Dealing with the Economic Downturn with the "Rebound" in Mind
Dealing with the Economic Downturn with the "Rebound" in Mind
The moment business starts to slow, companies begin to look for ways to reduce costs. Too often the first step is to stop hiring, cancel events and look to lay-offs. Beyond that it is common to reduce or eliminate budgets for advertising, marketing and employee development. There is sometimes a broad brush approach to reducing operating costs.
The Better Approach
Organizations would be far better off to take the time to review all budgets and initiatives to determine priorities based on the impact; current and future. A balancing act, for sure, but there are the two things you cannot ignore during this process; customers and key talent. In fact studies have shown that organizations that continue to fund marketing and advertising campaigns and employee development, rebound faster than and more than those that do not when the economy turns around.
Marketing and Advertising
Staying in touch with your customers and potential customers suggests that you need to continue spending money on marketing and advertising campaigns.
McKinsey & Co. studied data for 1000 companies between 1982 and 1999 including the period of recession between 1990 and 1991. The study identified some key differences between the strategies of the best and worst performers. One of the most significant differences between them was how much they spent on marketing and advertising during the recession period. When the economy went south, the best performers increased their spending in these areas, not just relative to their competitors, but also compared to their own spending in better times.
Another independent study, of the same period, showed that the “spenders” achieved significantly higher return on capital employed and gained an additional 1.3 percent of market share. Just a few examples companies that were creative in the past:
Proctor & Gamble introduced and actively marketed “Ivory Soap” during the great depression
Intel launched “Intel Inside” during the recession of 1990-1991
WalMart killed their competitors with the “Every Day Low Prices” concept in the slowdown of 2000-2001
Talent Retention
Of course the people part of an organization’s equation represents anywhere from 60 to 85% of its cost. While cutting costs by focusing only on headcount reduction and the cessation of programs will definitely save money – it could weaken the organization by damaging morale or reputation as a potential employer or cause the loss of key talent. The important thing is to emphasize talent during times when operating costs need to be reduced. It is possible to emphasize the value proposition offered to current and potential employees and position the organization strongly for growth when conditions improve.
IBM retained its employee development programs, for example, during its major performance challenges in the mid to late 1980’s. When Lou Gerstner, the new CEO, announced the strategy for turning the company around, the leadership was ‘at the ready’. The investments they had made in development helped achieve the turnaround.
Tips for Reducing Costs and Retaining Key Talent
Use the performance management and succession planning systems to identify strong employees (goal achievement, potential, history and attitude)
Consider which types of talent would take years to replace (such as trades or unique knowledge in other roles)
Retain those that positively contribute value today and which have the talent to drive value in 3-5 years based on your business strategy
Continue to develop your key talent
Continually communicate with those you want to retain; keeping them in the loop demonstrates your value for them
Finally…………
While it may be necessary to cut costs during the downturn to ensure the viability of the organization as a whole and to ensure future competitiveness, view this as an opportunity. It is an opportunity to make the organization more effective, engage existing key talent at all levels and upgrade talent. This in turn safeguards the culture, the brand and the reputation of the organization and will position it well for the upturn.
Dealing with the Economic Downturn with the Rebound in Mind - To learn more about this author, visit G.J. Miller's Website.
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The Common Response
The moment business starts to slow, companies begin to look for ways to reduce costs. Too often the first step is to stop hiring, cancel events and look to lay-offs. Beyond that it is common to reduce or eliminate budgets for advertising, marketing and employee development. There is sometimes a broad brush approach to reducing operating costs.
The Better Approach
Organizations would be far better off to take the time to review all budgets and initiatives to determine priorities based on the impact; current and future. A balancing act, for sure, but there are the two things you cannot ignore during this process; customers and key talent. In fact studies have shown that organizations that continue to fund marketing and advertising campaigns and employee development, rebound faster than and more than those that do not when the economy turns around.
Marketing and Advertising
Staying in touch with your customers and potential customers suggests that you need to continue spending money on marketing and advertising campaigns.
McKinsey & Co. studied data for 1000 companies between 1982 and 1999 including the period of recession between 1990 and 1991. The study identified some key differences between the strategies of the best and worst performers. One of the most significant differences between them was how much they spent on marketing and advertising during the recession period. When the economy went south, the best performers increased their spending in these areas, not just relative to their competitors, but also compared to their own spending in better times.
Another independent study, of the same period, showed that the “spenders” achieved significantly higher return on capital employed and gained an additional 1.3 percent of market share. Just a few examples companies that were creative in the past:
Proctor & Gamble introduced and actively marketed “Ivory Soap” during the great depression
Intel launched “Intel Inside” during the recession of 1990-1991
WalMart killed their competitors with the “Every Day Low Prices” concept in the slowdown of 2000-2001
Talent Retention
Of course the people part of an organization’s equation represents anywhere from 60 to 85% of its cost. While cutting costs by focusing only on headcount reduction and the cessation of programs will definitely save money – it could weaken the organization by damaging morale or reputation as a potential employer or cause the loss of key talent. The important thing is to emphasize talent during times when operating costs need to be reduced. It is possible to emphasize the value proposition offered to current and potential employees and position the organization strongly for growth when conditions improve.
IBM retained its employee development programs, for example, during its major performance challenges in the mid to late 1980’s. When Lou Gerstner, the new CEO, announced the strategy for turning the company around, the leadership was ‘at the ready’. The investments they had made in development helped achieve the turnaround.
Tips for Reducing Costs and Retaining Key Talent
Use the performance management and succession planning systems to identify strong employees (goal achievement, potential, history and attitude)
Consider which types of talent would take years to replace (such as trades or unique knowledge in other roles)
Retain those that positively contribute value today and which have the talent to drive value in 3-5 years based on your business strategy
Continue to develop your key talent
Continually communicate with those you want to retain; keeping them in the loop demonstrates your value for them
Finally…………
While it may be necessary to cut costs during the downturn to ensure the viability of the organization as a whole and to ensure future competitiveness, view this as an opportunity. It is an opportunity to make the organization more effective, engage existing key talent at all levels and upgrade talent. This in turn safeguards the culture, the brand and the reputation of the organization and will position it well for the upturn.
Dealing with the Economic Downturn with the Rebound in Mind - To learn more about this author, visit G.J. Miller's Website.
Like this article? Share it with your friends
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Joe DagerJoe Dager is President of Business901, a progressive coaching company providing no-nonsense direction in areas such as Lean Six Sigma Marketing and organized referral marketing. What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe’s ability to combine his expertise with “out of the box” thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with.” - James R. If you want to learn more about Business901, start a conversation with us. We can be found @ Web/Blog: Business901.com Web/Blog: FundingYourNonprofit.com LinkedIn Profile Follow me on Twitter - Visit Joe Dager's Website |
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