Recession proof your business
It is a fact that there is a global recession, which is set to deepen in 2009, and that Malta, given its open economy and external trade links, will, at the very least, register an economic slowdown in the coming months. This economic scenario will have a direct impact on local businesses and their management will need to take certain preventive measures if they are to ride the storm or in some cases just survive.
Here are six practical but effective ways to "recession proof" your business as best you can (the below list is non-exhaustive but a good start):
1. "Cash is King" and more so in a recession. It is a bit of a cliché (and I apologise in advance) but there is plenty of wisdom in this timeless piece of business advice, especially for 2009. You, therefore, need to reward clients that pay on time and focus on your working cash flow rather than market share or sales (accounts receivables). One of the biggest reasons for businesses going belly-up (even in stable economic conditions), is very often a shortage of cash.
2. Take extra care of your customers. This is perhaps best achieved by getting external (independent) professionals to periodically monitor your Customer Service System. Satisfied customers equal loyal customers and during tough business conditions it is crucial that you minimise customer defections since the cost of acquiring new customers to replace the ones you just lost is very expensive. After all, business research shows that a five per cent improvement in customer retention rates can yield a 25 per cent+ increase in profits.
3. Your people (employees) are also King. Take extra care to retain your talent. Talent has become businesses' competitive advantage, so protect it and your company will reap the benefits when the recession bottoms-up. In fact, use the current downtime to enhance the skills of your people i.e. invest in professional development. This may sound like counter-intuitive, especially in a recession, but now is perhaps the best moment when there is enough time and opportunity. Obviously, casting a downturn (or recession) as an opportunity to fine-tune skills is not easy. Various stakeholders' anxieties about the short term need to be assuaged and framed in a long term context.
4. Consider outsourcing non-core business activities and processes. Since this will allow you to focus on your core service (your bread and butter business). This can appear over-simplistic but businesses can haemorrhage a lot of money by not doing this and in times of a recession you can't afford any sort of haemorrhaging.
5. Invest in product and service innovation. Now is an opportune time to reconfigure your customer portfolio by deciding which customer segments to continue investing in, which to divest, and, especially, which emerging customer segments to target. As your competitors slash costs indiscriminately and panic, you can re-boot, refresh and re-think your business model in anticipation of the next upturn. This is not to say that you take your eye off the present, far from it, but rather to take the time to reflect and think in anticipation of future opportunities.
6. Don't panic. History shows that business leaders have a propensity to panic in times of an economic downturn or recession and indiscriminately slash spending and sack employees. But such a "slash-and-burn" response is short-sighted because it fails to distinguish between short-term operational and long-term strategic programmes. Unless, the economic downturn threatens your company's existence (in which case please refer to point three above), executives should focus on rooting out operational slack and inefficiency, not on modifying or sacrificing strategic initiatives, which build capabilities for long-term competitive advantage. In fact, it might pay to tell your CFO to add a new expenditure category to the more traditional CAPEX and OPEX, that being STRATEX (Strategic Expenditure). The idea (promoted by Kaplan & Norton of Harvard Business School) is to continue building capabilities for the future while eliminating the excesses of the past. In other words, remove the fat without slicing into newly growing muscle, bone and tendon!
The economic situation is set to get worse before it improves. In the UK, for instance, the talk of the city (in some circles) is not economic downturn, not even recession but economic depression! I don't think a depression is probable but it is possible.
The point being that a global recession is a reality which will undoubtedly affect Maltese businesses in 2009 and they would do well by taking the above six points onboard.
Mr Fenech is a partner consultant with Fenci Consulting.
Here are six practical but effective ways to "recession proof" your business as best you can (the below list is non-exhaustive but a good start):
1. "Cash is King" and more so in a recession. It is a bit of a cliché (and I apologise in advance) but there is plenty of wisdom in this timeless piece of business advice, especially for 2009. You, therefore, need to reward clients that pay on time and focus on your working cash flow rather than market share or sales (accounts receivables). One of the biggest reasons for businesses going belly-up (even in stable economic conditions), is very often a shortage of cash.
2. Take extra care of your customers. This is perhaps best achieved by getting external (independent) professionals to periodically monitor your Customer Service System. Satisfied customers equal loyal customers and during tough business conditions it is crucial that you minimise customer defections since the cost of acquiring new customers to replace the ones you just lost is very expensive. After all, business research shows that a five per cent improvement in customer retention rates can yield a 25 per cent+ increase in profits.
3. Your people (employees) are also King. Take extra care to retain your talent. Talent has become businesses' competitive advantage, so protect it and your company will reap the benefits when the recession bottoms-up. In fact, use the current downtime to enhance the skills of your people i.e. invest in professional development. This may sound like counter-intuitive, especially in a recession, but now is perhaps the best moment when there is enough time and opportunity. Obviously, casting a downturn (or recession) as an opportunity to fine-tune skills is not easy. Various stakeholders' anxieties about the short term need to be assuaged and framed in a long term context.
4. Consider outsourcing non-core business activities and processes. Since this will allow you to focus on your core service (your bread and butter business). This can appear over-simplistic but businesses can haemorrhage a lot of money by not doing this and in times of a recession you can't afford any sort of haemorrhaging.
5. Invest in product and service innovation. Now is an opportune time to reconfigure your customer portfolio by deciding which customer segments to continue investing in, which to divest, and, especially, which emerging customer segments to target. As your competitors slash costs indiscriminately and panic, you can re-boot, refresh and re-think your business model in anticipation of the next upturn. This is not to say that you take your eye off the present, far from it, but rather to take the time to reflect and think in anticipation of future opportunities.
6. Don't panic. History shows that business leaders have a propensity to panic in times of an economic downturn or recession and indiscriminately slash spending and sack employees. But such a "slash-and-burn" response is short-sighted because it fails to distinguish between short-term operational and long-term strategic programmes. Unless, the economic downturn threatens your company's existence (in which case please refer to point three above), executives should focus on rooting out operational slack and inefficiency, not on modifying or sacrificing strategic initiatives, which build capabilities for long-term competitive advantage. In fact, it might pay to tell your CFO to add a new expenditure category to the more traditional CAPEX and OPEX, that being STRATEX (Strategic Expenditure). The idea (promoted by Kaplan & Norton of Harvard Business School) is to continue building capabilities for the future while eliminating the excesses of the past. In other words, remove the fat without slicing into newly growing muscle, bone and tendon!
The economic situation is set to get worse before it improves. In the UK, for instance, the talk of the city (in some circles) is not economic downturn, not even recession but economic depression! I don't think a depression is probable but it is possible.
The point being that a global recession is a reality which will undoubtedly affect Maltese businesses in 2009 and they would do well by taking the above six points onboard.
Mr Fenech is a partner consultant with Fenci Consulting.
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