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The Harvard Business Review tells us that great leaders and fast moving entrepreneurs know that how they fight a war often decides whether they will win the peace.
And yet, as leadership continues to combat the myriad challenges thrown up by the lingering recession, they are increasingly unsure about what strategic approaches to deploy. Many worry that the massive slowdown may not yet be over. Others feel that although a recovery has certainly begun, it could be short-lived.
What's next
Almost all business leaders from large, mid-cap and small enterprises agree that the current crisis also marks an inflection point: Their world after the recession, will take a very long time to resemble their world before the recession. Their priority must be to remake their organization to cope with the “new normal.” The problem today is that senior management, as you may have observed in your own Gulf Coast enterprise, is so busy tracking short-term priorities that the future is obscured by the present.
Unfortunately, little research has been done on strategic initiatives that can help cash-strapped companies survive a recession, get ahead during a slow-growth recovery, and still be ready to win when good times return.
Here is what we now know: From the most current study published by Harvard Professors Ranjay Gulati and Nitin Nohria, in conjunction with Northwestern University doctorial candidate Franz Wohlgezongen, these post-recession winners aren't from a category you might expect. In fact, some might conclude the results are utterly surprising.
Highlighting the findings of the study is the news that firms that cut costs faster and deeper than close rivals don't necessarily flourish.
Let's call these folks the Slash and Burn crowd. They cut every nook and cranny across the board. It's usually accomplished through department-wide blanket budget reductions. That means people, equipment, printing, media, promotions, travel, outsourcing, benefits, planned raises, projects in progress, overtime, hiring freezes and perhaps even resulting reductions in the corporate culture. Their self-imposing mission is more than trimming the fat. It seems like major bariatric surgery.
Does slash and burn work? According to research from prior recessions, this group has less than a 9% probability of coming out of recession ahead of competition when times finally do get better.
The 'Defensives'
So, who are the post-recession winners? What strategies do they deploy? And, most importantly, how can our Gulf Coast entrepreneurs emulate those strategic initiatives?
Cutting through the economic statistics, let's see what happens with what we'll call the Yellow Line Defensives. They are the middle of the road leaders who are a giant step less hyperbolic than their slash and burn brethren.
While they may not summarily cut costs across the board, they swing into freeze mode. They quickly implement policies that will mildly reduce operating costs. They shrink discretionary expenditures and eliminate frills. They tend to postpone making fresh investments in developing new business. They don't buy new equipment, hold back on virtually all marketing communication and would not consider buying assets, even at reduced pricing.
The Defensives don't flourish in or shortly following a recession. In fact, they have a 'middle of the road' probability — less than 21% come out of recession ahead of direct competition.
Who really wins?
It may sound obvious, but let's say it anyway, because some particularly interesting — and not so obvious — reasons for winning become evident. Those leaders who balance between cutting costs just enough to survive today — and investing to grow tomorrow — do well coming out of the recession.
Let's call this group the Progressives. They are indeed the winners. Here's what they do: They deploy a specific combination of defensive and offensive moves that have the huge probability — 37% — of breaking away from the pack to beat their direct competitors coming out of recession. They continue spending on marketing, including advertising, promotions and public relations. The Progressives know that while they are promoting into a declining market, if they can grab a larger share of whatever market does exist, they'll have a good chance of holding that increase when the market comes back. Additionally, these Progressives continue to develop new markets and form strategic alliances. At a time of depressed prices, they use their lines of credit to buy property, equipment and invest to enlarge their asset base.
This push helps them during the recession and afterward, as they can respond faster than rivals to a rise in demand. And, when their asset costs are lower than their non-investing direct competitors, their earnings can be relatively higher.
The final word
Admittedly, it's difficult in uncertain times for companies to know where to focus their bets for both the near term and beyond. The answer certainly includes staying closely connected to your client's customized needs.
Few progressive business leaders have a master plan. They encourage their organizations to command an increasing percentage of whatever market levels exist. They rise to the situation to try and take share from others. Coming out of the doldrums, they tend to maintain that new momentum to earn even stronger performance.
Their approach doesn't just combat a downturn. It can lay the foundation for a bright new era in sales, profits and commitment for success, once the markets come roaring back.
Lou Lasday creates action-oriented strategic marketing initiatives for Gulf Coast emerging companies. He was regional president of the American Marketing Association. Lasday can be reached at [email protected]
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