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Recession – what was missing and what needs to be done
Recession…. What was missing and what needs to be done?
By Gautam Kumud
What was missing?
The economic turmoil instigated by the crisis in financial institutions and the imminent failure of automobile giants in US have resurfaced the long-disregarded need to revisit the strategic touch-points in all sectors. As Kaplan and Norton, eminent business authors, rightly quoted in Harvard Business Reviews article that all financial institutions have metrics related to risk exposure, such as “value at risk” but almost all the financial institutions treated risk management as a regulatory and compliance function, and not as a strategic issue. Similarly, the car companies had failed to measure accurately the risk of their highly-concentrated product strategy.
It is the bitter truth that the business frontrunners are rather vehemently concerned about the bottom-line and top-line. Investment in risk management does not find a reputable priority in the annual budget. We forget that extensive business continuity and disaster recovery plans do not suffice the need for dedicated, robust and resilient sustenance plan. We are normally averse to the need of forming a strong risk management team during the comfort of hay days. Paradoxically, it is too late to implement it when we are shackled amidst crisis. This might not hold true for the companies that are still going undeterred and showing plausible progress amidst economic downturn. It might be interesting to scout and understand the sustenance plan these companies have implemented, when corporate biggies, once termed as immortals, are either relying in the economic bailout plans or acquisitions.
Risks can be widely divided into controllable and uncontrollable risks. Even after implementing mitigation controls for controllable risks, some percentage of residual risks run in the veins of the companies and cannot be completely mitigated and have to be hauled along. Uncontrollable risks might involve single or multiple dependencies to external factors which are generally out of company’s dominion. When I started to write this article, I didn’t intend to digress into risk management and associated theories at all. I just wanted to highlight the importance of risk management emanating from the cause of economic upheaval. We must seriously consider this crisis as an awakening nudge and prepare ourselves for the worst.
What needs to be done?
I would like to take the liberty to see through the “recession magnifying glass” and classify the companies into three major categories:
- Resilient: Companies still going strong with no obvious impact of recession
- Plummeting: Companies showing downward revenue/profit graph in the last quarter and evidently gripped by the crisis, but are keen to succeed this year by reducing costs to the bone
- Panic-Stricken: Companies amidst crisis and needs immediate bailout support or acquisition by “resilient” group
Recession has made it easier to differentiate between companies with average performance level and high performance level, and the latter are still going strong and undeterred.
Few things that have to be kept in mind to be in the business for longer throughout this crisis are:
- Talent: Preserve the talent. Well-bonded and well-led talents can help the companies steer out of the economic doldrums. There is a strong need for “resource utility study” to be conducted since the high-rated resources, who failed to react appropriately to this crisis, have to be substituted by the talents that will get the job done. There is a need for “leaders,” not “bosses.” Wing-to-wing cross training and mobilizing best talents to high value/high risk product should be the strategy
- Customers: Customers are the saviors. We should not forget that our customers (I love to put them as “growth partners”) are also facing the tune of economic turmoil. This is the time when we should raise the bar and provide quality services, provide and highlight product improvement ideas which customers might not have spotted, free of cost. Economic downturn is a short-term phenomenon and we will need our customers more when we come out clean. Once we start seeing the beam of economic optimism that is when our competitors will regain their adrenaline and become fierce. This is when the extra mile we covered during the crisis for our customers will be a winning factor. We understand that there is no business without customers
- Save Cash: Spend every dollar as if it were your last. It is difficult to measure how long this economy might take to revive to its original shape. We cannot forget the old proverb; a stitch in time saves nine. Maintaining cash reserve and every dollar wisely spent will certainly help the company sail through this gloomy ocean for long
- Cost Cutting: Review all cost centers and classify the heads based on the value of cost. Identify the areas where the cost can be reduced, deferred or cancelled. Maintain transparency of cost centers with all stakeholders throughout to impart a sense of ownership. Not just CEOs and senior executives but leaders throughout the ranks should focus at the moment. Talking to employees throughout the company; listening to their viewpoints and always giving them the true picture of “what’s going on?” will do wonders in winning their trust
- Technology: It is not advisable to invest in advanced technological solutions and research & development at the moment if the existing solutions are fairly successful. Detailed cost-benefit analysis should be considered if the investment is inevitable and need of the hour. Customisation and improvement of existing solutions, which can help in improving the productivity, efficiency and employees engagement, will be a wiser decision
The positive side of recession is you learn more in difficult times than in comfortable times. It is a litmus test for markets and individuals. Normally, we all think we are prudent in our decisions, but most of us blame everything else but ourselves when things go wrong.
Last but not the least ….. Stay true to your vision, employees and customers. Best of Luck.
Gautam Kumud
About the Author
Gautam Kumud
Email:gautamkumud@gmail.com
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