KEY POINTS:
Twice as many companies made the leap from laggards to leaders during the last recession as during the surrounding periods of economic calm, according to research by global management consulting company Bain & Co back in 2002. Recessions, said the company, "shuffle the deck" more than boom times
do.
The Bain study found more than a fifth of companies in the bottom quartile in their industries jumped to the top quartile during the last recession.
More recently, Darrell Rigby, head of Bain's global retail practice and Steve Ellis, Bain's worldwide managing director, wrote: "The tumultuous events of the past few weeks have battered financial markets and created uncertainty that companies will be reckoning with for months. But in the turbulence lies opportunity.
"Like dangerous curves on a racetrack, economic downturns create more opportunities for companies to move from the middle of the pack into leadership positions than any other time in business.
"Unlike straightaways, where leaders can thrive on raw power alone, steep curves require strategic finesse. That often results in dramatic differences in performance as leaders steer out of the curve."
Another characteristic of companies that do well from a downturn, say the two Bain executives, is: "They make bargain acquisitions to build up their core, even when it means taking calculated financial risks. As markets improve, they are well-positioned to accelerate." The latest example: Bank of America's planned acquisition of Merrill Lynch, which may turn out to be "the strategic opportunity of a lifetime," says Ken Lewis, Bank of America's CEO.
An important step for management to take when every day brings more bad news is to maintain a collegial atmosphere where bright ideas are encouraged and fostered in the workplace.
In town this month to celebrate online travel agency expedia.co.nz's first year in operation, Arthur Hoffman, managing director of Expedia Asia Pacific, said: "We believe in giving people empowerment to feel real ownership of their work. We encourage staff to voice and come up with creative ideas."
Expedia.co.nz regularly publishes polls for its customers on travel issues. The company's latest bright idea in New Zealand is the Expedia Price Promise, a price matching scheme that promises customers that if they find a better price for a booking, they will beat the price by $1 and give them a $50 coupon to use for their next booking.
According to the PriceWaterhouseCoopers Clever Companies Insight 2008 survey: "Clever companies take advantage of the renewed workforce commitment that follows a downturn - now is the time to invest in your talent and evaluate whether or not you have the right people in the right roles."
Sitting behind closed doors feverishly going through figures, looking grim and growling at anyone who comes near you, is only going to make staff nervous that the company is doomed and you are contemplating redundancies. They'll start dusting off CVs rather than spending time working on solutions for the company.
It is human nature to be introverted in bad times but it's "counterproductive", says PriceWaterhouseCoopers director Tim White.
"If companies are feeling the pinch they won't talk to their bankers in case the banker sees something that they are uncomfortable with, or they'll avoid seeing suppliers if they are struggling to make a payment," he says.
"If the leadership don't have good internal communication, that void is always filled with something. Rumours can often start from the absence of good communication," says White.
Owners of companies would do well to motivate staff and give them inspiration to come up with solutions, by talking about succession with their management. Knowing their involvement with the company will be long term will help people try to help the company more. Nearly half of senior managers in privately owned companies would like a shareholding or additional shares in their companies, the Clever Companies survey found.
In a slowed economy, finding new markets may not be the most practical or creative idea because that takes money and resources. But good ideas which can make an immediate difference can come from everyone in the firm in the way that Expedia does it, says White. These solutions can be huge, he says.
Acquisition is another route. If you have a healthy balance sheet there is more merger and acquisition activity in a downturn, says White. And with improved economies of scale and pricing advantages from being a larger company, you can emerge a far stronger company.
As one who has already been through a recession last year, InFact's managing director Nigel Sharplin has some tips.
InFact, which was the designer of the award-winning Metro pay and display parking meters (Text-A-Park) for Cash Handling Systems, is happy to listen to staff who offer new ideas for products or services. But they have to be ready for some tough questions.
"If you want to call a meeting to talk about your idea, then you have to define the value proposition; you have some numbers on it and be prepared to have others drill it from different angles."
If it passes the first round of discussion and somebody is prepared to put in the effort of validating it commercially and it still sticks, the company will then look to other organisations to partner with. Why? Because there's risk involved and in a recession there are not going to be the resources internally. "If you bring in an investor or organisation, then you learn a whole lot more about what they know," says Sharplin.
Gill South is a freelance business writer based in Auckland
