Managing in a downturn: Mistakes CEOs Make - Investment

Here's another trap most CEOs fall into when confronted by a downturn. The investment tap is promptly switched off. The justification, of course, is logical and perfectly reasonable.

In times of great uncertainty, like a downturn, the return on existing investment is hard to forecast with any degreee of accuracy. So how does one justify new investments, which may be even riskier from the perspective of ROI?

The solution, therefore: stop new investments.

The unfortunate part about this conclusion is that it is indiscriminately applied to all new investment decisions. In the process, some perfectly good opportunities to grow in the downturn can be missed.

What this also does is to stifle creativity and innovation, whether it relates to process, product or service. People begin to look at consolidation of existing business, existing investments and existing operations -- which by itself is not a bad or wrong thing to do -- and ignore new initiatives which could open up new opportunities.

I think the best way to illustrate what I am saying is to show how companies do it right. It is all too easy to give examples of companies stifling investment. Look around you and you'll spot them; look within your own organisation and you'll probably see it happening there as well. But an example of how successful companies use wisely assessed investment decisions to grow their business in a downturn will illustrate the point I am trying to make.

More on this in a later post, when I talk of how successful companies manage the downturn, I'll show you how this can be done.