Business Survival in a Period of Economic Recession
Recession happens when there is no measurable growth over a short or medium frame of time, say within two or three quarters in a year for an economy. Recession can be general and particular. The whole world can be going through a period of recession. The advent of Covid -19 will no doubt induce a global recession. A country or economy can be going through a recession. Slump can come over a particular sector, industry, or company. Recession affects individually and on a large scale.
Since all the air spaces are empty, factories closed, beaches deserted, mall shelves empty, offices locked, businesses are going to take a hit and this cascade down to the people. When recession hits a company, what strategies do they adopt? Let’s find out here:
Analyze the recession situation
When companies are hit by a recession the top management gets together to analyze what is going wrong. Is it the economy in general, the sector, or it is only the company that is facing a slump? Company intelligence gets busy in gathering data and reports to understand the situation facing them. Analysis of recession situation calls for:
- Identifying the causes of recession
The causes of recession can be traced to internal and external causes, actionable, and in-actionable causes. Internal and immediate task environment causes can be rectified by applying timely measures. Immediate task environment can be the organization’s supply chain and other external factors that a firm can directly control. However, if the recession is due to some major causes affecting the whole economy, then companies may have to apply strategic planning.
- Estimating the time duration of the recession
If the causes of recession can be traced and diagnosed, then company intelligence can predict using available models and expert opinions the time horizon for the life of the recession. The company would need to apply the measures within time-bound limits and measure results derivable.
- Categorizing the recession
Categorizing the recession can help a company in charting out a future course of action, the company can grade recession on:
- Time scale (Long term, medium term, short term, temporary)
- Severity scale (Harsh, severe, difficult, mild)
- Manageability scale (Non-actionable, adjustable, controllable)
Take stock of the situation
A company being an organization draws from the organism theory. Human beings are organisms and whenever a calamity occurs, intelligent organisms take control of the immediate environment. Companies facing recession immediately tighten control on internal units:
- Accounts section is called to update and tally all accounts and financial data. The paper balance is tallied with physical balance on a departmental basis.
- The human resource department is asked to update on staff job description and staff performance and evaluate how to appropriately optimize them.
- The marketing department is asked to report sales data and make profitability reports. New markets and trends may also be spotted and exploited.
- The production department is asked to submit an inventory of finished goods and goods in process so as to plan better ways of distributions.
- Other key units may be torn open to critically analyse their contributions and realigned if need be.
Make an action plan
After assessing the recession situation, company management makes an action plan to best deal with the situation. Common strategies which companies apply are:
During times of recession, companies can become highly expenditure conscious. The company may review channel partners and stakeholders to attain the least expenditure and maximum returns model.
- Clearance of stocks
It is not a good idea to sit on the slump. So companies try to clear out their stock as much as possible at the best possible rates that can be gotten for them. Useless assets are disposed off for cash. The company may even try to back sell the raw materials into the supply chain.
- Maximizing net cash inflow
During recession, a firm tries to recover all accounts receivable as early as possible. The net cash inflow, which is cash inflow less than the outflow, is maximized for each item.
- Diversifying into other products
The company may even try diversification into other products and services with existing resources. For example, an automobile company facing a slump due to government sanctions on petrol engines can think of making electric automobiles.
Recession is usually a part of life as world economies go through periods of boom and bust. The role of business managers is to be able to spot these seasons from afar off and make the right business decisions to respond to them.