According to studies by Mckinsey and Bain & Company, the key for businesses to survive an economic shock whether from a pandemic like the SARS Virus or now COVID-19, or a good old fashioned economic down turn is to take action act as fast as possible.
In the historical economic recessions of 1980, 1990, and 2000, 17% of the companies they studied went bankrupt, private, or were acquired. Just as significantly there were over 10% of companies that thrived to perform event better than before the crisis.
To successfully navigate this current economic shock caused by COVID-19 and come out even stronger when the upturn happens, companies need to be flexible and ready to adjust.
Here are some lessons gleaned from past experiences to help us weather this difficult period.
Be willing to change quickly
Companies who respond swiftly and take action to reduce costs as well as focus on managing resources better will typically emerge from the crisis stronger than those respond at a later point.
Reducing costs does not mean businesses should be cutting headcount and reducing quality but rather, look at ways to shift resource distribution and improve the internal processes.
With the effects of COVID-19 being far more wide spread than SARS, experts have indicated the consumer spending could take some time to return.
Regardless of when the recovery upturn happens, businesses should be responding to this crisis in ways that ready them to rebound quickly.
Financial discipline and fundraising
Rule number 1 for businesses during an economic crisis is to not run out of money. This means a combination of a reduction in expenses and having access to funds, whether through debt financing or fundraising.
Encouraging businesses to reduce expenses does not mean that businesses should aggressively cut costs as this could cause them to downsize themselves out of existence.
This simply means that businesses should take early action to reduce spending on non-essential investments, negotiate better fixed expense deals and reduce labor costs through encouraging no-pay leave, reduction in hours.
Whilst reducing expenses can help with survival, the access to additional funding can help the business consolidate its business to emerge stronger.
One of the key elements of weathering a business downturn to come out stronger is having access to working capital.
Stronger and more forward looking companies can view this as an opportunity to acquire more market share and customers as weaker competitors fold.
Besides awaiting government reliefs, companies can start to fund raise to buffer their coffers to come out of this stronger.
Improving resource management
During an economic crisis, weakness in the business model emerge very quickly. Over reliance on any specific supply chain, talent and locations can weaken the business in critical areas.
Re-evaluating how the business processes are managed can greatly improve productivity and over-reliance on any one resource. This also becomes an important business continuity contingency to ensure business can keep running in the case of unexpected crisis.
Ensuring the right team members are motivated can prove instrumental in building resilience in an organisation.
With this in mind, during an economic crisis, companies can focus on developing depth to their training programs and cultivate a motivated workforce. This improved training framework can prove a great asset to help position the business for a quick rebound.
Investing in the future
In order to truly thrive, businesses must set their sights for the long term and make decisions that can place them in a position to grow.
Weaknesses in business management processes often surface in times of crisis and require a rework of these business processes documentation.
One of the key areas that businesses should invest time and effort in is to document these improved business processes.
Today, Standard Operations Protocol Documentation Tools are accessible online and Businesses can easily upload, design and update their business processes in real time.
During a crisis, companies should resist knee jerk responses and take decisions that ultimately eat into future profits.
Instead, they should look towards different expansion strategies like developing a franchise system, expand their geographical reach, acquire other companies for a much lower price than usual, or find innovative product offerings that could address new demands in the changing market.
Using business process transformation
Investing in technology driven business process transformation can also build resilience in a company. Technology can help businesses further automate processes, improve quality and lower operating costs.
During a downturn, the opportunity costs of redirecting the attention of key staff to improving business processes leveraging the right technology can boost efficiency and give the business a competitive edge.
The opportunity cost of investing in technology is lower for many companies than it would in good times.
Firms invest in IT during recessions because their opportunity cost is lower. When businesses are engaged with aggressively maximizing revenue and production, resources that can be diverted to such projects are scarce.
Implementing these digital technology transformation projects can also help cut costs in the long run. Companies should prioritize “self-funding” business transformation projects that pay off quickly.
When a business leverages technology, business analytics and agile business practices to manage its business, they tend to be able to understand the threats they face and respond more quickly. and hence better able to handle uncertainty and rapid change
During times of expected economic downturn, businesses should keep their eyes focused on the future and be ready for the upturn by using this period to review their existing business models, strengthen internal training and processes.