Leaders can change their business strategy to adapt to slower economic cycles.
Focus: CXO and VPS
In this article, I would like to discuss three business strategies you may adopt as a business or divisional executive to refocus your operations during the economic downturn. First, in times of growth, we often forsake operational efficiencies and cost management to chase larger market share and higher revenue. This strategy works when markets are up, but the impact of these decisions becomes very apparent when sales and revenue drop.
Business Optimization to Improve Productivity
Although all of us should employ the strategy of continuous business improvement, we tend to optimize business processes and ways of working less frequently than we think. Current methods may have been implemented with an ERP solution or based on a specific operating model, which might be misaligned or outdated vs our actual delivery capabilities. We tend to build fat into dealing with ineffective processes and organizational structures by adding more resources or technology to get things done. Optimization for your business or division can mean incremental improvements in specific delivery areas or might be transformational by reviewing the underlying operating model (what we do) while implementing a best practice process supported by an aligned organizational structure (how we do things). Streamlining functions is often an opportunity to reduce cost by examining whether the business is focused on its core competencies, with outsourcing and proper sizing as options.
Business Automation to Reduce Costs
Businesses or divisions can also increase productivity by employing business automation to reduce product unit costs, customer costs to service, or operational costs. Automation can be incremental by reviewing and re-educating employees to follow correct procedures while applying current technologies more effectively. It can also be transformational by examining the existing IT landscape and making a shift in spending and investment toward focused digitization in critical operational areas, such as applying AI in information processing, robotics in manufacturing and supply chain operations or improving the application and monetization of data through data science and analytics.
Business Profitability vs Growth Aspirations
As we overgrow during an economic upturn, we sacrifice product and channel margins to achieve growth aspirations. Business should now be reviewing the product and channel margins which may lead us to refocus on crucial product ranges (staples) or specific sales channels, price competitiveness, and value-added services to extend our share of the customer’s wallet or take action to drive down the cost to serve across the value chain to increase margins. Higher margins are good news for businesses during slower sales cycles and place the correct focus on our operational activities.
In conclusion, one or a combination of the three business strategies above will help you to focus on the right things during the economic downturn. It is, however, vital that we always make decisions that are in the best interest of the long-term sustainability of our businesses, supported by a tactical decision on generating additional revenue or reducing costs in the short term. Incorrect and knee-jerk choices can be costly and devastating to the sustainability of a business. Therefore, all actions must be guided by clear business strategies to guide decisions about markets, products and channels.