Inevitably, after every recession the economy grows again. Research by Bain & Company, Harvard Business Review, Deloitte, and McKinsey shows that the best companies continue to grow their EBIT during a recession and also accelerate faster after it when compared to other companies (see Figure 1). Let’s take a look at what the winners do differently to accelerate their profitability during and after a recession.

Figure 1. “Winning companies accelerated profitability during and after the recession, while losers stalled” (Source: Bain & Company).

7 KEY ACTIONS TO ACCELERATE YOUR PROFITABILITY DURING AND AFTER A RECESSION

 We’ve integrated this research material to generate a clear picture of the 7 key actions you need to take for success.

 1. CREATE CLARITY OF DIRECTION AND ORGANISATIONAL ALIGNMENT

How do you want your company to look and run in three to five years from now? And in one year? What are the vital few strategic initiatives to focus on? Make sure your leadership team is committed and fully aligned.

2. UNDERSTAND YOUR STRATEGIC AND FINANCIAL POSITION

Mapping out your plans depends on your strategic and financial position

(see Figure 2).

Figure 2. Mapping out your plans requires an assessment of your company’s strategic and financial position (Source: Bain & Company).

3. FREE UP “CURRENCY”

This is not about blunt cost cutting; the focus is on aligning your spending with your vision and strategic initiatives. Zero-based Alignment / Budgeting is a good way to select and make lean  those activities that are fully aligned. The “currency” you free up can strengthen your balance sheet and support your investment agenda.

4. RETAIN YOUR CUSTOMERS

 Retaining your customers is so much cheaper than acquiring new ones. The margin impact is significant. Explore ways to help your customers through the downturn and strengthen your relation with them. And be sure to focus on the right customers.

 5. PLAN FOR VARIOUS SCENARIOS

 Nobody knows when and how a downturn will unfold and when the economy will start to grow again. The winners have developed various scenarios, and they know how they should act in each scenario. This allows them to move quickly and decisively.

6. ACT QUICKLY AND DECISIVELY

Winning companies act quickly and decisively, both in the downturn and particularly in the early upturn when the opportunities start to arise. They have already created the “currency” to invest.

7. EMBRACE TECHNOLOGY

Not all companies have been equally aggressive in adopting new technologies. There are many opportunities here for improving efficiency or generating more value and thereby gaining a competitive advantage. The current COVID19 pandemic could well be an important catalyst.

This means that you have to be prepared for an economic downturn to come out as one of the winners. It should be noted that in these key actions, there is, in fact, no difference between being prepared for an economic downturn and running a business for continuous and maximum success. This picture is consistent with one that emerges from one of our other articles “How to create value in Industrials?”.

Many companies need to work hard to protect their bottom line. Driving down costs is a sine qua non – but done wrongly, it will damage the business. At the same time, growth drivers need funding to provide the means for future growth. Smart cost cutting will prune a company back to health and free up the cash to provide oxygen for growth drivers. Let’s explore how this is done.

Be explicit about value delivery

Be clear on the value to be delivered to your stakeholders both now and in the future. Design a strategy that enables resilience, irrespective of economic conditions. What products and services should you deliver? Work out an appealing vision that is also explicit about the mindset and behaviours that will create its success – this is a crucial factor that is all too often overlooked.

Align cost structure with vision

Once you have formulated your new vision, you will need to map out and understand the current activities and cost structures in detail. Work with five main questions: What activities can you not live without? What activities can you stop? What activities can you simplify or aggregate? Where can you redefine demand for activities? What new activities do you need?
Be clear on the must-haves and eliminate unnecessary or nice-¬to-¬have services and activities. Decide what can be outsourced, offshored or insourced, and how procurement can be rationalised.

Align and digitise the operating model

Design lean end-to-end processes

Answers to the questions listed above are the input for an iterative process that starts with the redesign of end-to-end business processes. Process mining is a tool that provides great insights into your current processes and will help you decide what to keep and what to adapt.

Drive down organisational complexity

Using the redesigned processes, assign responsibilities and accountabilities as low as possible in the organisation. Design logical, complete functions and think process flow, not department. Automate activities through software robots and integrate them as virtual employees with roles, accountabilities and reporting lines in the organisation. Create additional organisational layers only if they add value.

Create an effective reporting and meeting structure

Reduce the number of meetings held. Keep them focused and as short as possible. To improve a meeting’s effectiveness, be clear on what the meeting is for, who has to attend (and who not) and what information needs to be made available for the meeting. Each attendee should have the information that is required to do a good job – no more and no less.

Digitise

Capitalise to the max on the opportunities that intelligent automation provides and optimise the technology landscape. This drives down cost and improves both quality and speed.

Implement decisively

Design a roadmap from the current state to the future state and act decisively. Identify activities, but focus on results. If the activities don’t deliver the planned results, adapt the activities, not the timing of results delivery. Reinforce and develop the employees in their organisational roles – align their accountabilities and the implementation deliverables. The way the implementation is done shapes the mindset and behaviours in the organisation. Be sure this is in line with how the vision is formulated.

Maintain a relentless focus on cash and margin

Identify and deliver immediate operational cost measures to start generating cash. Move continuously from quick wins to more complex opportunities. Stabilise the supply chain, optimise working capital and optimise the supply chain processes. Keep on driving operational efficiency. Address the top line: address product and service offerings in line with your strategy and optimise pricing. Maintain a relentless focus on cash and margin throughout.

Provide oxygen for your growth drivers

Ensure that the growth drivers are well-positioned on the management agenda and the required resources are assigned and protected. Keep on driving their growth towards stretching KPI targets.