Home » Leadership & Strategy » 10 Actions to Ride Out a Recession

10 Actions to Ride Out a Recession

As dramatic changes in financial and energy markets work their way through the economy, senior leaders face difficult choices in confronting higher expenses and news of a global downturn.

As dramatic changes in financial and energy markets work their way through the economy, senior leaders face difficult choices in confronting higher expenses and news of a global downturn.

In a study by Forum Corporation , a Boston based advisory firm, identified 10 actions that successful leaders can take in three areas during economic downturns to settle the organization, keep it headed in the right direction, and emerge on top.  

“Past recessions hold some lessons and some of the actions are unique to tough economic conditions, while others are simply good management practices that take on added importance in a down economy,” says Ed Boswell, CEO of The Forum Corp. 

The most common remedy for surviving a recession is to cut cost without fostering negative consequences. In its point-of-view paper titled “Leading during a recession Forum says some of the primary concerns for  companies are getting workers energized despite looming economic threats and discouraging defensive internal politics. Yet another major challenge is how one can lead now, so that the organization emerges from the downturn poised for success.”

Past recessions have taught leaders to narrow the focus to provide the greatest value for key customers by ensuring that resources and capabilities are efficiently deployed. Bring people together to counter the internal competitiveness and defensiveness that often accompany belt-tightening efforts 

Besides cutting costs, Forum advises organizations to refrain from across-the-board cutbacks, consider alternatives to layoffs such as cutting management bonuses, freezing salaries and reducing compensation options. 

Forum claims its research on past recessions confirms that businesses that move quickly to reduce costs and control spending weather a downturn more effectively. Forum maintains its research has discovered that leaders in highly profitable growth organizations often suggest focusing on the critical few priorities. In a research report titled One Size Doesn’t Fit All ,” published in 2006, Forum asserts that trimming costs is important, but selecting what to cut is critical. “Some businesses cut voraciously, only to realize months later they have cut the very capability required to sell and deliver their business,” according to the  report.

Citing an example of the Virginia based electronics retailer Circuit City , Forum says that in 2007 the electronics retailer fired 3,400 of its top-paid sales associates just prior to undertaking an effort to transform its customer experience and revive sales. But the move has since backfired: The downgraded sales force has failed to sell customers higher-margin accessories, product warranties and installation and repair services, said a report published in NY Post  

A year later, Circuit City‘s sales were suffering, its stock had declined more than 75 percent in value, and Circuit City was looking for a buyer. By contrast, a Circuit City competitor, Best Buy, added specially trained staff during this period and increased its profits 52 percent, the NY Post reported. 

Forum maintains that the most important thing leaders can do in a downturn is creating a positive vision and attitude-while acknowledging the real challenges. Businesses at the top of their markets often fall, while “sleeper” companies jump to the top in a recession, says the Forum study. When leaders exercise discipline and focus by mobilizing employees to respond to customers’ interests and values, they increase the chance that, when the downturn ends, their company will come out on top. 

The 10 recommended actions:

Financials: 

  • Move quickly to reduce costs and control spending by narrowing focus. Winners in a downturn focus on a few critical priorities where they can develop a clear lead, and they walk away from bad business. Losers chase unprofitable sales in an attempt to hold their top line.  
  • Refrain from across-the-board cutbacks, being sure to preserve areas that customers value most. Businesses that uniformly cut costs often find that they end up damaging their ability to sell and deliver their products and services. How do you find out what customers value most? Ask them. 
  • Consider alternatives to layoffs. Downsizing tends to bolster the bottom line and stock price in the short term, but often creates long-term negative repercussions. Alternative strategies include cutting management bonuses, freezing salaries and reducing compensation options. It’s critical to clearly communicate the rationale and impact to employees. 
  • Invest in opportunity. A bad economy can present bargains, both in new assets and in new talent. Good areas to invest in are R&D, marketing and customer-perceived quality. By contrast, investing in working capital, manufacturing and administration doesn’t pay off as well. 

People:

  • Retain and develop top talent. High-impact workers are often more susceptible to being poached by a competitor in a downturn. Organizations that provide development experiences and rotational assignments have better employee retention rates. 
  • Make sure everyone’s on the same page. When alignment on key goals is absent, performance suffers, according to studies on strategy execution. Top leaders frame an agenda and meet with key stakeholders to gain support and build commitment to overarching goals and values. Ineffective leaders let inter-office politics fester and hidden agendas dominate. 
  • Encourage questions and new ideas by making it safe for employees to raise them. Leaders who admit they don’t have all the answers and ask for input empower their people to contribute their best ideas. 

Climate:

  • Manage the heat. Leaders are often tempted in difficult times to relieve the organization’s stress by making unilateral, tough decisions. That’s often a mistake. Leadership by dictate often doesn’t take because it lacks a broad base of support, and it often eliminates constructive conflicts that challenge the status quo and fuel good decision-making. 
  • Communicate authentically. Strong leaders acknowledge the challenges they struggle with and, by doing so, build trust among followers. Rather than being a sign of weakness, it’s a sign of strength. 
  • Create a positive vision and attitude that acknowledges reality. Businesses at the top of their markets often fall while “sleeper” companies sometimes jump to the top in a tough economy.  When leaders exercise discipline and focus by mobilizing employees to respond to customers’ interests and values, they increase the chance that, when the downturn ends, they’ll come out on top.

Related links:

  1. Read the complete Forum study paper here 

  2. How to survive a  recession

  3. Effects of a recession  

  4. Fixing the recession

About fayazuddin a shirazi