2023 has almost arrived, and the rolling evidence of a recession arrived with it. Economic downturn demands resilience from business leaders. They are on a critical mission to survive the recession and thrive afterward.
Recession brings diverse terms to diverse groups of businesses.
- There is a group of businesses that thrive in a recession, such as healthcare providers, financial advisors, and grocery stores, to name a few. These businesses experience relatively steady demand for products and services and have strong balance sheets with much cash.
- Another group of companies is prone to a slowing economy. These companies have more complicated supply chains, smaller market shares due to new competitors, and thinner margins due to inflation. These companies need to regulate their businesses by alteration, abolition, and innovation.
A group of companies is in worse shape and needs to fight to survive a recession. These companies have balance sheets loaded with debt, low cash reserves, and potentially high exposure to outside economic factors.
How do leaders manage their organizations during a recession?
According to McKinsey’s research on businesses during the Great Recession, companies managed their businesses differently achieving different results. The most important task for companies in an economically restrained environment is to build resistance, reduce costs, and create value.
Here are the strategic measures for business leaders to consider:
- Short-term actions
Before implementing long-term reforms, many companies make short-term moves, including pricing adjustments and operating expenses revision. These short-term actions can help many companies immediately correct their cash flow and gain the time necessary for the long-term reforms to kick in.
- Growth for longer terms
Growth is always a top priority for leaders. In a slowing economy, companies may adjust their business portfolios to capture larger shares of segments with major growth potential and divest underperforming parts of the organization. To successfully adapt to new business segments, they need to improve the quality of their products and services, reduce the cost of production and increase productivity.
- Adaption to the changing market
Savvy leaders keep an eye on opportunities that come up with the recession. They are in tune with their clients by getting feedback and improving or adding services where they see needs arising. Leaders pay attention to competitors. If competitors leave the market, they are aware of it and are prepared to utilize their space and talents. This proactive leadership promotes a position of strength.
- Reinforcement of the workforce
Rapidly changing economies force corporate CEOs to focus on people, not just shareholders, according to Allan Murray’s book Tomorrow’s Capitalist. To reinforce their workforce, corporations are establishing new principles benefiting employees. At the same time, leaders of smaller organizations are swiftly adapting to the current economy. They are taking creative approaches to build their workforces, such as a professional transition with training in skills that are hard for companies to find, employment of people with fewer skills but eager to learn, and development of meaningful rewards for their people.
- Value creation through innovation
Innovation is one of the last remaining sources of trend-breaking growth. Wise leaders encourage and empower their team members to be part of value creation through the innovation process. They are embracing innovation by identifying the unmet needs of current and future customers and generating new sources of revenue. According to a Deloitte survey, organizations that think creatively and embrace innovation will succeed during adverse times.
Recessions are defined simply as two consecutive quarters of decline in gross domestic product. This has happened many times in our history. Many pro-service leaders have lived through one or more recessions. Those who take bold action during a decline are most likely to survive it and propel forward when recovery comes. And it always comes.
Whether or not you feel confident, confidence is exactly what you need to exude during a downturn. Because each of your employees will reflect your strengths or weaknesses, it was your choice to lead this business. So stay tall, keep your head up and lead with confidence.
Written by Olga Artemenko.
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