Inflation has been a hot-button topic in the post-pandemic workplace. According to the Bureau of Labor Statistics, inflation—as estimated by the Consumer Price Index—is currently at an 8% increase from 12 months prior (2022). This heightened rate of inflation, paired with war, supply chain challenges, hiring challenges, and the effects that inflation has on customer buying power has served as a warning sign of an upcoming recession. As discussed in Episode #1083 of the Arete Coach Podcast, “Surviving Economic Tsunamis,” the best businesses are those that look ahead, prepare, and plan for potential challenges.
In light of recent news and trending topics, this insight reviews Winning in Turbulence by Darrell Rigby—a book published during The Great Recession of 2007-2009 (Investopedia, 2022) which examines 9 strategies business leaders can use during seasons of economic downturn to not only survive, but thrive.
Strategy 1: Gain clarity
Quick takeaways
Identify the current and future core areas of income for your business. Strengthen those areas and cut back on other non-tangential areas.
Make your core “repeatable” and “adaptable.”
Deep dive
During seasons of economic downturn, business leaders must, “know exactly where [they] will compete, how [they] plan to win, and how [they] will mobilize the organization to implement the strategy.” This begins with acknowledging that clarity is key. It is essential for business leaders to identify the core areas, services, and products that have the most profitability within their organization. According to Rigby, when leaders concentrate on a “company’s core business dramatically improves the odds of success in a downturn.” Rigby recommends asking two questions to help clarify the core of a business: “Who are the customers that we love the most and that love us the most?” and “What unique advantages do we have?” After clarifying the core of a business, Rigby recommends strengthening the core of the business. He explains that “sometimes the best way to strengthen the core is to refocus it, selling off businesses that are less closely related so the company can grow around a more tightly defined core” (Rigby, 2009).
Strategy 2: Encourage “customer loyalty” and advocacy
Quick takeaways
“The negative effects of lost customer trust can be deep and long-lasting,” but “loyal customers cost less to serve.”
Identify your most loyal customers and focus on nurturing them. Only cut costs with strategy, and continue innovating.
Deep dive
The second strategy to win in seasons of economic difficulty is by “protecting and growing customer loyalty.” All recessions come to an end, but without customers, a business cannot survive in general. Businesses that thrive during an economic downturn invest in customer relationships strategically by identifying their most loyal customers, those that “when you design products and services for them, they say: this is absolutely perfect for me.” These customers promote your business to others. By focusing on the needs and what matters most to this group of customers, business leaders increase their ability to withstand economic downturns “both now and in the long term” (Rigby, 2009).
Strategy 3: Build inner strength for external challenges
Quick takeaways
Internal strength is key for skilled responses to external challenges
“None should be satisfied with the status quo.”
“Strengthening the organization is one of the most powerful levers any company can pull to improve its performance in a downturn.”
Deep dive
When external challenges like recession challenge business leaders, an internal organizational response is required. Rigby explains that the internal strength of an organization is “one of the most powerful levers any company can pull to improve its performance in a downturn.” To examine and build an organization’s internal strength, Rigby recommends 5 strategic steps:
1: Identify “crucial decisions” such as those that affect “your ability to stay in business” such as “cost reduction, cash management, and pricing.”
2: Have an “effective system” to make those decisions. What does your decision-making process look like within your organization? Is valuable time lost in the decision-making process?
3: Clarify “roles and processes.” Once your system to make decisions is identified, people must “know who’s responsible for making and executing critical decisions.” Who in your organization is responsible for recommending, agreeing, performing, and making final judgments on critical decisions?
4: “Putting the right people in the right roles.” While some companies cut costs by conducting necessary layoffs, it is important to also consider what talent is currently within the organization and not being used effectively. Are “top-performers” in “critical roles” or are their talents being wasted in less critical areas?
5: “Actively Managing the culture.” According to Rigby “in acute downturn, leaders need to take deliberate action to keep a strong culture from deteriorating” and to avoid “a culture that gets in the way of good decisions” (Rigby, 2009).
Strategy 4: “Manage complexity”
Quick takeaways
Complexity costs money and time.
“Focus only on the products that are most important” to your customers, “saving the costs of unwanted production and boosting the margins of best sellers.”
Deep dive
Avoid unnecessary complexity that slows down your business. Unnecessary complexity can be multiple products, options for customers, projects, or services. Rigby states that “managing complexity brings significant benefits in a relatively short time.” However, “the key is not to eliminate complexity but to balance its benefits with its costs.” Innovation is still a valuable form of business in an economic downturn, but the benefits should be weighed against the costs of innovation in the short and long term. Rigby shares three types of complexity that business leaders should consider managing:
“Product Complexity”: Too many options that customers don’t value or need
“Organizational Complexity”: Too many people or unclear decision-making processes
“Process Complexity”: Too much waste of time or material (Rigby, 2009).
Strategy 5: Examine general and administration needs
Quick takeaways
General and administration departments should be examined by comparing the costs in time and money versus the benefits of these departments.
“A combination of reduction, redesign, and restructuring can save about 20% of G&A costs.”
Deep dive
General support and administration are vital resources for business success. However, these departments tend to grow in seasons of economic prosperity and can waste business funds in seasons of economic downturn. Rigby explains that “in a downturn, it becomes painfully apparent that some incremental support services don’t contribute enough to sales or earnings. While these departments are still a necessity, business leaders can “reduce” support functions to the necessities, “redesign” the “processes that deliver support services” (for example automation), and “restructuring” to “perform most effectively at the lowest cost” (Rigby, 2009).
Strategy 6: Focus on “cash flow”
Quick takeaways
“Knowing your altitude in terms of financial strength and flexibility is crucial.”
Businesses with low cash flow “need to focus on defensive actions” while “healthy companies with cash reserves… have more strategic options”
Deep dive
The cash flow of a company is the lifeblood of a company. Rigby calls business leaders to focus on their “cash flow and liquidity analysis” to determine which actions to best take in their business. Wise business leaders can run model scenarios to analyze the short-term and long-term success of their businesses. According to Rigby, “tracking cash flow weekly for the short term and monthly for the longer term” can provide “a deep understanding” of a business's financial performance and allow the “company to envision the kind of fix it would need to implement when business tightened.” Gaining a perspective of the long-term and short-term effects of an economic downturn, “can help companies gain an integrated perspective on how operations affect the balance sheet” (Rigby, 2009).
Strategy 7: “Turbocharge sales”
Quick takeaway
“When business conditions are harsh, you need every dollar of revenue you can find.”
Deep dive
Maximizing sales is the seventh strategy recommended by Rigby to win during seasons of economic downturn. He recommends the TOPSales method outlined below:
T- “Targeted Offerings.” Identify your “best customers” and who your best customers “should be” to take advantage of and “steal share from a distracted competitor”
O- “Optimized Tools and Procedures.” Ensure that your sales managers and reps are optimizing their tools to best sell to your targeted best customers. By “screening” which sales areas fit with the company's “targeted offerings,” “supporting” sales reps facing a “more consultative selling process,” and “tracking prospective sales,” are all ways that businesses can ensure sales are optimized.
P- “Performance Management.” Reevaluate the territories covered by sales reps and managers with current data and compare it to the best customer base.
Sales- “Resource Development.” Maximize the time reps can spend in front of customers” and “keep overall sales costs under tight control.” Place your best sales reps in the hottest markets for your business (Rigby, 2009).
Strategy 8: Price with the long-term in mind
Quick takeaways
“Promotional price cuts are sometimes called ‘management heroin’. Price cuts are addictive.”
“What matters most is how effectively companies manage pricing”
Deep dive
Rigby warns that while many companies “do need to lower prices in a downturn,” hacking at prices alone is not an effective strategy for winning in times of turbulence. While companies “have to act quickly,” they should create a “pricing strategy,” “set prices on individual products to reflect value to both buyer and seller,” and have “disciplined tactics to manage the aspects of the transaction that most affect profitability.” Effective pricing includes examining what sales and discounts “really work and which waste money,” cracking down on “uncontrolled discounting” by sales reps, re-examining the needs and mindset of customers, and pricing with long-term sales in mind (Rigby, 2009).
Strategy 9: See “acquisitions and partnerships” as opportunities
Quick takeaways
“Recessions present rare opportunities to improve their competitive positions through acquisitions and partnerships.”
“Don’t use deals to reshape your company’s competitive foundation. Use them instead to strengthen it, to do what you do better.”
Deep dive
According to Rigby, “acquisitions completed” during the recession from 2001-2002 “generated almost triple the excess returns of acquisitions made during the preceding boom.” During seasons of economic downturn, businesses can use acquisitions and partnerships to “help executive” their predetermined “strategy.” Before entering an acquisition or partnership, it's important for businesses to have an “investment thesis” outlining why “a proposed transaction will strengthen” the company because “deals are riskier and harder to pull off” during seasons of economic downturn. Rigby also recommends creating a “reacting” “acquisition team” that develops ideas and leads ahead of the competition (Rigby, 2009).
Main takeaway
While seasons of recession can breed ominous headlines and news articles, it is important for business leaders to recognize that within these seasons, great opportunities lay for advancement, optimization, and customer acquisition. By re-evaluating your business model, gaining a better understanding of your most valuable customers, strengthening your business, managing complexity, reevaluating support needs, gaining a better understanding of cash flow, supporting sales, pricing with strategy, and engaging in acquisitions, business leaders can “win” in “turbulent economic times” (Rigby, 2009).
For more insights about today’s economy, we encourage you to review the following:
Our EconPulse page which provides a snapshot of the current state of the economy
References
Bureau of Labor Statistics. (2022, July). Table 5. Chained Consumer Price Index for All Urban Consumers (C-CPI-U) and the Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, all items index - 2022 M07 Results. U.S. Bureau of Labor Statistics. https://www.bls.gov/news.release/cpi.t05.htm.
Investopedia. (2022, May 26). A Look Into the Great Recession. https://www.investopedia.com/terms/g/great-recession.asp.
Rigby, D. (2009). Winning in Turbulence (Memo to the CEO) (Illustrated ed.). Harvard Business Review Press.
Copyright © 2022 by Arete Coach LLC. All rights reserved.