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6 Strategies To Weather An Economic Downturn And Position Your Company For Growth

Updated: Feb 22, 2023







Housing markets are cooling, interest rates continue to climb, and as prices keep rising consumers are more and more concerned about the future of the economy.[i]


Whether we like it or not, the evidence suggests that Canada is heading for an economic downturn and RBC is now predicting that we will enter a recession as early as the first quarter of 2023.[ii]


What can business leaders do?


As cracks form in the Canadian economy, many organizations are busy trying to time when we will enter a recession, panicking about the loss of future sales, or worse, burying their heads in the sand and carrying on with business as usual. While as business leaders there is nothing we can do to avoid the macroeconomic affects of a recession, there are steps we can take to minimize their impacts and prepare for the inevitable light at the end of the tunnel.


And we should. Research from McKinsey and Co. indicates that the moves companies make before an economic slowdown could account for half the difference in total shareholder returns between leading and lagging companies over the next business cycle.[iii]


In fact, research from the 2007-2009 recession indicates that there is no evidence to suggest that the top performers coming out of the recession were better at timing the economic downturn than their counterparts, but ample evidence to suggest that they began preparing for it earlier. The moves these companies made not only provided protection from the recession, but ensured that when the storm passed, they were strategically positioned for growth.[iv]


With that in mind, Melka Conseil has put together 6 strategies to get ahead of the competition during a recession:


Invest in customer experience (or at least don’t cut it)


In times of economic uncertainty our first business instincts are to reduce expenses, freeze hiring and delay future investments. While some of these cost saving measures may be important, it is critical that companies are judicious about where they reduce spending during periods of economic retraction, particularly when it comes at the expense of customer experience.


Data from Watermark consulting suggests that a company’s customer experience can be a key factor in its ability to weather an economic downtown. When examining the stock performance during the 2007-2009 recession, companies considered to be lagging in customer experience saw a total share value loss of 57% compared to the general market which saw losses of 16%. On the other hand, companies that led in customer service posted positive cumulative returns of 6%.[v]


While no company was able to avoid the impact of the great recession, customer experience leaders tended to be cushioned from these effects as they were often one of the last places consumer cut expenses, and one of the first places they returned.


Don’t run out of money – prepare your balance sheet


You don’t need to be a seasoned economist to know that recessions typically mean lower revenues, which in turn means less cash to fund operations. However, the data that has been coming out since the great recession may surprise you on just how important a healthy balance sheet is when it comes to navigating a slowdown in the economy.


Research from McKinsey and Co. shows that the most resilient companies – the top fifth of performers between 2007-2011 – divested underperforming parts of their business 10% faster then their counterparts. They also reduced their debt by 1$ for every dollar of total capital on their balance sheet, while their peers added more than 3$ of debt.[vi]


In fact, between 2007-2009, the lions share of businesses that closed their doors due to reduced demand were considered highly leveraged.[vii]


When it comes to cleaning up your balance sheet, the benefits don’t just stop at staying in business. Those that performed best two years after the great recession did so in part because they were ready. The top performers were 10% more likely to make investments than their peers, who were saddled with debt, at the first sign of economic recovery. [viii]


Avoid layoffs, redeploy talent


When it comes to conserving cash when business slows, it may be tempting to reduce your payroll expenses. While some layoffs may be inevitable, data suggests that the top performers during a recession rely less on layoffs and concentrate instead on operational and productivity improvements.[ix]


And for good reason. Layoffs hurt morale and in turn reduce productivity at a time when its most critical. When the economy does pick up, the costs of hiring can be destructive as the average cost of rehiring a new employee is over $4,000 and it can take over a year for them to reach full productivity. When we include the costs associated with training, it makes sense why the savviest companies do their best to retain their staff.[x]


Instead, companies should look at redeploying and retraining talent. During a recession, being agile in your ability to shift resources to where they are needed from where they are not, is crucial for the success of any organization.[xi]


Consider investing in technology and innovation


In 2018, a paper from the University of Rochester compared more than 100 million job listings posted from 2007-2015. What they found showed that the harder a city was hit by the recession the greater the demand for high-skilled workers was. The data suggests that those companies that survived had invested more in technology and innovation.[xii]


Why? There are many reasons. Economists theorize that when demand is high, investing in expanding production is the best way to see returns, but when demand falls so does the opportunity cost of investing in innovation, which in turn becomes relatively more attractive.

Technology and innovation investments can drive productivity and improve flexibility, two features that are critical for a company to thrive during an economic downturn.


Digital investments can also increase transparency and data management within an organization, allowing for quicker and more informed decision-making from management.[xiii]


Preparing now to ensure you have a clear view of where to innovate could be a decisive factor for determining the success of your organization. Companies further along on their digital journey are already seeing 7% higher growth in revenue compared to their industry counterparts, a gap that is only likely to expand throughout the next business cycle.[xiv]


Be smart about expansion


Just because the economy retracts, doesn’t mean that all opportunities for business expansion disappear. A recession might be an opportune time for some organizations to make aggressive moves, provided you are prepared, and well informed:


  • During a recession we tend to see industries cut marketing and advertising costs, which could be a perfect opportunity to capture the attention of a potential customer.

  • Suppliers may look to reduce rates or offer more attractive terms; an economic slowdown may be the ideal time to negotiate with your suppliers.

  • Layoffs in your industry could create opportunities in the labour market allowing you to acquire new talent.

  • As competitors fold, you may be well positioned to take market share.

  • Not all markets are impacted equally. While some parts of the country are expecting the worst, others are enjoying a boom due to rises in commodity prices. Diversifying to new regions or countries that have been shielded from the economic slowdown could open up new markets.


Opportunities exist, but to capitalize on them your company needs to be strategic[xv].


Tailor your strategy to your situation


As much as a we would like to tell you we have all the answers to shield your organization from the effects of an economic downturn right here in this article, it’s simply not the case. Every company is different, and every business cycle is too.


The playbook for companies in countercyclical industries might look completely different and conventional wisdom about how to manage a crisis may not be the right prescription.


For organizations that sell goods and services that are relatively inelastic, a future downturn in the economy might be the time to take on more debt, look to expand revenues, even if it means taking on higher costs.


Every situation is unique, and the external and internal elements that will impact your organization won’t have a uniform effect on your competitors.

If you want to start preparing your company for the future, consider rethinking your strategy and vision.


Contact info@melka.ca learn how we can help.



Sources:

[i] The Conference Board of Canada, 2022. Index of Consumer Confidence [ii] RBC Thought Leadership, 2022. Canada’s recession to arrive earlier than expected [iii] McKinsey & Company, 2022. Something’s coming: How US companies can build resilience, survive a downturn, and thrive in the next cycle [iv] McKinsey & Company, 2019. Bubbles pop, downturns stop [v] Forbes, 2020. The Best Business Strategy For Surviving A Recession? Not What You’d Think [vi] McKinsey & Company, 2019. Bubbles pop, downturns stop [vii] Harvard Business Review, 2019. How to Survive a Recession and Thrive Afterward [viii] McKinsey & Company, 2019. Bubbles pop, downturns stop [ix] Harvard Business Review, 2019. How to Survive a Recession and Thrive Afterward [x] Glassdoor, 2020. The Hidden Costs of Onboarding a New Employee [xi] Forbes, 2022. What To Do In A Recession? Prioritize Workforce Transformation [xii] Harvard Business Review, 2019. How to Survive a Recession and Thrive Afterward [xiii] Harvard Business Review, 2019. How to Survive a Recession and Thrive Afterward [xiv] McKinsey & Company, 2019. Bubbles pop, downturns stop [xv] Forbes, 2022. A Recession Provided Opportunity For Growing A Business

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