Riding out the Recession with Lean Business Strategies

Businesses in the present economy are under pressure as the pace of revenue growth slows down to a crawl, compressing profit margins as revenues barely exceed fixed costs. Of course you can still drive growth through share gains and lower costs by targeting jobs for elimination, but when industry growth is nonexistent, your competitors will protect market-share fighting tooth and nail. Also there’s only so many jobs that can be eliminated without cutting into the core of the organization. Here are some measures that can be taken to tighten the organizational belt and drive austerity within the organization- some old ideas and some new.

Internal Impact: Reinforce your core and increase operational agility

Drive Operational Efficiency:
Leverage matrix relationships and pool resources across functional groups. Also evaluate the opportunity of creating smaller multifunctional “SWAT” teams that can rapidly deployed to tackle complex one-time assignments across the organization. Protect cash reserves to compensate for credit paucity during recessions- don’t over-leverage. Acquisitions may seem very attractive during recessions as valuations are low, but acquisitions add a lot of burden on the company in the integration process during a time when corporate energy needs to be conserved- bite only as much as you can chew!

Focus on competitive advantage:
Every firm at some point started with some competitive advantage that enabled them to enter a market effectively and when times get tough, it becomes critical to leverage this inherent expertise. This also offers the surest opportunity for growth- by simply taking your competitive advantage to newer markets, rather than trying to get into markets where you have peripheral or no expertise. Bring the game to where you have an advantage.

Streamline your Product Portfolio:
Innovation is critical to growth, but depending upon the industry, only about 30% of all innovations have the ability to drive incremental growth (without cannibalizing core business). New product trials to identify successful innovations consume precious resources that are critical to corporate health during tough economic times. Plants are masters at evolving through tough environmental conditions and provide us a valuable lesson in growth- you can only grow if you survive. In bad weather, plants conserve resources and do not produce flowers, fruits or seeds. These are critical for it’s proliferation, but consume precious energy in producing, which is better used in staying alive. Take a realistic look at your innovation portfolio, rank them by short-term probability of success and take the top 25% or fewer to trial.

Enhance existing product features:
Leverage customer data and market research to understand what product features are the most valuable to customers and enhance core portfolio. Remember when resources are scarce then innovation needs to be efficient.

External Impact
Maximize Customer Value Proposition
Understand what customer need your product serves and try to maximize the product’s ability to serve that need. This goal determines the focus of internal impacts 2, 3 and 4 above. For instance if functional benefits are the primary need your product serves then minimize packaging and other peripheral costs and increase the functional offering. If quality not quantity is the key benefit your customer derives out of your product, then quantity not quality is what needs to be adjusted to protect margins.

Retention rather than acquisition focus
In most industries, acquisition costs are very high and there is a net negative cash flow of replacing an existing customer with a new customer when factoring these acquisition costs. If there is a moderate to high degree of customer turnover, your marketing dollars are better spent on retention rather than acquisition.

Protect core market
Your core market segment and is what drives your main cash flow and your core customers are the most loyal. It is easy to take this for granted as corporate leaders focus on making their mark on newer areas of growth, but when faced with economically challenging times, the castle needs to be protected from competitive incursions. This is also your most familiar grounds from which to weather out economic storms.

Satisfy broader range of existing customer needs
This is probably the lowest hanging fruit and also the most important in all of your external opportunities available. During economic hardships every single of your customers are trying to stretch their dollars and if there are innovation opportunities available to fulfill multiple customer needs with fewer products, these should be capitalized.