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Students Conference on

“Innovating Management Strategies in

Times of Economic Downturn”

Author,

Kaizen EduplusSociety’s

Institute of Excellence in Management Science

Hubli

Ravi.G.Chatni

ravi.slayers@gmail.com

Mob no:- 9916313676

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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 care3. 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

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• 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.

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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

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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 inrelated 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

Competitive EnvironmentOffer Great

Deals/DiscountsBuild The Brand

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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.

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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.