Thrive, Survive or Dive: Why You Should Never Waste a Recession

  • Rowen Grierson, Senior Director & General Manager, UK&I at Nutanix

  • 24.05.2023 11:15 am
  • #data

Winston Churchill is credited with having coined the widely repeated advice to “never let a good crisis go to waste”. He was talking about the aftermath of war at the Yalta summit, which led to the foundation of the United Nations. But in business, that counsel makes sense too. Companies need to navigate their way out of tough spots and make the best out of their environments. And for those that possess creative thinking, those environments can foster ways to reimagine everything from the fine details to broad strategies. You may not make a new UN, but you can at least follow another well-known piece of wisdom, “When life deals you lemons, make lemonade.”

Today’s crisis is in some ways cyclical, as economies rise and fall on fairly regular cycles of boom and bust. We live amid the threat of a global recession and responses to such times can be used as a playbook. Not everyone suffers when the chips are down. For example, Dell excelled and accelerated as a maker of low-cost PCs in the early 1990s downturn because people didn’t want to pay a premium price for IBM or Compaq. Ultimately, it remains in the hands of business leaders to either advance or attempt to sit out and minimise the damage. They need to ask themselves whether their future is to survive, thrive… or dive.

Fail to prepare, prepare to fail

Are there wider lessons as to what to do? There are. 

McKinsey found that companies that prepared early for macroeconomic slowdowns were better able to bounce back than those that didn’t, and afterwards they maintained their performance longer. These “resilients” cut operational costs early but that’s not the end of the story. They  were also more aggressive dealmakers, both in terms of divestitures as the economy cratered but also acquisitions as prospects improved. They  were also better at reconfiguring financing. In other words, they didn’t just sit out the period: they fought and thought their way out of the hole the economy put them in.

But today’s challenges aren’t exactly the same as previous downturns. What’s happening with the economy is blurred by other surging trends: geopolitical uncertainty, the rise of highly disruptive startups and scale-ups, demands for proof of ESG credentials, shareholder activism and rampant digitisation. Smart companies will look at the picture in the round and ask how they can best address these phenomena, and whether there aren’t opportunities amid the challenges.

In this context, just cutting costs looks an increasingly quaint and blinkered approach. Close down facilities in a ‘big bag’ response and you will receive a great deal of hostile scrutiny as well as a tough track to drive down when things bounce back. Relocate facilities to lower-cost economies and you may face forensic investigations into working conditions and quality control. And so it goes on.

Think different

That’s why smart companies today are looking at more creative models. Here is a handful of actions we see them take:

  • They take advantage of flexible financing and mine the relationships forged with suppliers through the privations of Covid and lockdown for better Ts and Cs. Moving from upfront payments to subscriptions removes the thud factor of bills and aligns consumption with outlay, for example. During the pandemic we took every chance to try and help customers by easing terms of business and generally by checking in on them. Showing you care never hurt anybody.

  • They seek to digitise wherever possible to craft superior user experiences and virtualise what were physical experiences. Look, for example, at banks doubling-down on apps, websites and robo-advisors to replace high-street branches.

  • They spread risks by widening their supply chains to mitigate the risks of being exposed to lock-in or the collapse of a sole supplier.

  • They move faster, shifting away from ‘analysis paralysis’ by slimming down decision-making teams and enabling leaders to lead. These are times when senior managers earn their corn and when new leaders who are unafraid of a crisis emerge.

  • They accentuate products that suit the market. During lockdown, makers of streaming entertainment, craft materials and in-home-fitness gear did well. In a downturn, across-the-board lower-cost products are an obvious fit but dynamic pricing based on supply/demand and special offers is a more subtle model.

  • They create new units and even businesses. Downturns aren’t necessarily rotten times to start out: icons like GM, Disney and Microsoft did just that and these can turn out to be environments to experiment on a small, managed-risk basis.

  • Finally, they don’t stop investing in technology and they know they have to speculate to accumulate. Retiring energy-inefficient processes and equipment is a medium-term saving and, in a buyers’ market, they can get the best deals available.

In short, smart companies zig when others zag by applying lateral thinking to the problems at hand. A smallish minority even step up certain types of spending in down economies, for example investing in digital advertising and marketing to reassure customers that they are there for them, even in tougher times. Think different and you have a real chance of not just surviving but also thriving. 

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