• Hiring freezes and temporary layoffs - The classic motto in investing is “Buy low, sell high.” When hiring in good times and laying off in bad times, companies are buying high and selling low. When economies are booming, companies go into frenzies sparing no expense to hire people. This means that companies will pay top dollar for whatever talent is available. In economic downturns, a surplus of great talent becomes available at a lower price. When companies post openings, they have many more talented candidates to choose from. This can have a profound effect on the future prospects of the company. Temporary layoffs will have the opposite effect. Typically, your best employees are the most valuable to other companies. The more layoffs you do, the more chances you give them to work for somebody else, like your competition. The average performance of your work force will worsen as a result.
• Slashing R&D budgets and canceling initiatives – There are two implications of slashing research and development. The first is the current offering of products and services is good enough for now and the future. This is a dangerous assumption and invites the competition to take market share. The second is the message to R&D staff is they are dispensable and are not valued. This will encourage the more ambitious employees to look for greener pastures.
• Squeezing suppliers for better prices and terms - While this is expedient, it can have dire consequences. Suppliers look at their customers and apply efforts to those that have the most value for them. When a company squeezes the supplier, the value of the account to the supplier goes down as well. This means that these suppliers will put their efforts towards your competition’s success.

 

Long-term outlook

 

So how can a company make necessary changes to survive tough times while preserving its future prospects? We at Abonar recommend a long-term approach. The underlying premise is that any successful business will operate through both good and bad times. During the bad times, some unique opportunities arise. Here are some approaches to capitalize on this situation.

 

• Marketing – Your customers are likely going through the same issues that you are. They are reducing purchases to try to remain solvent. That doesn’t mean that they have to reduce purchases from you. Your efforts should be to make sure that the suppliers that they cut are your competition. Make offerings to take their pain away. This could open the door for new product and service offerings. The most important wisdom for marketing is what do your customers value and what you can do better than your competition. Any changes in operation must preserve this. Any areas where you can buy a product or service more economically than producing it is a good place to start in cuts.
• Human Resources – This is the best time to hire for the reason that there is low competition for the best available talent. This is the definition of “buying low.” In addition, any layoffs should be analyzed for the long term. If there is a segment of your business that has low future potential, a layoff may be appropriate. If the business has excellent future growth prospects, you are gambling with these products by getting your employees used to life without you. Finally, use your human resource to redesign your value proposition. When times are good it takes everybody’s energy to keep up with orders. Slowdowns are an excellent time to get people together to determine what customers value. New offerings come out of analysis of what customers need in good times and bad. Again, preserve the value proposition you provide to your customers. Involving your employees in solving problems is a great way to improve morale. They are worried about their jobs and are motivated to make a difference. They are also more open to change than in good times. Our experience is employees always deliver when asked to improve the business. New, unexpected innovations invariably come your way.
• Pick your suppliers – When orders slow down, companies can pick suppliers that add to their bottom line. This means that you can buy from suppliers that are bringing value to your organization. This is a better mission for your purchasing managers, because it contributes to long-term success.-->

 

 

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