1. Attract and Retain the Best Employees. This economic downturn will unfortunately unleash legions of highly qualified and experienced people into the ranks of the unemployed. Shrewd companies, acting counter-cyclically, can select and choose the best talent from a deep reservoir of manpower. At the same time, you need to ask yourself: “How do I retain my most valued people under these difficult conditions?” With raises disappearing and benefit packages sliced, firms will need to devise innovative measures to keep their own people from looking elsewhere. For example, Greenhill & Co., a leading Wall Street boutique investment firm, has begun using the financial collapse as an opportunity to hire experienced, director-level managers from its larger competitors to deepen its management bench. Non-monetary benefits, such as employer-paid educational and training opportunities, offer a win-win situation–the employee learns additional skills, while the employer gains a more motivated employee.
2. Check and Plan for Debt Coming Due. Do your best to avoid becoming a victim of the credit freeze. Review your long-term debt, your loan covenants, and any major interest payments coming due in the next 12 to 18 months. Plan to refinance your debt with the assumption that it will be difficult to extend your current terms. Level 3 Communications, for example, has already laid plans to restructure its debt coming due over the next five years. According to the Wall Street Journal, Level 3 is in talks with its largest stakeholders to exchange some of its debt coming due for equity. Inform your existing shareholders that you plan a debt for equity exchange so that your largest and closest financial stakeholders can be prepared for future possible dilution.
3. Keep Your Customers Without Discounting Your Product. Your customers are as stretched as you are. Competitors may be desperately cutting prices to stay in business. Yet, they may be destroying their hard-earned brand equity in the process. Where possible, try to reposition your product around its distinctive attributes. Emphasize the superior quality of your product/service. Offer your best customers longer payment terms. Try short-term promotions that attempt to reel in new customers. Large firms should visit their customers and work with them to design more customized solutions. Procter and Gamble, for example, is relying more heavily on promoting the quality and wholesome nature of its products instead of cutting prices to boost revenues for the next several quarters. Although P&G will continue to issue coupons for some of its products, its most recent ads demonstrate how versatile its products will be for taking care of home and families. Retailers are taking a similar approach. Kroger is mailing coupon sets to its customers based on their prior buying patterns to encourage repeat buying and to reward frequent customers with preferential pricing through coupons.
4. Look Out for Problems in Your Supply Chain. With outsourcing all the rage, be prepared for possible disruptions occurring from financial and labor issues impacting your suppliers, too. Your suppliers may be in even more dire financial straits than you are. Look for alternative suppliers for your off-the-shelf needs, just in case. On core products and technologies, work with your supplier to share costs and risks. The upside is that both will profit handsomely when the economy recovers. Ford Motor Co., looking to compete with Toyota and GM, is working closely with key supplier Johnson Controls and Saft Groupe of France to accelerate the design and production of advanced lithium-ion batteries for its next-generation hybrid vehicles. By working closely with Johnson Controls, Ford seeks to dramatically slice down product development time.
5. Prepare for New Types of Competitors With the Upturn. It may feel tight now, but the heat is really on if you are unprepared for a whole new wave of competitors in the future. This is a good time to look for strategic alliances that help give you “an inside position” of a potential future rival. Pharmaceutical giant Merck, for example, is on the prowl for acquisitions of biotech and other drug companies of any size in order to gain access to new drug development techniques and larger market share. Although Merck is best known for its long-cherished tradition of developing blockbuster drugs from its own R&D, the recession has spurred the firm to look for new technologies with an urgent pitch. Recessions are breeding grounds for innovative technologies, so don’t slam the door shut on new ideas just yet. In fact, look at this downturn as an opportunity to re-evaluate and redefine just exactly what you want to look like in the next five years. Chances are someone else is already doing just the same. And he/she may be your newest competitor targeting your customers.
David Lei is Associate Professor, Strategy; and Frank Lloyd is Associate Dean, Executive Education, at the SMU Cox School of Business.