Can good companies become good again, and if so how? Or pandemic waves are incurable? This and more are the questions the business fraternity is asking in their close corners. The terrible misery that people globally are enduring as a result is tragic, and nothing good can be said about it. Businesses and even the individual are describing the current downturn as bad news; that is the hardest part of the race.
The World Bank report said that the global economy has experienced 14 global recessions since 1870: in 1876, 1885, 1893, 1908, 1914, 1917-21, 1930-32, 1938, 1945-46, 1975, 1982, 1991, 2009 and 2020. World Bank President, David R. Malpass said, “beyond the staggering economic impacts, the pandemic will also have severe and long-lasting socio-economic impacts that may well weaken long-term growth prospects”. In a meltdown like this the world economic prosperity becomes a problem because the recession is wide, deep, severe and painful while economic fundamentals behaviours (spending, savings, borrowing and investing) will change dramatically and will last for several years.
It is of this reason why Sir Martin Sorrel said “government is the only growth industry in the world right now while businesses are screwed up and others look inept or worse”. For businesses there’s no way to avoid this new normal, they only embrace it, chest it and respond to it. One doesn’t need to be perfect in your responses, just need to be better and faster than your competitors. Booz researchers wrote, “the speed of the downturn may have left people in shock-unable, for the moment, to take the most appropriate action.” Put all together it’s clear now that all players in the economy have been traumatized in ways that will change their attitude and behaviour.
According to Geoff Colvin in his classic book “the upside of the downturn: Ten management strategies to prevail in the recession and thrive in the aftermath” said some businesses and some people will emerge from this downturn stronger and more dominant than when it started. Others will weaken and fade. It all depends on critical choices they make right now. Not only that, he added that even the scariest recession has an upside, is just the matter of how the best managers take smart, practical steps that will not only keep them strong, but will also distance them from the pack for years to come. At time of writing this article, Ghana had received the third phase of easing restriction signaling that businesses are reding out of the storms gradually. This article is to pin-point some of the groundwork for future growth.
Diagnose Your Business Reality
When Jack Welch stepped into his new role as CEO of General Electric (GE) in 1981, Welch understood the challenges his company faced. Welch then diagnosed the business situation and responded by coming up with a new strategy for GE’s businesses. From then on, he announced, all businesses would have to be either number one (1) or number two (2) in their market. Jack Welch’s goal was also to transform GE’s businesses into the best in the world. To get there, he devised another strategy called “Face Reality”. Welch made bold decisions (such as restructuring, acquisition, work-out program and Six sigma quality program) that indicated he was facing reality, adjusting to that reality and moving quickly. To him business leaders who avoid reality are doomed to failure, those who truly face reality can’t stop there. They must adapt their business strategies to reflect that reality and they must do so quickly. “Stick your head in the sand, and your business will stay stuck in the past, face reality, and you may turn a bad situation into a great one,” Welch warmed.
By methodically diagnosing his business reality, Welch was able to turn a bad situation into a great one. As businesses are coming out of storms and preparing groundworks for a takeoff, they must discover which of the following realities is their business: startup challenge, turnaround challenge, realignment challenge or sustaining success challenge. This diagnosis is important because according Michael Walkins “you can’t figure out where to take a new organisation if you do not understand where it has been and how it got where it is.” Matching your strategy to your situation requires careful diagnosis of the business realities and tailoring your strategies accordingly.
Diagnose Your Financial Reality
Changes in your financial reality are probably much more extensive than you realized. To grasp this full, examine how you company’s financial world has change and will shape your performance and viability. In assessing its new financial reality, every company must now ask: what is our access to capital? If it stays like this, how long can we continue? What new sources of capital can we find? If we had to sell assets to raise capital at the worst possible moments, what could we get them? How can we reduce our capital requirements? How can we reduce working capital? Will our cost of capital likely to rise as lenders and investors worry about risk, or fall as central bank cut interest rates? Answering those questions is vital because the answers will paint a picture that’s markedly different from what it was just year ago.
To companies in financial service will have to reexplore the markets for loans and for saving vehicles, because millions of people worldwide are being traumatized by debt obligations that they can’t meet, an experience that may reshape their felling about borrowing for decades into the future. Also, investors will remain spooked by risk for a long time which carries its own unfortunate logic because traumatized investors and lenders will like to keep their capital in ultra-safe vehicles but to the starvation of businesses financial needs.
Play by Your Dominant Strategy
Dominant strategy is a strategy that gives your business the highest payoff regardless of the actions of the opponent or competitor. Your dominant strategy could otherwise mean your strength. Every business has a dominant strategy no matter their size and in the industry they operate. Michael Baye and Jeff Prince asserted that check to see if you have a dominant strategy, if you have one, play it. What can you potentially do better than any competitor or company, and, equally important what can you not do better than any other company? And what you cannot be the best at, why are you doing it at all?
Jim Collins said, “every company would like to best at something, but few actually understand-with piercing insight and egoless clarity-what they actually the potential to be the best at.” A great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection.
Jim further added that the good-to-great companies at their best followed a simple mantra: “anything that does not fit with our Hedgehog Concept, we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint venture. It if doesn’t fit, we don’t do it. Period.” The key point is that every step of diversification and innovation must stayed within the three circles. It’s about identifying what you can be the best at in the world of business. Jeremy Kourdi pinned that in every industry there are several viable positions that a company can occupy, the essence of strategy therefore is to choose the one position that a company will claim as its own.
Evaluate Your Competitive Advantage Stands
The worst conditions bring difference in competitors that were not previously apparent and such determines the winners and losers. In the periods of extreme stress or crisis and challenges are when dramatic competitive change take place. There will be an industry upending shift in the competitive order, the first might become the last and the last might become the first depending on how the table is been turnaround.
Has the recession changed your standing versus competitors? Have some competitors disappeared? Has the recession help or harm your competitive position? How has the economy pit you against companies that you didn’t previously regard as competitors? How has the change required you to play a new competitive game? How has your cost advantage or disadvantage change? How has your talent advantage or disadvantage change? These and more are the question you will like to asked and answer.
Test of Leadership
One great thing about recession is that they offer everyone the opportunity to be stretched in their current jobs. So, in riding out of the storms and laying out the groundwork for future growth, the business environment (the battlefield) will be novel for everyone. This because no manager ever experiences anything like this before and no one will have advantage in knowing how to manage it, surely this becomes a test of leadership.
Since no one has the head start in understanding how to respond, the advantage will go to those who work hardest now to see what is really happening in their business and industry and come up with bold, innovative response for an unprecedented environment. It’s of this reason Reeves and Knell suggest that being a successful leader is less about who you are or what you do than what you know. This includes four pieces of knowledge: where the organisation is heading; what is going on; who they are; and how to build a strong team.
Getting specific in your own mind about exactly which abilities you want to improve, and how, will turbocharge the result. But the main idea is that continually trying things you can’t quite doing is what makes you better, and doing it for a long time is what make you great. This recession is an opportunity that every business leader faces but not every business leader will grab. Every business leader is facing the opportunities that are present, though sometimes concealed, in the global downturn. Only a subset of business leaders will recognise those opportunities and of the few leaders, only some will get past fear and defensiveness and even try to take advantages of the opportunities, and of that group only some will succeed.
Once the global economic growth resumes, a richer world can be good for everybody but the question that is begging for answers is do we have to wait for the recession to end to see the new world that it’s creating to glimpse the next episode in the story.