Face downturn head-on

The late Ronald Reagan, the 41st president of the United States, once said that ‘a recession is when your neighbour loses his job and a depression is when you lose your job”.

Whether it is a recession or a depression, what is assured is that it is an economic downturn. There are some basic tenets that business leaders should understand to be able to lead their organisations through an economic downturn.

The first thing any business leader should be aware of is to know when it is really an economic downturn and to accept the fact that things could go from bad to worse. It is the time to conceive, plan and implement your strategies to save and lead your business through the downturn.

According to Harvey Firestone, founder of the Firestone Tire and Rubber Company, ‘a business won’t stand still and wait while you dally around, wondering what to do”. It is important to act urgently and call your management team together and be upfront with them about the challenges facing the organisation.

This is an opportunity to calm their fears and to seek suggestions for how the organisation can survive the downturn. Remind staff that you are all in the same boat and it is important that you row in the same direction.

It should also be made clear to them that the organisation might need them to work longer hours for less, if need be. They must in turn cascade the message down to their respective departments.

In an economic downturn, when demand falls, productivity would have to be cut, which affects the total income flow to the business. A leader will have to make serious cost cuts and that may mean that some employees will have to be placed on short time or let go. This is one of the tough decisions that leaders have to make in an economic downturn, as the impact goes beyond the individual employee. It is also a time to cut budgets.

Some business leaders should opt for zero-based budgets as it eliminates the entitlement mentality. This means every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases. But zero-based budgets also force the reprioritisation of spending by the different portfolios in the organisation.

Profligacy should be a thing of the past because most or all perks must be rationalised. This is also the time to look for cost-effective ways to produce and market goods and services.

Another important pointer business leaders should note in a downturn is, more than ever, to cultivate their customers with increased vigour. It is cheaper to keep the customer you have than to acquire a new one. Loyalty programmes can contribute towards keeping old customers and winning new ones.

Remember that the customer is king; treat them well and they will reward you with loyalty. Eventually all recessions will come to an end and it is those leaders who prepared adequately and weathered the downturn that will benefit during the upturn.

According to the late Indira Gandhi, a former Indian prime minister, ‘they must be wrested and worked for and this calls for perseverance and tenacity, determination and courage”. This is because tough times don’t last, but tough people do.

Professor David Abdulai is executive director and chief executive of the Unisa Graduate School of Business Leadership

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