You are here :
| Best Practices: Corporate Re-Birth |
 |
 |
 |
| Written by Brad Dawson |
| Wednesday, 30 April 2008 19:00 |
 The good news is that recessions are a logical phase in every business cycle. They often follow a period of economic exuberance and are, in simple terms, a natural reflection of the market to close one cycle before starting another. Rather than fearing a recession, business leaders should be actively positioning themselves to leverage the next logical step in the economic flow: innovation and corporate growth. This article provides four ways to proactively move your organization into a position to achieve new, higher levels of corporate value. Ensure relevance Do your products and services still make sense? Are your customers able to easily espouse your corporate value proposition, or have your offerings gone the way of the wagon wheel—still useful but hardly effective in the new technological age. Most businesses cling far too long to their treasured products and services hoping that new pockets of customers can be found to revive ailing revenue. Today, with those revenues slowing down, business leaders are in an ideal position to invest in simple forms of market research and predictive environmental analysis. Predictive environmental analysis looks at economic factors that impact the strategic direction of businesses. For example, recognizing that China will one day be the world’s largest consumer population should help direct your corporation’s view of its future. As a corporation, you have two choices: position your firm to leverage this prediction by focusing on the Chinese market as a primary potential customer base, or realize that many businesses will be caught unaware and need your assistance to survive. Either way, you have visualized your new corporate customer. Focus on innovation In periods of economic exuberance, businesses waste corporate resources. After all, when times are good, why should business leaders be interested in squeezing a little more out of their asset pool? In contrast, when a recession is looming and financials start their downward tumble, executives frantically seek to exploit hidden value from their organizations, often making the mistake of jettisoning assets that appear worthless. Although maximizing corporate value should be a full-time effort regardless of the business phase, it is only during recessionary periods that business leaders are motivated to take action. For product companies, the most often ignored effort is aggressively focusing on innovative research and development. Corporations enjoy extending current-generation product lifecycles and putting off necessary reinvestment activities until pushed to realize that corporate survivability is on the line. Services companies, likewise, tolerate low levels of chargeability, intent on maintaining high resource reserve levels for anticipated growth. In reality, neither approach is ever prudent and can be damaging as economic realities arrive. Pursue growth options Pessimistic business leaders assume that a recession will never end. Realistic (and more wizened) leaders realize that the recession will eventually roll into the next business cycle. While pessimists will be actively selling off corporate assets, realists will recognize this period as a time to step into either horizontal or vertical markets, expanding their market definition and, as a result, the size and complexity of their customer base. Now is the time to actively pursue corporate growth options. Horizontal and vertical market expansion is a reflection of corporate interests. Horizontal expansion is defined as moving into markets that are logical extensions of your current business model (e.g., electricians moving from installing low-voltage security cameras to operating state-of-the art security services firms). Vertical expansion is actually a shrinkage in the overall market as firms seek high levels of specialization in their chosen industry (e.g., architects that move from commercial building design to high-tech presentation suites for government contracting customers). From a strategic perspective, neither approach is right or wrong; it is merely a reflection of corporate desires. Refine your core functions In periods of economic slowdown, business leaders spend an inordinate amount of time trying to “optimize” the sales, marketing, finance, and administrative activities, an effort akin to reshuffling deck chairs on a sinking ship. It is a nonproductive use of time as these functions are considered non-core activities having little, if any, impact on overall corporate value. Instead, resources should be expended on refining the core functions of the corporation: operations and delivery. These are the functions that provide real value and help set your corporation apart from its competitors. That’s not to say that there are not opportunities to reduce costs and increase productivity in these non-core functions. After all, operational gurus know that it is possible to reduce the cost of any organization by 20% without negatively impacting the entity’s productive output. (That figure rises to 60% with government entities!) The larger question is why you waited until an economic downturn to focus your attention on these aspects of the business. The advice is simple: during a recessionary period, seek to modify your core activities, leaving your non-core functions for a time when corporate competitiveness is less in question. The time spent will be better rewarded as the economic cycle moves to its next phase. Recessions are periods of corporate re-birth. While many business leaders flounder, prudent executives realize recessions are an opportunity to re-establish one’s corporation in a new competitive light. Focus on predicting your next market demand, and position your firm to reap the benefits of the next upward economic swing. Brad Dawson is the managing director of LTV Dynamics and has more than 27 years of management consulting experience. He is a frequent lecturer to international entrepreneurial businesses and has clients in the US, Russia, China, Mongolia, and Latvia. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . |