Question asked on LinkedIn Network in Jan 2009
How long will the recession last? 6 months? 1 year? 2 years?
Your guess is as good as mine. But what we all, do, know is that the recession is not going to last forever, and one thing that will happen once the recession is over is, the ‘demand’ will come back to pre 2008 levels if not more.
Are you preparing yourself/company to address that impending demand? Or are you slowly – but surely – destroying the inherent strengths of your company as a by-product of the cost-cut and clean-up exercise?
If you are not one of those that have resorted to cost-cuts, is your company investing in capacity TODAY that will require two years to build? Or wait for another two years to invest and loose out to someone that does, today?
Is this the best or the worst time to enter that new business?
I have some answers but would be delighted to have your opinion below and shall thank you for the same. I would like to clarify that this Question is not asked in relation to my position at Schneider Electric but only on a pofessional ground.
Please keep the discussion on!
Ravinder
Here are the answers
Marietta C. Baglieri
Hello Ravinder .. that’s an excellent question .. and I actually have an answer .. most don’t realize that, historically, recoveries have ALWAYS ranged between 3 and 16 months .. yes, little known fact but confirmed by all of the “big guys of finance” (unnamed at present, since this isn’t an ad for any of them!) ..
Now, that said, whether the people who have not planned ahead, or made the right moves during the crisis, will come out in the 3 to 16 window is the real situation ..
Too much panic .. too much media gloom and doom .. too much not trusting your logic instead of emotions .. and of course you’re going to suffer ..
You have to spend to support an economy .. if you hoard everything and don’t, you’re part of the problem, not the cure .. that doesn’t mean you have to blow-the-wad and spend every penny, and foolishly .. it means you continue to spend at a careful and calculated rate .. and on things that you need .. because if you don’t support the economy through the crisis, then it MIGHT collapse.
Like with a business, your nest egg should progress with slow, careful and controlled growth .. Good and bad about whether it’s time to start a business .. depends on the business and the business plan you’ve drawn up .. and when you have to spend .. and when you can turn a profit .. and whether you have a “war chest” to support things (including you) until you CAN turn that profit .
Cut costs? .. sadly, most cut the wrong costs .. for instance: if you want to build your business .. marketing, advertising and branding are a necessity, not a luxury .. they’re an investment .. unfortunately, the advertising budget is the first to go .. and when your name is no longer out there .. two things: you attract less new business .. and the absence of your name might even make people wonder if you’ll be around!
Great question .. thank you .. have a fabulous holiday and best of everything to you for 2009 .. Marietta
Dorina Grossu
Group Initiator at Continuous Improvement Group
Business world would not end in the next years but we will experience a different attitude towards business creations since money have been transferred into different hands.
SOEB FATEHI
Principal Consultant at ENCODE
going ahead from Marietta’s “Cut Costs? . . “
the other assault on costs comes on the manpower resources . . . . this results in unbalances in the system and forces some star employees out even without being asked to go . . . . misplaced pressures on costs frustrate creative and innovative people into moving away too . . . . . needless to add that the organization is left poorer!
I say, these recessionary times are the right times for an organization to restructure and build new assets at an affordable cost of acquisition to be ready for the good times ahead . . . .
Sajjad Ahmed
Country Manager at Jashanmal National Co
Hello Ravi,
A great question indeed, and am sure you would have some interesting answers which I would like to hear from you.
At the present moment I reckon the thought paramount on most companies is survival rather than the “demand” which is still sometime in the future. Having said this, negotiating the next few months( years) is crucial. This will need some painful and hard decisions to be made – including letting go of some “capacity” if I may use the word. Whether productive or not can be debated, most companies would have built up excess capacity in anticipation of demand riding on the previous year’s growth. However with the slow down ,this excess capacity can certainly be released without harming the business or even without hurting future prospects.
Having said this most companies would begin cutting costs by cutting corners to use a cliche’, If this excercise can be managed judiciously and thats a big word, this downturn can actually be the opportunity for companies to run tighter ships.
Company head honchos now have the responsibility towards shareholders, customers, employees and society at large to keeping the “company afloat” and being around to ride the next big wave of opportunity arises.
My two bits for what they are worth.
Cheers and best wishes for what should hopefully be a Happy and Prosperous New Year for all of us.
Regards,
Sajjad
David Willox
Owner, Essence of Business
Hi Ravinder,
Here in the UK we are forecast to have the worst experience of all the developed world economies. Current forecasts suggest a decline in GDP of 1% to 2% next year, which once the effect of government expenditure is removed translates into a decline of up to about 3.5%. Given that some sectors will see / have seen a significantly larger decline (my sympathy if you are in one of the few sectors that is baddly hit) the actual decline in most sectors will be small and many will continue to grow.
Given that most companies seem to be following the standard advice – downsize, cut costs, chase debtors and don’t do anything new and potentially risky, it should not be difficult for those companies that have an open minded, creative and pro-active approach to seize market share and grow.
We have been using TOC thinking to create new sales propositions, increase throughput and reduce working capital requirements for our clients.
Unfortunately much of the standard thinking is seriously flawed but most people are so used to it they never question it. Just where is the logic that says “We are not making enough so let us reduce our prices and sell at a discount!”
I could point out many more illogical approaches but that one just gets to me!
Happy New Year to everyone who recognises that the changed circumstance represent huge exciting opportunities. Commiserations to the rest – you will have a miserable year!
David
Jim Ordway
District Manager at Kelly Services
Ravinder – IMO, now is the time to strengthen relationships, evaluate & refine processes, focus on organizational culture, basically turn the focus inward for evaluation. Use this time to educate customers, so when they have the capital to spend (or spend more) in the future, they are willing to spend with my company on my product and we are ready.
I read an interesting article that said it is not the bad economy that hurts a company, it is the “fear” of a bad economy. This could be argued of course, but on the surface has a lot of truth to it.
Ranjeev Manrao
Chief Operating Officer at Punjab Agri Ventures Ltd
Dear Ravinder Ji,
HAPPY NEW YEAR – 2009 TO YOU, ALL PARTICIPANTS OF Q&A AND FAMILY.
Many thanks for initiating a very relevant & excellent discussion. I am sure many of us will benefit out of this.
To me the best approach to any issue including this one could be to Identify the core problem in the specific case / business which we wish to analyze with this perspective & Do your best (KARMA) without getting deviated with superficial issues and there is nothing which can stop us to reach the Right Solution (FAL)
Warm Regards
Ranjeev Manrao
COO-PAVL
www.pavl.co.in & www.pafpl.co.in
PS – I am open to link with Top Professionals & Intellectuals for a Mutually Beneficial Professional association so as to work towards a Result Oriented & Peaceful Business and Social environment.
Sanjay Negi
CIO at Technology for Business Solutions
Well if you are being mauled by a tiger, it is not a good time to start building your muscles…the first instinct has to be survival. On the other hand if survival has been already assured, you can immediately shift focus back to building capabilities that will prevent the tiger catching you next time…or in the best case scenario even thinking of transforming into a tiger yourself capable of catching weaker prey.
In the US context, the industry has been lazing around for decades. All their competitive muscle has long back atrophied, they were surviving only on the artificial respiration provided by the USD being the reserve global currency…. There is no way the US industry can ever compete with the Chinese…the best strategy is to cut losses and let the Chinese take over…investing in capability at this late stage would only amount to throwing good money after the bad.
Of course for India on the other hand, what you suggest is quite doable…India can beat the Chinese at their own game…but for that India will have to stop aping discredited western management philosophies(like Jack Welch’s sacking of bottom quintiles) and grow confidence in its own originality…it is difficult but worth trying.
sanjay9negi@hotmail.com
Forrest Breyfogle
CEO and President of Smarter Solutions, Inc.
Good points.
For survival, organizations will need to change to meet new business demands. But what should they change to?
For long-term health, organizations need to implement now a no-nonsense 21st century business governance system that blends scorecards, strategic planning, business improvement, and control along with the creation of policies that benefit the enterprise as a whole. This system needs to help them navigate their corporate ship through these challenging waters.
Previous management systems of goal setting and strategy building could be described as management by hope. What is needed is a substantive business system that addresses the complexities of today’s business environment. A 9-step approach for providing the above integration and addressing these needs is in the “Economic Crisis and Change Management” link below.
Links: http://www.smartersolutions.com/blog/forrestbreyfogle/?p=541
Sandip Verma, PMP
New Programs & Manufacturing Engineering Manager at Delphi
I think much has been said by many experienced professionals on this very brilliant question. However to express my opinion – broadly, there have to be two kind of strategies:
1. Short Term Strategy – Cost Cutting is major one. For achieving cost cutting target, many managements take wrong action which are either not profitable for bottom line as well as for employee morale. These actions are taken usually in hurry under pressure without detailed thinking just to exhibit that some actions are being implemented to reduce cost. Employee retrenchment is one of them. Managements should explore all other options of reducing cost like eliminating overtime, reduced working hrs, travel costs, fringe benefits for top executives, improving efficiency etc before touching employees. Employees should be encouraged to utilize the spare time to enhance their professional skills & increase cross functional team work. We should always bear in mind, even if a single employee is asked to go, then it creates doubt in everyone’s mind and organiszation may lose its credibility to retain or hire key employees. Everybody understands today’s situation and employees usually do not create any noice if they feel actions are justified and impartial.
Longterm Strategy: If the right business opportunity exists & if management can afford, then probably it is the best time to invest as costs are low. Getting desired talent is also not very difficult and expensive now a days. As someone said, markets can not be depressed for ever & people will have to buy products. Money will only switchover hands as economies will become more globalised and most efficient companies will survive irrespective of the geographical locations.
Paul Luthra (paul@datawarehost.com)
Data Warehousing and ETL Consultant
Ravinder,
This is a sharp recession and with the stimulus being provided to overcome it, I think it will also be a short-lived correction. A “V” shaped recovery should follow as the consumer sentiment improves (it is currently in decline). Recessions are basically a herd reaction to bad news and the herd also responds to good news. If we can only spot the good news.
From the point of view of stock markets, this may be the best opportunity of a lifetime.
Pal
Rajeev Lochan
General Manager(Sales & Marketing) in a Switchgears manufacturing company.
Hi! Ravinder,
We all do accept the economy is in the dol-drums, but for how long?
An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years.
This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.
But we need to understand that this the time for rejuvenating & preserve the assets, which we had nurtured & groomed over a long span of time. This period may pass may be in 6 months or a year or max 2 years. But the the time wen we will require these assets & resources again, there would be a huge demand and we would need another 1-2 years to come at the same pace, which the market demands & by that time we might have lost a major business & may be left behind.
This is the right time to strengthen ourselves, train people & a little relax too.
Wishing you all a very HAPPY NEW YEAR 2009.
Warm Regards
Rajeev
Jessica Brown
Solar Energy Recruiter jbrown@grnboulder.com
I just recently came across this crash course on our current economic state. The results are surprising but fascinating as well! I encourage you to at least view some of the chapters…this certainly proved to be worth the time!
www.chrismartenson.com/crashcourse
-Jessica
Links: http://www.chrismartenson.com
Suresh Deshmukh
General Manager (C E O ) Al Maha Ceramics Co. SAOC
I do not belive there is need to resort to cost cutting and clean up exercise at least to the sector I operate in Building Materials. Basically because there is lot of demand supply gap still exists. However becomming more cost competative through innovation is ever going process, one should adopt. Our strategy for capacity expansion is, wait for 6-9 months to improve the sentiments (at least that of lenders) and go for expansion for sure.
Libu Bhaskara
Experienced IT Manager-Service Delivery -IBM India
Dear Ravinder,
Most of answers have touched upon in great detail all possibilties on this wonderful question.At the cost of being repetetive I would like to put my points as well…
I am unsure of the time of recovery of the recession,some pundits have suggested a V shaped and more pessimistics have given an L shaped prediction in recent times.
Neverthless,how to deal with recession is completly on your company/organisations outlook and current situation.
Considering that your organisation has been doing well before the reccesion hit and have strong cash reserves ,some of the things which could be taken as a decsion would be as below
1)Save the cash as much as possible during tough times( our grandparents taught us this!)
2)Build efficiencies to take out cash from within the system itself (for eg: reduce inventories,there is a lull in demand and doesnot make sense to build up inventory)
3)In case of suprlus cash,please invest in companies which could only ehance your own competency capabilties and are low cost buy at the moment(Remember you may not get a better buy but this is WRONG time to think diversification)
4)Again park/invest the cash in low risk highly liquid funds (Again age old mentality of investing individuals in fixed deposit in nationalised bank)
5)Take time to extend your helping hand to all your trusted suppliers and try entering long term contracts with suppliers (remember the cost of materials would have already been dipped by suppliers during reccesion & you would not get a better chance to extend this cost even after recession ends:-))
6)Cut cost but as mentioned by some people above ,try cutting cost sensibly.Mistakes at this point in time would harm you at the time of revival
7)Lastly invest in innovation and techonolgy internally so that you are ready for the next big thing when market demands are up!
Hope I have been a value add!
Regards,
Libu
Sebastian Buca
Project Quality Engineer at Alstom Power Italy – Environmental Control Systems
Hi Ravinder!
First of all let me start with my BEST WISHES FOR THE NEW YEAR 2009! In Italian : Tanti Auguri ed un Felice Anno Nuovo! In German: Alles Gute und ein Frohes Neues Jahr! In Romanian: La Multi Ani si un An Nou Fericit!
Regarding your question my answer is the following:
My opinion is that the first thing to do is a realistic and accurate assessment of the business. Then get rid of the waste, increase business processes efficiency, cut costs (this is very delicate and needs to be evaluated deep – if we have to look to manpower I suggest the TOP DOWN approach: cut the not efficient managers first).
After the emergency actions there has to be a longer term action plan including market analysis and product/ service line re-evaluation and re-positioning on the market, employee training to increase efficiency….
There’s however another thing that has to be always present, especially these hard times, to avoid misinformation and panic:
COMMUNICATION, COMMUNICATION, COMMUNICATION.
Best Regards.
Sebastian
Christoph Raudonat
Strategic Change Management Professional and Executive Director at AIJA
Hi Ravinder
Long time no hear.
I agree with most of the answers given here and I find that although the economies of the world are being hit quite dramatically, we should be very careful to observe in which direction this is all going.
In Europe I am observing that politicians are the new self-declared Adam Smith’s of this world and what an offense to Adam Smith that is, because in reality it resembles more early 20th century socialist modeling and state fiddling in the markets.
Be that as it may, we certainly should plan for the longer run and invest in it. Experience and statistics have shown that in the past, companies and organizations investing in marketing during hard times came out better at the end of this period simply because they invested in their network, business relations, etc. Others that slashed their marketing budget without fear did not fair so well – statistically that is. There are always outliers.
While therefore obvious cost drains should be avoided – shouldn’t they in any case? – we will do well investing into new opportunities to come out a winner. Risk is part of the business and always has been. The ones that believe that if they do not make a move so that nothing will happen to them will also be right, nothing will happen to them. Probably they will though be closer to being liquidated than others that dared to look outside the box.
Happy New Year
Chris
Abdullah Dyer
Sales Director
Great opportunist always search for right opportunity. Usually financially strong investors those who have their own reserve fund take advantage of recession market to buy out bigger fish at lower prices. In recession market all products and services at best negotiable rates. It always good time for R & D, Mass Media Ads, new vendor developments and best raw materials at reasonable rates.
Hence positive thinking and self cash reserve always encourage to better opportunities. Recession is best time for development, in actual this kind of management leader only lead economy out of recession.
I invite all positive thinkers to add me in their network. Invitations welcome : agdyer@gmail.com
Regards.
Susan Shwartz PhD
AVP, Oppenheimer & Co. Inc., financial marketing writer
Ravinder, good question. I think there’s a time for emergency response, tactical thinking, then the longer-term strategic thinking. Ideally, you do the other two while doing the first one.
Slap a tourniquet on it, get it to the hospital, and work on rehab once the bleeding and potential infection are taken care of.
Susan
Eric Van Wetering
Managing Consultant at ThinkTankz
Just thinking out aloud.
In times like these one group will yell “sell, sell,sell”.
While the other will say “buy, buy, buy”.
Would be interesting to see who belongs to what group and why.
Some time ago I read a definition of “a crisis”:
“a crisis is a time when money returns to its rightful owners”.
Would be interesting to see if these owners are just lucky or have done their homework in time.
Gary Largent
Staffing and Recruiting Professional
Gary Largent suggests this expert on this topic:
From David Greer:
There’s been a lot of negative media around the current financial cycle. I like to be a positive person, so recently I surveyed more than 200 of my entrepreneur friends to ask them for their ideas on how companies can thrive in this economic climate. I took their ideas and put them together in the article “Thriving Through the Downturn: Eleven Strategies That Will Make Your Company Boom.” You can view a copy of the article here:
http://www.davidgreer.ca/articles/eleven.strategies.to.boom.pdf
Mike Kramer
Founder, OnTheSystem Management Software
Insightful question because it requires managers to think about proactive management and anticipating future needs now.
The fastest way for a company to improve its bottom line is to cut costs. The biggest cost are people. Which is the reason most large companies start their belt tightening by cutting jobs.
This can be a big mistake because the organization loses the knowledge it needs to expand quickly in an upturn. It also loses access to the insight of employees who know what is broken and how to fix it.
My suggestion is business use the downturn to re-group, re-organize and transform their companies for optimal, low cost performance.
I wrote a handbook on the subject that you can download for free. It is a practical approach to leveraging full value from your team.
Let me know what you think: www.onthesystem.com/teams
Links: http://www.onthesystem.com/teams
Kuldeep Kaul
Internationally Exposed,Business Development Manager, strong in optimizing organizations to achieve maximum growth
How long will the recession last? 6 months? 1 year? 2 years?
Well it looks like the recession is more likely to effect certain regions and may not be effecting certain regions to that great effect.
We have recently seen a lot of inflow of money into Gujarat in India.
Being optimistic is good and we should prepare for the better times ahead.
That may include new joint ventures,infrastructure augmentation etc.
I would be very much interested to learn more ideas which could help in not only keeping one afloat but prepare for that boost to come.
Josh Chernin
General Manager at Web Industries; Itinerant Writer; and Decent Little League Coach
Hi Ravinder,
I agree with the gist of your question…recessions are a great time to invest, and it doesn’t necessarily have to involve a lot of money, either.
It’s a good time to hire very talented people, and to do a lot of training. It also forces creativity by the whole organization as to how to do more with less. It also creates great selling opportunities. In our business–custom outsource manufacturing–we are offering customers a chance to turn fixed costs into variable costs.
Josh
Rohit Talwar
Global Futurist, Strategist, Professional Speaker and Think Tank CEO rohit@fastfuture.com
I think the most important thing to do is actualy think in terms of the different possible scenarios that could play out – no one knows exactly what should happen , so we need to plan for a range of alternatives rather than pin our hopes on a single strategy
Ravi Rajyam
Scientist
Recession is a periodic phenomenon like the stock markets. It is imperative to sieze the opportunity to build a strong workforce so that you have the headstart before others wake up after a deep slumber. This is the time to build assests. consolidation is the mantra to overcome the crisis. In my view the recession will last till the mid 2010. however certain sectors will recover faster than others
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The question is not shut .. just closed for the time being.
My purpose of pasting the answers here is to be able to look at these five years later and be able to judge what good judgment means…
That in fact will show what really seperated Men from Boys!
