Step Up or Step Down - Which Strategy for Recession?

The Recession Talk Your Board Should Have is a challenging article in BusinessWeek by Kevin P Coyne - although the original article was aimed at larger businesses, I will paraphrase as best I can and add my own twist.

Along comes a recession and suddenly we ask the questions...

“How can we protect ourselves…? What to cut first…?”

You are probably talking about the wrong stuff.

Surveys taken during the last recession suggest that as many as 70% of boards will not hold the discussions they should be having.

What should you not be talking about
Boards waste their valuable time when they discuss what is euphemistically described as “the operational details of belt-tightening and tactical cost reduction”.

After all, this should all have been discussed at length in developing the current budget.

The board's role should be limited to discussing the key issue:
“How would the shareholders/owners want to balance the two competing objectives of 1) minimizing the hit to profits versus 2) capturing maximum growth?”

So what should you be talking about?
You should be talking about how the company could, in fact, step up its activities and use the recession as a chance to gain position and advantage.

A company has almost twice as much chance to dramatically improve its position in an industry during a recession compared to normal times — and that most (but not all) of the companies that did step up held their gains in subsequent economic recoveries.

How can your board and management determine whether a step-up strategy is right for your company?

You should consider three major questions:
1. Are there truly tangible consequences of missing the next year's earnings forecast by going for growth? Yes/No/Maybe
2. In your industry, do ‘temporary’ gains tend to become permanent? Yes/No/Maybe
3. What is the potential downside if you simply take a defensive posture?

It would take a lot of effort and courage to tailor a step-up strategy to the company's specific situation.

But then again, unthinkingly adopting a strategy of retrenchment would be every bit as hard, unpleasant, and possibly dangerous.

It's important for the board to hold the right discussion, even if the decision ends in favour of retrenchment. And if the decision is to step up, so much the better.


RELEVANT ARTICLE
The Recession Talk Your Board Should Have