During a period of crisis, like a recession, many organizations are unsure about the course to take. Because every crisis can be both a threat and an opportunity, organizations feel indecisive about the strategy which will best guide them to the crisis period and – hopefully – will help them to come out on top.
In general organizations always have to, in both good times and bad times, monitor their costs and profitability and manage their cash flow. Therefore High Performance Organizations watch their financials since this is basic sound business strategy. Companies that have no cost awareness will lose sight of their costs which inevitably weakens their financial position. At the same time organizations have to continually monitor their profitability to avoid the real threat of non-profitable growth. In recent years there have been numerous examples of structurally-healthy companies that grew themselves to death.
So the key question is: what courses of actions are there, besides cost control and profit monitoring, for an organization during difficult times? A review of the activities organizations have undertaken during past crises reveals that there are six courses of action that companies can adopt in times of crisis.
The first three courses of action are defensive, where the primary objective of the organization is to survive:
- Focus on cost reduction. When the financial situation of the organization is in a dire state, reducing the company’s complexity, streamlining processes, postponing investments, reducing stock levels, cutting back on travel and accommodation expenses and refraining from extensions of temporary employment contracts can achieve a significant decrease in the costs and increase the financial capacity of the organization fast.
- Focus on core operations. By investing solely in the company’s core operations whilst at the same time divesting the non-core operations that distract management, the organization can exclusively focus on improving and strengthening these operations, thus increase its capacity to serve specific clients well.
- Downsize. Divesting the organization’s marginally profitable and loss-making operations increases financial capacity and creates more scope for investments in the core operations and more promising ventures.
The other three courses of action are offensive, where the intention of the company is to benefit from a crisis by growing profitably and becoming market leader:
- Strengthen the internal organization. Improving the quality of management and staff, improving the primary and supporting processes, and devoting more attention to innovation and renewal enhances the internal organization and improves the organization’s ability to deal with changed circumstances and profit from them.
- Focus on increasing turnover and margin. Streamlining the sales process, paying more attention to pricing, focusing on a smaller and higher-quality product range, and strengthening relations with customers, increases turnover and the margin.
- Exploit opportunities. The period in which many competitors are occupied with defensive measures offers an ideal opportunity to undertake activities that will enhance the organization’s position in the market, such as launching new products and services, taking over companies, entering into partnerships that enhance core operations, and recruiting excellent staff currently employed by the competition.
So, which courses of actions apply to your organization? Let me know and share your thoughts!
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