Preparing for economic growth and decline
by Jeanne Urich and Dave Hofferberth, SPI Research
The economy is showing signs of life. The stock market has jumped about 50 percent since the market bottom in early 2009. If you’re like most businesses, you have lowered headcount, cut costs and worked harder than ever in your marketing and sales efforts in the past year.
You know that this economy will rebound eventually, but you’re not positive when it will happen and how long it will last. The professional services (PS) sector tends to be made up of long-term optimists with the means to create innovative products and services that will help their clients increase their potential for success — ultimately helping economic conditions improve everywhere.
While it is impossible to determine whether the economy truly reached rock bottom earlier this year and is improving, PS executives should embark on initiatives sooner, rather than later, to prepare for its eventual turnaround.
These are exciting times in the market, but they also contain increased levels of uncertainty. Market leaders will be the first to capitalize on new markets and new services offerings, while laggards will fall further behind and ultimately fail.
Should we pursue things we haven’t done?
Did you want to do some things while the market was down but didn’t do them? Should you do them now?
It seems executives should spend more time planning when the work slows down, but we don’t. Human nature can’t help but dwell on the negative. As we see some light at the end of the proverbial tunnel, it’s a perfect time to do everything we didn’t do during slow times.
Don’t wait because the economy and your competitors are planning diligently for the future, and you should be prepared to out-maneuver them as business improves.
Things to consider
Your to-do list might be extensive, but don’t try and bite off too much. Now is the time to plan, prioritize and perform. From discussions with our peer network, we have pulled together suggestions that might help your organization as the transition to a better economy begins.
We bet you can add more to the list of four action items below.
1. Business planning
For some reason, when the economy tanks, many executives fail to take a hard look at their business plans. Yet, as the economy improves, they find they must rapidly create new business plans based on the new economic reality. Several executives have told us that their organizations create three business plans:
A. Aggressive — The economy will rebound rapidly; therefore, the organization will take additional action to boost headcount and secure the capital necessary to fund new and expanded operations.
B. Most likely — The organization assumes slow but steady growth and manages resources and capital in a conservative way to ensure profitability and long-term viability.
C. Downturn — Perhaps the economy is not rebounding as projected, and the organization must make further cuts to ensure viability until the true recession end is in sight.
No matter whether management dusts off or creates the plan from scratch, they must act with a sense of urgency to get their hands around their plans and budgets for the next several periods. The PS organization can no longer run in a month-to-month mode.
It is also a great time to shed practices that don’t offer long-term strategic value or are ready for retirement. Each recession brings new opportunities but tends to shrink the need for products and services in demand just a few years ago.
Stock your service portfolio with solid investments in the future, and communicate your strategic direction out of the recession throughout the PS ranks.
2. Watch for employee turnover
Over this prolonged recession, very few employees have left a company on a voluntary basis. As the economy picks up, firms target employees for recruitment, or employees decide that it’s the right time to try something new. This increased turnover can disrupt operational processes and negatively impact client satisfaction and profitability.
During this time, PS executives should consider initiatives to maintain a manageable attrition rate. These initiatives could include offering the ability to make additional money, additional vacation time or pay for some type of training that would appeal to the employees.
Regardless of which action executives take, they must seriously manage attrition as the company goes back into growth mode.
3. Cash for clunkers
It’s not just automobiles that need recycling. During periods of economic downturn, smaller services firms (and sometimes larger ones) reach a point where they no longer have sufficient long-term viability.
Now is an excellent time to engage in merger and acquisition (M&A) activity as the industry realigns itself and firms can garner economies of scale as they rapidly grow in size through M&A. This activity can add people, practices and geographic coverage to firms — making them more appealing in the global economy.
4. Make sure your information systems stay in alignment
When economic conditions deteriorate, many PS organizations cut costs across the board. One of the first cuts tends to be new information systems and upgrades. Unfortunately, as the economy improves, this area tends to impede growth if firms do not manage it correctly.
To increase operational excellence, PS organizations must implement projects or upgrades that take advantage of new technologies or business processes soon. Many organizations get behind the curve, and struggle to catch up, which shows up poorly in the bottom line.
Companies in every industry realize the importance of information systems and keeping up with the benefits of greater integration and business intelligence.
Despite whether or not the economy has turned the corner, every PS executive must plan for its eventual turnaround. This time might be different. Economists are split on how soon the rebound will occur, but PS executives who don’t prepare for its eventual recovery will put their organization at a competitive disadvantage. This could lead to failure for the next economic boom.
No one wants to be the first to call an economic bottom, but those who fail to prepare for it will ultimately fail to benefit from it. So now is the time to take that first step toward future success.