Preparing for an Economic Downturn

In an article I wrote about writing your company’s chapter on 2016, I asked if your view was optimistic or pessimistic. The first couple of weeks of 2016 should have reigned in all of the optimists, unless you are one of the lucky few who have a business that is absolutely bullet proof, or you have completely forgotten what an economic downturn is like.It is already here. All of the companies and countries whose fortunes are tied to oil have cut back their capital spending by as much as 80%. In the United States alone, that amounts to over $90 billion in reduced spending in 2015 and the worst isn’t over. Middle Eastern companies have reduced their spending by similar amounts. Not included in that isthe wages of the 200,000+ people who have lost their jobs worldwide. Those two figures should be very sobering if you take into account the impact on demand that is having in businesses worldwide. You might be tempted to say that your business isn’t tied to the oil sector and that an economic downturn isn’t coming, but be careful about making that assumption. This loss of demand impacts every type of business in manufacturing and services. Look at the impact it is having on the stock markets. This will also significantly impact consumer sentiment which is a precursor to lower demand and unpredictable swings in demand. If you haven’t seen a decrease in demand for your business, you will and you should be preparing for it. Preparation doesn’t imply a slash and burn program but one that is more thoughtful. The types of things that companies should be looking at as part of an orderly strategic program include but aren’t limited to:

• Customer profitability
• Served market sentiment
• Supply chain costs
• Removing poorly performing products
• Reductions in capital expenditures
• Market Effectiveness
• Organizational cost and design
• Consolidating manufacturing and other operations
• Working capital requirements
• Cash flow

Every business needs to start preparing NOW so that they aren’t faced with slashing their budgets and organizations in a knee jerk reaction which requires years to recover. A carefully thought through program of this nature requires time and focus on the key issues in the business and sometimes requires the help of an outside organization. Most companies don’t know how to effectively identify and eliminate costs in their business. I Most often see management teams tell everyone that they have to reduce costs by xx% and leave it up to their organizations to “get it done”. This approach just causes chaos and often results in unintended consequences. More often leaders will create a bold plan that isn’t effectively implemented. Careful pruning of products, costs, organizations, programs and customers is always more effective. Group50 stands ready to support the development and implementation of an effective program to lower costs and improve profitability in the face of an economic downturn. Even if what I am suggesting doesn’t come to fruition, your company will be healthier as a result. If you would like to find out how Group50 consultants can help you or members of your team creating your plan, call us at (909) 949-9083, drop us a line here, or request more information here.

About the Author:  Jim Gitney is the CEO of Group50 Consulting and spent over 25 years in corporate America before founding Group50. He has been through 7 economic cycles and has worked with large and small companies in advising them on how define and implement the appropriate strategic roadmap for their company in times of uncertainty.

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