Doing well in a down economy

The Business Times
Published November 18, 2008
Doing well in a down economy
The key is taking a longer term perspective which requires an objective look at market dynamics
By BOB FLEMING

SLOWDOWN, sluggish economy, recession, crash. Whatever you choose to call the situation, business is in a definite downturn and all signs indicate that this will be deep and recovery will be slow. Companies need to react to the market conditions but usually turn to the things that are easy to do and short term in nature.

Cut costs, cut back on investments, find new customers (but don't spend money on your existing ones) are unfortunately the familiar actions taken. So as some businesses try to endure the negative effects of a downturn, they may not be in a good position to bounce back when the upturn comes.

Cost control and smart reductions are always necessary in a downturn but progressive and successful enterprises will be looking at more challenging strategies that get them through the slide and allow them to gain substantially against their competitors when there is a recovery.

The key is taking a longer term perspective. This requires an objective look at the dynamics of markets in which they participate, their competitive position and the current health of their organisation (financial, structural, skills and leadership).

When reviewing the markets, the whole demand chain must come under scrutiny. Looking solely at your space without assessing the conditions impacting your suppliers, channels and end customers will not give the full picture of the slowdown. Think about the situation your demand partners are facing and this will help you understand that you're all in this together and need to formulate mutually beneficial actions. It will be necessary to be upfront and transparent to find out what your best customers and suppliers need to get through the dark times and tell them honestly what your needs are.

There are definitely benefits from long-term thinking. A study has shown the impact on spending action during the recession period, during the recovery and in the first two years of the recovery. According to the study, there was little difference in returns when marketing spend was cut, maintained or increased. However, companies that continued to spend on strategic initiatives clearly outperformed their peers (who choose to simply cut spending) both during the recovery and in the first two years of the recovery.

Before you go out and spend as usual or strategically increase investments, there are some important issues to be examined. Are you in a mature or growing industry? Are you a dominant or secondary player? Will your balance sheet endure spending? And, are your teams skilled enough to outperform their competitive peers?

Address the low-hanging fruit in some obvious cost reduction moves but carefully look at some areas where continued spending and even strategic investment needed to get through the downturn and be well positioned to come out strong during the recovery period.

Take a look at some practical, understandable and actionable areas for companies to work on in the downturn.

Understand that business is driven by customers (not campaigns, advertising or product features). In a downturn, it is critical to harvest the customer opportunities. Get closer to your existing customers who have contributed to your success. Find the solutions they need as opposed to what you think you want to sell. Shift your efforts strongly to taking care of your known business partners and overcome the instinct to acquire new customers of unknown value. Get your organisation to focus on the customers' needs and definitely consider forfeiting some administrative tasks that compete with customer-centric action. Make all your customer dialogue relevant and exhibit a strong degree of personalisation and customisation.

Mass marketing in a downturn can be a very draining expense. Shift to limited, but focused and customised communications for savings and effectiveness. This will require a capability to segment by customer value and the needs (which is critical in any business cycle).

Upgrade your organisation. This is the time to provide skills training and leadership development. You want to keep your best employees and improve their performance capabilities. Look at the skills that will be necessary for the recovery cycle and next growth period and develop training plans as opposed to random, individual events. If you can't invest in this development in bad times, you won't have the talent to staff growth projects when things turn around.

Optimise your information technology (IT) and automated customer interaction capability. Look at under-utilised software solutions (there are loads of them) that you have purchased but have not been adopted into the business. This should be especially important for systems that deal with customers including call centre, demand generation, website, campaign optimisation and sales force effectiveness. You need to convert the data that you have into information that can be effectively used for your key customers' benefit.

If these aren't present, consider some incremental investment at this time. Look at social marketing enablement so that you understand the real 'buzz' and not just what you think you hear from surveys and structured focus groups. A number of companies now have interesting social marketing capability such as Starbucks' 'My Starbucks Idea' and Dell's 'IdeaStorm'. They get to hear what the market is thinking (not always flattering!) and have the chance to react to the situations that are important to their customers.

Be ready to be transparent and able to react to the input. This openness will bring consumers into a community and will tend to prevent a drift to independent sites where you may not catch the customer thinking. Social marketing can allow companies to gain new levels of insight from the customer connections. Business success comes from two-way dialogue and not just outbound communications.

Strategic thinking is needed in hard times to resist the temptation for quick cost cuts that appear to impact short term results but severely damage longer term performance. A deep hard look at your positioning and business health will tell you how you can treat the patient (your business) for a quick and sustained recovery and not leave the future on the operating table.

Bob Fleming is an adjunct associate professor at NUS Business School's MBA programme.