Managing in a downturn: Mistakes CEOs make

I've never understood this. Whenever there is an economic downturn, organisations go into "survival mode". They begin slashing costs, retrenching employees, restructuring the organisation, cutting marketing budgets...in sum, a host of "priorities" take over. I can't help comparing it to a kind of preparation for hibernation, where the metabolism begins to slow, the body tries to conserve energy and in general, the organism becomes sluggish and sleepy.

Does this analogy extend to the world of business? In today's competitive scenario, I believe it does. The impact of all these strategies for survival is to stifle opportunities which the organisation would have otherwise aggressively pursued in its endeavour to grow profitably. It reduces the inclination to be innovative and experiment with new business strategies, especially those that are the most innovative and, therefore, appear to carry the greatest risk. The net result of these measures may well turn out to be the equivalent of commercial hibernation; stagnation or even reduction of revenues and profits, and it may be difficult to recover in the long term.

While I do not for a minute believe that organisations should not attempt to protect their bottomlines when the market for their products or services is shrinking--and I would not like to generalise, since there are organisations who have genuine cashflow problems which can only be tackled through drastic measures--I would like to argue that organisations should not adopt a blinkered approach or ignore opportunities for growth.

The purpose for the existence of any firm is to grow through acquisition of new customers, increasing the business, profitably, from existing customers and retaining their existing customer base. I believe that organisations would be better served if their managements were to focus on these three key areas in a downturn; strategies to achieve these objectives would be more effective in at least maintaining revenues and profits in a downturn, as well as ensure that the organisation is well prepared for the upturn when it happens.

The next few blogs will dwell on some of the issues I have outlined in this blog, and explain:
a) how an organisation in survival mode can harm its long term prospects and weaken itself when the upturn arrives
b) what are the strategies organisations can and should adopt in order to protect themselves from the downturn, without any adverse side effects
c) how these strategies will benefit organisations during the downturn and when the upturn finally arrives