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Strategy during tough economic times

by Marius Ungerer: University of Stellenbosch Business School Associate Professor, Strategy, Change and Leadership. Former strategy and change consultant at Absa bank and author of two books on strategy and intellectual capital.
How do you climb a mountain? Step-by-step, of course. In trying times, it does not help if we only look at the challenges in front of us. We need to engage with the future, step-by-step – just as we would climb a mountain.

Those of us who have planned and exercised for the trip up the mountain are better prepared to handle the severe circumstances we might encounter. In the same way, the tactics for handling tough economic times can’t be the same for everyone. It depends on our measure of fitness: strategic, financial and emotional. Therefore the plan will differ for each of us, depending on our history and current circumstances.

In tough times, in general, cash is king. Cash flow management should be a focus and the evaluation of opportunities to decrease our waiting time for cash from debtors should be high on the strategic radar-action option list. Of course, cash flow comes from product and service lines as well as from repetitive income streams. This means the healthiness of our current cash flow is dependent on how strong we have positioned ourselves in the past.

In tough times, focus and perseverance is the name of the game, as is the case when climbing a mountain. We should focus on that which we have a passion for, what we can do better than others and on that which brings us an income and a profit. Focus means doing many things about a few things.

So, when we climb a mountain we need to have our eyes on the next step that we need to take, otherwise we will fall. In order to make progress, we need to hold on to our first successes. We need to persevere and constantly look for new opportunities and possibilities.

We energise ourselves through small victories. The journey seems not to be so tough when we focus our energy positively, rather than on the downward spiral aspect of our immediate circumstances.

Everything in life comes in circles. Tough times will not last. The current cycle will change, most probably faster than we imagine. The principle of strategic readiness is to be ready – not only to build the current organisation for the current growth prospects, but to invest now to reap opportunities for tomorrow. We need to create sustainable growth for multiple business cycles.

As strategic leaders, we need to be the torchbearers of hope through our positive attitude and ability to seek opportunities where others only see trouble and despair.

Retrenchment is not the first option
There are many options before considering retrenchment during difficult times. One way is to engage our people in developing alternatives if the market cannot take growth. Another way is to consider internal cost cutting measures. People should also be consulted on their willingness to take a salary decrease or work shorter hours. Companies can also share back office functions with other businesses. Further options that may be considered are to cut out the fat in the expense accounts – and to adopt a frugal approach to spending the cash of the firm. These are all options to be considered before we reduce employment opportunities.

The important point to remember during downsizing processes is not to focus only on the people who are adversely impacted by the change, but also to give attention and ongoing encouragement to the stars of the business. These are the people who hold the keys to the future success of the firm. As Jack Welch, the famous former chairman of GE, says: “Go and give your stars a hug, especially in tough times”.

Invest during a down cycle
In a down cycle, other businesses, properties and assets are clearly priced at a lower price than during an up cycle. So, this is the time to search and look for good quality assets to build your asset base without paying a premium for excellent intellectual capital.

As was the case following the aftermath of the 911 attacks on America, people thought nobody was going to travel. This caused the travel industry to go into a downward spiral. Those investors who invested in property related to the travel industry benefitted from the subsequent resurgence in that industry.

Strategy is about making hard decisions
The current dilemmas (low profitability, slow growth, and declining demand) that show up in product portfolios are not the result of current realities; they were the result of our inability to make past difficult choices and decisions.

In good times we can afford to hold on to sub-optimal product portfolios, but the question is what about the dead horses and question-mark product and service lines in our current portfolio mix? In bad times those underperforming offering lines show themselves up more clearly than ever before.

We need to make the hard decisions of disinvestment and discontinuation or to partner with others who can leverage these assets better than we can. First Nation wisdom guides us to realise that the best way to ride a dead horse is to get off it!
During the down cycle we are forced to make these difficult decisions more frequently and faster.

Strategy is therefore about making choices. It is however also about executing those choices. The execution of sound ideas is part of the game to achieve strategic and operational success. The future belongs to those who can implement their ideas. By doing different things from those we did in the past, we create the seed and potential for a brighter future. Procrastination and delays in making choices to improve our current situation are unhelpful.

The future is there for those of us who have the courage to invent it step-by-step, based on an informed view of our current reality.

Useful resources:
Stellenbosch Business School
The internationally accredited Stellenbosch Business School offers MBA, Master’s, MPhil and PhD programmes as well as executive education programmes – all focused on the development of business leadership.
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