Kaizen EduplusSociety’s

Institute of Excellence in Management Science

Hubli

Students Conference on

“Innovating Management Strategies in

Times of Economic Downturn”

Author,

Ravi.G.Chatni
ravi.slayers@gmail.com
Mob no:- 9916313676
 Introduction

Meaning

A downturn is a worsening of business or economic activity.

It may be related to a decline in a stock market, economic cycle, or
corporate profits. A downturn may refer to a market, industry or
corporation, but generally it refers to a economic conditions at large.

Recession

As a rule of thumb, a recession is the fall of a nation’s GDP over two or more consecutive
quarters. A recession is also referred to as a period of economic decline and reduced economic
activity. Factors that may cause a recession include overproduction, decreased demand, falling
consumer and business confidence and major economic imbalances, among others.

Sectors Affected Sectors Not Affected

1. BPO/ Outsourced services  Education
2. Software export.  Health care
3. Private Banks  Basic food
4. Financial intermediaries.  Railways.
5. Real estate  Government / PSU institutions.
6. Organized retail  Telecom.
7. Advertising.  High end luxury products.
8. Media  Open source software
9. Hardware and solutions  M&A consultants
10. Airlines & tourism.  Businesses around faith and God.
11. Low end luxury goods.  Online advertising.

Problems faced during Downturn

• leading to lower Real GDP and Lower average incomes. Wages tend to rise much more
slowly or not at all.
• Unemployment. The biggest problem of a recession is a rise in cyclical unemployment.
Because firms produce less, they demand less workers leading to a rise in unemployment
 • Bigger government deficit. In a recession, government finances tend to deteriorate. People
pay less taxes because of higher unemployment and they need to spend more on
unemployment benefits.
• Devaluation in exchange rate. Exchange rates tend to devalue in a recession because people
expect lower interest rates and so there is less demand for the currency.
• Hysteresis. Unemployment and lower growth tend s to create future problems and they are
hard to solve
• Falling asset prices. e.g. lower house prices are occuring in US. This is particularly a problem
because the main cause of current downturn is problems in the housing market and mortgage
market
• Falling share prices. Lower profits lead to lower levels of share prices.
• Falling consumer confidence
• Social problems related to rising unemployment

As Warren Buffet said, organizations “have to be fearful when others are greedy and
greedy when others are fearful.”

Economic downturn or economic crisis is the ideal time for organizations to invest in
innovations and new technological trends. ‘Crisis’ literally means a “turning point.” This global
economic crisis is in fact, a ‘turning point’ for businesses worldwide to steer their organizational
ship in a different direction and chart new, unexplored paths. In an economic downturn, smart
companies will do different things, and also do things differently. During tough times, most
companies may stifle the innovation culture, but successful companies adopt a ‘different’ approach.
They view downturn as the best time to leverage their leads and make acquisitions. For instance,
Ryanair bought a fleet of jets during an aviation downturn. Similarly, Apple Computers
demonstrated to the world that it can innovate during downturn too, when it launched its iPod at the
end of the downturn in 2002. Likewise, in 2003, when the Dow was at historical lows over a 10-year
period, Apple continued to invest in R&D. Apple has a long history of remaining relevant during the
most difficult of times because it has always chosen to innovate through recession. Today, Apple’s
products and revenues are enviable.
 During a recession, several organizations grow. After a recession, some organizations grow
faster than the competition. This is more likely if they have new products that fit customer needs
better, engage people who creatively collaborate, an absence of unhelpful assumptions, and a
streamlined business.

Innovating Management Strategies during downturn

 Eliminate waste: It means utilizing available resources in

more efficient manner without any wastage. In this
situation all the 4M’s has to be used in the proper manner.
Even the micro level wastage has to be eliminated.
 Diversifications & Acquisitions: Downturn offers great
opportunities for acquisitions, as many companies become
vulnerable to cost and performance pressure and sell them.
It is a wise investment for companies that have the cash to
buy out the companies that are available.

In tough times, you better be easy to find

 Acquire the best talent: Recession offers an opportunity for companies to poach talented
individuals into their organization, who can create enormous value.
 Related Diversification: Companies can perform well by exploring various possibilities in
related industries that are not very capital-intensive. Successful companies often stretch
beyond their existing line of business to other related businesses that offers great sales and
revenue potential. For instance, IBM moved from conventional hardware into IT services.
 Collaboration with customer for enhanced value proposition: The winners of recession
reached out to their customers to understand their challenges more closely and gathered
information on the precise customer needs. This enabled them to gain critical customer
insights and create new products and services uniquely suited to the customer requirements
during the downturn.
 Pricing for Profitability: The winning companies ensured that they were in a profitable cost
position during upturn, and used their pricing flexibility to garner market share in a
downturn. Moreover, during downturn, winning companies refused bad businesses, while
losing companies accepted them. In a bid to hold on to their current market share, the losing
companies accepted unprofitable sales during downturn.
 Be clear on strategic objectives: The organization should have a crystal-clear idea of their
strategic objectives. Tough decisions such as choosing between high shareholder returns or
sustaining existing profit margins will have to be made. The management should be clear and
align its objectives with the strategic objectives of the organization.
 Understand brand, price, and competition well: The organization must thoroughly
understand their brand, and its ability to charge a price premium, and the competition it
confronts. The following 2x2 matrix can help the organization in taking a wise decision:

Value Brand Offering Premiun Brand Offering

Non-Competitive Environment Strengthen Franchise Widen/Build Your Category
Offer Great
Competitive Environment Build The Brand
Deals/Discounts
 Re-evaluate and re-adjust marketing strategies: The organization should rethink on their
marketing strategies in the light of the downturn and changed competitive environment, and
adapt them accordingly. Economic downturn should be viewed as an opportunity to create
new brand and market strategies. Previously under-developed markets should be identified
and the plans should be executed with greater focus. New customer segments created by the
emotional needs during a downturn should be identified and targeted with customized
offerings. The customers of your weak competitors should be targeted, even as you create a
differentiation in your offering. New products, features, and benefits should be introduced by
exploiting emerging technologies.

McKinsey discovered that “strategic flexibility” – that comprised the following three factors

 Financial Flexibility: Organizations that emerged on top during the downturn had
anticipated the downturn, and ensured that they had more cash in hand and minimum debt.
This gave the organizations the flexibility to leverage the benefits of balance sheet. The debt-
to-equity ratios of the post-downturn industry leaders were half compared to the
organizations which were industry leaders before downturn. Lessons learned: Ensure that
debt levels are low and explore ways of raising finance internally within the organization.
 Operating Flexibility: Anticipate downturn and focus on cost-reduction while keeping the
long-term growth of the organization in mind. There should be focused advertising and
marketing, targeting customers with high sales potential during downturn.
 Diverse Product Offerings: Successful organizations expanded their ability to serve
customers in terms of diverse product offerings and wider geographic presence. Explore
ways of expanding geographically and target market segments/customer groups that have the
highest spending capacity/potential.
 Innovative products:
 Go rural:
 Joint ventures: Strategic alliances and joint venture partnerships enable an organization to
expand its customer base with minimum expenditure. Focus should be on marketing what is
most popular and profitable to the customers during downturn.
 Over utilization of human resources:
 Know your costs.
 Concentrate on the core parts of your business.
 Maximize or create key relationships.
 Stick to your strategic planning goals.
 Increasingly invest in cost effective online marketing strategies.
 Focus on quality – not quantity of marketing programs.
 Maintain CRM

Conclusion

We don’t think that this downturn is that match affected to India hence the affected downturn can
be converted into opportunity by using Management Strategies.