4 Strategies for Coming out of a crisis as a winner + Case Study
If a few months ago the discussion about the efficiency of the fashion industry was looked from afar and with curious eyes, now everyone is buying a ticket to get on the sustainability train. According to the study, 9% of companies survive and thrive after a recession. What are their secrets? Curious?
According to a yearlong study from Harvard Business Review, the enterprises cutting costs by focusing on operating efficiency are more likely to come out of a crisis as winners. Even as they spend more than their rivals on marketing, research and development, and assets.
‘Companies that only cut costs heavily during a downturn don’t flourish after it ends.’ Nor do the companies only investing more than their rivals do during a crisis. From market leaders doing well before recession, 85% loose their momentum and get fall out during a recession.
Harvard business review
While some are panicking, CEOs must be extra mindful. Cutting costs while making investments is not easy. It requires to be disciplined about cost and to learn to spot investment opportunities offering reliable returns in reasonable payback periods. Getting the two right is bound to help you with short-run problems and create a successful medium-term strategy.
Look deep into nature, and then you will understand everything better.
Albert Einstein
Thus, I’ve chosen the snow owl as the face of this article. They are highly adaptable and are one of the irruptive North American species. The more you learn about them, the more you can learn about being a CEO. For example, ‘most owls sleep during the day and hunt at night, but the snowy owl is often active during the day, especially in the summertime. The snowy owl is both a specialized and generalist hunter.’
The owl talk stops here but its purpose is to say that CEOs are also a special type of people that have to think and act extraordinary if they want to flourish and have sustainable businesses. Such a crisis, like the pandemic, presents a great opportunity for innovation and improvement of your business.
How to flourish after the crisis?
If the twentieth century had its famous roaring 20s, we could be ‘Roaring Out of Recession’ in 2020 as researched by Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen in the Harvard Business Review (March 2010). If we know anything, it would be that history tends to repeat itself. Thus, their research is still valuable today.
They have analyzed strategy selection and corporate performance during three global recessions: the 1980 crisis (which lasted from 1980 to 1982), the 1990 slowdown (1990 to 1991), and the 2000 bust (2000 to 2002). They studied 4700 public companies gathering data from three years prior to each recession, during the recession, and three years after it.
According to the Harvard Business Review. Only 9% of their sample companies flourished after a slowdown, doing better on key financial parameters than they had before it and outperforming rivals in their industry by at least 10% in terms of sales and profit growth.
‘Firms that cut costs faster and deeper
than rivals don’t necessarily flourish.’
The one thing almost all business owners unite on is that the world after recession is unlikely to resemble the one before it. With this said, let’s take a look at what Target did to survive and thrive after recession.
The Target Case Study from Harvard Business Review
‘To pull off a combination of cutbacks and strategic investments, CEOs have to exercise cost discipline and financial prudence and detect opportunities that offer reliable returns in reasonable payback periods.
Let’s look at how one company has managed this difficult balancing act.’ Here are the 4 shifts Target made that helped the company come out of the early 2000’s recession stronger than ever.
4 Strategies For Coming Out As A Winner
1. Pivot auditing your physical and online spaces
During the 2000 recession, Target increased its marketing and sales expenditures by 20% and its capital expenditures by 50% over pre-recession levels.
It increased the number of stores it operated from 947 to 1,107 and added 88 Super-Target stores to the 30 it had already set up. It expanded into several new merchandise segments, ramped up investment in credit-card programs, and grew its internet business.
For example, ‘in 2000 it was one of the 12 retailers that founded the WorldWide Retail Exchange, a global business-to-business electronic marketplace, to facilitate trading between retailers and vendors. In January 2001 Target consolidated its Dayton’s and Hudson’s stores under Marshall Field’s to take advantage of the well-known brand name.
These moves helped the company grow sales by 40% and profits by 50% over the course of the recession. Its profit margin increased from 9% in the three years before the recession to 10% after it. These strategies contrast sharply with those of other retailers, which focus primarily on growing store networks.’
During the recession, Target initially saw a decline in same-store sales, partially because WalMart’s message of everyday low prices was well received by customers. Realizing that the spending on ‘wants’ has decreased significantly, Target strengthened its position in a key ‘needs’ segment: food.
‘It launched a new store format that doubles the amount of floor space devoted to food; extended the range of its food brands, Market Pantry and Archer Farms; and overhauled its operations to support the emphasis on food.’
2. Invest in marketing
The retailer also increased media spending and reaffirmed its positioning with the slogan “Expect more, pay less”—with an emphasis on the second half. These are early days, but the results appear promising: By 2008 Market Pantry’s sales had increased by 30% and Archer Farms’ by 13%. And food has become a $1.8 billion business for Target.
3. Forming new relationships
The company formed strategic partnerships. Instead of trying to do it alone online, Target partnered with Amazon to sell its products. It also teamed up with well-known designers such as Michael Graves, Philippe Starck, and Todd Oldham to reaffirm Target’s reputation of cheap chic. Thus, differentiating their products.
4. Reassess your operational efficiency
While investing, expanding, and creating new partnerships, Target was doing its best to reduce cost, improve productivity, and enhance the efficiency of its supply chain operations.
Re-examining every aspect of your business model reduces operating costs on a permanent basis. Reassessing everything from how you have configured your supply chains to how they are organized and structured will allow your profits to grow faster than those of competitors, once demand returns, as your cost will stay low.
While progressive companies still lay off employees, they do it way less than their competitors do. The moral aspect of it is not the only reason why. Employees at such companies appreciate top management’s commitment to them, instead of worrying whether and when they will be laid off. These companies feel empowered and get more creative in reducing costs as a result.
Harvard Business Review concludes saying that ‘an analysis of the stock market performance of companies that use progressive strategies reveals that they can also ride the momentum after a recession is over. Their approach doesn’t just combat a downturn; it can lay the foundation for continued success once the downturn ends.’
‘Progressive companies stay closely connected to customer needs—
a powerful filter through which to make
investment decisions.’
Yours,
MK ❤
P.S.
Read the full Harvard Business Review paper ‘Roaring Out of Recession‘.
Here are more examples from The Guardian showing the way three Australian businesses have pivoted during the pandemic to improve their services and engage their customers: What we can learn from the businesses that evolved during Covid-19
Check out the full ‘2020 research report: How to adapt and thrive in times of crisis‘ from SurveyMonkey.
