In a March 2010 edition of the Harvard Business Review, “Roaring Out of Recession” by Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen, they studied 4,700 businesses before, during and after the recession. In a year-long study that looked at corporate performance during the past three major recessions- the 80’s, 90’s, 20’s. They looked at three years prior to a recession, the three years following a recession and the period of the recession to understand strategy, decision, and impact. The findings are illuminating, if not stark in contrast.
Many CEOs when faced with a pending recession or in the midst of one, go into crisis mode. This defensive posture underlines a belief in their responsibility to prevent the company from financial harm or worse, going bankrupt or out of business. It’s typical to see them implement broad policies that will reduce costs, cut spending, eliminate travel and all “unnecessary expenditures.” It is common to see layoffs to save cash on hand and withstand the storm. Investments in R&D, assets or improved infrastructure are halted along with developing new business. This strategy of cutting back on almost everything, causes them to fall behind their competitors who opt for other strategies.
A more progressive strategy lead to 37% of these businesses outpacing their competition. This approach is more pragmatic by nature with a focus on “first things first” and a commitment to company principles. Of course, cost-cutting is necessary to survive a recession. However, investment is equally necessary for growth. Both must be managed simultaneously in order to emerge out of a recession as a leader in the market sector. Knowing what to cut, when to cut and how much to cut is not as easy to determine. Companies generally combine three defensive strategies- cutting staff, employees or vendors, increasing operational effectiveness or a combination thereof. On the offensive side- investing in new assets (this should include training staff), developing new markets, or a combination thereof. This creates a matrix of nine possible combinations. Depending on the pragmatic goals of the company, some options will be better than others at achieving the intended outcomes.
Anecdotal evidence may suggest that the firms that cut costs faster and more broadly than their competitors will not only survive but thrive. The notion is to preserve cash and withstand the recession by controlling resources and capital on hand. However, the study found that those firms that cut fast and deep, outpacing their rivals, did not flourish. In fact, they had the lowest probability of succeeding- 21%- in their effort to outperform other companies post-recession. So you are thinking the key must be to invest more than your competitors. That group only experienced a 26% chance of assuming the leadership position after a recession. The companies who were often leading the charge going into a recession did not maintain their lead post-recession. About 85% of those companies are toppled once the good times come to an end. Cost-cutting may also lead to the unintended consequences of reduced morale and self-preservation. This impacts performance, operational effectiveness, and morale.
At RookSEO.com we encourage our clients, and other businesses we advise, to find the pragmatic mix that works for your business. One of the best investments you can make is investing in training for your employees. This not only improves your defense- improving operational efficiency, but also improves your offense- investing in assets, your human capital, that will yield your greatest returns. Showing your employees that you are investing in them, underscores the confidence you have in them and the companies ability to weather the storm. Your employees are less likely to spend their working hours worrying about where their next paycheck will be coming from. They are more likely to rededicate themselves to their position, the firm and the clients they are hired to serve.
We offer corporate training and small business consulting to help your company build equity in digital assets. Whether you are researching how to sell your products and services online or need to improve your current digital marketing and SEO strategies, Rook SEO can help prepare your staff and your business for greater success. After all, we help your business make more money online. During the impact of CoronaVirus, we are happy to provide all businesses with an audit of their websites and current strategies. Normally, we charge a $1,200 fee for this in-depth analysis of your online business. Contact us today and we will waive that fee to help you start generating more revenue. Good luck and good health to you and yours.