Preparing for the next downturn

April, 2007 from the McKinsey Quarterly – “By our reckoning, nearly 40 percent of leading US industrial companies toppled from the first quartile in their sectors during the 2000–01 recession, and a third of leading US banks met the same fate. At the same time, 15 percent of companies that had not been industry leaders prior to the last recession vaulted into those positions during it...”

180 View (written by Lawrence Young) – I’d like to preface my thoughts by making one thing perfectly clear – I’m not knocking economists! I for one fully understand that nobody’s crystal ball provides 20/20 vision.

But are you as confused as I am when you read the newspaper these days? One well-respected economist says the cost of oil could hit $200 a barrel by year-end; another says oil is going to drop back to $90 from its current level of about $115. The prime rate has been cut twice over recent months, but now the word on the street is that rates may rise in the not-too-distant future. Oh well, like Nobel laureate Paul Samuelson aptly said “Economists have correctly predicted nine of the last five recessions”.

While economists may not agree on everything, they all seem pretty convinced of this-tough times lie ahead! Some feel the United States is in a recession now, some say a recession is coming, and some don’t believe the timing of the next recession is imminent. But the ‘R’ word aside, an economic downturn in the short-term seems to be a given to all pundits.
So what do corporate managers do now? Simply take a ‘weather the storm’ attitude? If history repeats itself, as it always seems to, fruitful opportunities await those who are willing and able to ‘seize the moment’ when the opportunities surface on the rocky road that lies ahead.

So what can a manager do today in order to exploit these opportunities down the road? This article, published a little over a year ago, reported on the study of the performance of some 1300 U.S. companies before, during and after the recession of 2000-01.

In short, the research clearly showed that three kinds of corporate flexibility can significantly help managers embrace opportunities that emerge during a recession. And insofar as human resource management prior to an economic downturn is concerned, gains in employee productivity today will go a long way to increasing a company’s flexibility when times get tough.

We all know the old saying ‘timing is everything’. Well, now may be the best time of all to seek out productivity improvements in your work force. Equip your workers with the tools they need to do their jobs efficiently. Run ‘lean and mean’ by re-engineering your business processes to cut out the fat. And as this article concludes, ask yourself today if you are ‘building the financial, operating and product flexibility to make the most of the next downturn’.