many of these same organizations take is to reduce their workforce. The duration of the downturn is a key factor in determining if a Reduction In Force (RIF) will really generate savings for the organization in the mid-long term. Organizations may hurt themselves if they reduce knowledge and productive workers that will be needed if the work load returns within six-twelve months. The cost of hiring replacements, training, and ramping up production may actually out weigh the cost savings of letting the employee go in the first place. Organizations also use the downturn as a reason to weed out the unproductive members of the workforce, but that seems to reflect a flaw in management practices. Unproductive employees should be coached, retrained and if they do not respond, then they should be relocated to a position where they can be productive before being removed. You shouldn’t wait for a downturn to have an excuse for these unproductive workers to be removed. During a downturn, your workforce can be further trained to increase their skills, they can be cross trained to be more flexible and they can be mentored to become more productive. Almost always, savings from a reduction in the workforce is often over estimated, and can hurt an organization if they cannot take advantage of the early stages of the upturn.