Sailing round the storm

The silver lining in the current downturn, if one can find it, lies in the ruthless way in which the outgoing economic tide has exposed all the frailties and falsities inside an organisation.

What can be seen can be fixed, provided management has enough resources left to throw at the task. There are also, of course, the opportunities for cut-price acquisitions that every prolonged downturn throws up.

By highlighting weaknesses in both strategies and processes, the credit crunch has given management a chance to get ship shape and to adjust to new realities. Managing through the downturn, in other words, should be about far more than battening down the hatches and sitting on one’s hands, waiting for the squalls to pass. Plot the right course to take advantage of the trade winds.

Steve Bottomley, head of commercial lending at HSBC, for example, makes the point that with the European Commission forecasting that the UK, Germany and Spain are all likely to slide into recession in 2008, companies that want to generate profits through the downturn need to be looking to exploit markets outside the eurozone.

This kind of thinking shows the advantage of avoiding a “slash-and-burn” mindset where the focus is purely on cutting expenditure to the bone and the idea of investing substantially in new markets becomes difficult to conceive of and nigh-on impossible to execute.

It will surprise some to discover that a large number of companies are, indeed, considering growth strategies in the depths of the downturn. According to a survey of 5,300 UK businesses carried out by HSBC and published in a report entitled Business without Boundaries, around 80% of UK companies plan to grow over the next 12 months, despite concerns over the economic climate.

Almost half of those surveyed said they expected this growth to come from trading internationally and around 8% of the sample, who were not already trading abroad, said they intended to start doing business internationally within the next six to 12 months.

“It makes perfect sense to look abroad if your own economy is slowing,” says HSBC’s Bottomley. “If you harness yourself to one economy and it takes a dip you are in deep trouble.” Bottomley points out that the emerging economies might have slowed slightly as a result of the global crunch, but they are still posting very reasonable growth figures (India 5%, China 9%) at a time when developed economies are stagnant or going backwards.

Keep hiring, keep acquiring
Staff issues are, of course, right to the fore in any recession. Clive Wright, a principal with HR and reward consultants Mercer, says that the first instinct of management when the economy really dives is to take a scythe to the staff base and forget the longer-term view.

“The proxy for cost becomes the headcount and that is all that counts. The professional answer, however, is that this is precisely when management needs to review where the business is going and what you expect to happen either to generate present growth or to cope with future growth when things pick up,” he says.

In his view, the downturn should be seen as a kind of corporate gymnasium, where companies can shed the fat and get fit again. “During the good times, as an American friend of mine used to say, companies get fat, dumb and happy. In a recession, the really good management teams take the pain, just like everyone else. But they manage efficiencies and look to position themselves to take advantage of any forward momentum they can generate,” he says.

What this comes down to in practice is that you do not do a knee-jerk withdrawal of all funds for training. Instead, you cut non-essential training and really focus your training budget on where it is going to generate the maximum returns. You don’t cease recruiting. You get much more selective and you try to find places for your competitors’ best people. If that means finding wo rk for them, such as getting them started on projects to enter new markets, then you do that.

“There is no generic map that fits every business here. The key, however, is to avoid panic. The HR director and the finance director need to work together to develop the business for the future,” Wright says.