The 2 sides of the “R” word: Recession

Different companies react differently to a recession. There is no silver bullet strategy. The right approach is informed by a robust reading of the external dynamics (Industry, economic environment) and the internal state of affairs (financial, market position, organization capability, and culture). Within the fast moving consumer goods Industry- less cyclical and a classic defensive play during a recession- we would perhaps see one of the following two responses.

Which one looks familiar to your Organization? Here are the 2 CEO memos,

Memo 1 -Recession: What an opportunity!

We see the current slowdown as a great opportunity to position ourselves for exponential growth when the cycle turns. Thus we will continue to focus on GROWTH. While we will look at a bit of belt tightening, it is not our main focus. We don’t want to distract /demotivate the organization via structural changes and a penny wise pound foolish approach to overheads. Like most professional organizations we run a tight ship already and bottom-line growth opportunity via overhead cost savings is not as significant as it is via topline growth and input costs management.

Specifically, this means that over the next 12-15 months we will aggressively spend time and money on developing:

o        A full innovation pipeline of products/services, so that we have a bank of proven  and ready to commercialize new products/services

o        Business model innovation, which can help develop a sustainable way of delivering growth and managing product costs. An example of this is the Procter and Gamble “Connect & Develop” program which is not only giving them new product/technology ideas faster but is also helping them efficiently tap into technologies which bring down product cost.

o        Smart/ win-win procurement deals, on hard (material, machinery) inputs as well as  soft/intellectual inputs, which not only give us as  a competitive cost base price but also provide our suppliers a fair price and a bigger stake in our success (eg value based fee model with our agencies).

o        Full bench strength of talent, so that we have the capability to develop and more importantly execute/go to market with innovations. Recessions are a great opportunity to pick up/recruit world class talent, as quite a few organizations either re-structure or take their eye away from GROWTH, thus creating disenchantment amongst the brightest of brightest.

o        Enhanced effectiveness of our Marketing spend ( not reducing it) by learning better on new media and developing better Insights and analytics capability

Memo 2 – Recession : Time for belt tightening and restructuring !

As you can all see the economic slowdown is here and the impact is being felt in our Industry as well. To deliver our targeted profit growth in an environment of slowing top-line growth and increased input costs, it is important that we adopt a more “value conscious” approach to doing business.  Managing overheads costs, enhancing procurement efficiency and marketing spend management will be key . The board/leadership team has decided that over the next 12 months we will:

o        Actively reduce business travel and have a tighter oversight on business expenses. This will apply to all management levels.

o        Have a recruitment freeze and limit investment in non-essential “team-building”/ training, as we feel our current talent pool has the capability to stretch itself in these challenging times.

o        Aggressively seek efficiency in our spend with hard (materials, machinery) input suppliers as well as with soft input suppliers (external consultancies, communication agency partners).

o        Reduce marketing spend across the board by X%, as we feel with sharper thinking we can deliver the same results with less spend.

o        Postpone certain CAPEX spend to later years, once we have clearer visibility on the economic environment.

o        Undertake an organization review in certain key functions to see how we can do more with less. This will be led by an Internal team (vs external consultants) as we think the knowledge and capability resides inside the organization.

These measures in the short-term will help us manage our costs, deliver our profit goals and in the mid-long term when the economic cycle turns help transfer more of the top line growth to the bottom line, via a leaner more efficient way of working.

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7 responses to “The 2 sides of the “R” word: Recession

  1. certainly we are in the 2nd. reasonable but not inspiring

  2. Memo 2 sounds very familiar, and some companies don’t even need an environmental factor (recession) to trigger the “belt tightening mode”, after all, productivity initiatives (i.e., cost cutting) are much more easier to achieve than topline growth…

  3. Memo 1 is brilliant, inspiring and is likely to induce the best reactions from employees.

    Memo 2 has never been the best option to manage recession.

  4. Memo 1 will be a morale booster for the workforce. Picking up / hiring class talent with simultaneous weeding out of deadwoods will ensure faster growth and profitable future.

  5. memo 1 is fantastic and I would be proud to belong to an organisation which reacts that way and communicates in that fashion

  6. Meno 1 is definately inspires and tell us clearly to be creative and innovative. A big take away from the memo to look at the recession from a different side.

  7. Memo 2 sounds very familiar and somehow quite realistic. Memo 1 seems very inspiring and optimistic. We mostly get to hear things like memo 2, and often agree to the negative impact that the recession brings. Changing the board’s perspective to the brighter side of the recession seems like an uphill task though. But a little positivity can result in high motivation of the entire organization.

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