Smart thinking to stay afloat

New Zealand Trade and Enterprise has singled out 13 global companies from the Fortune 500 list which increased growth and profitability during economic downturns, or in the recovery phase because of the choices they made in the toughest times.

The 13 companies have each survived at least three recessions.

Crucial to their success was a decision to focus on core business. Those that "hunkered down" or strayed outside their prime competency created openings for competitors who were willing to pursue thoughtful and balanced strategies.

In the recession of the late 1980s, Kmart acquired multiple, unrelated retail businesses, sapping its resources and distracting attention. It lost customers to Wal-Mart which continued to invest in its service infrastructure and gained 2-4 per cent in comparable sales.

Nearly all the companies demonstrated speed and flexibility were crucial to survival. Many - like Coca Cola - improved operational efficiency by empowering lower tier managers to "think local, act local." This ensured local relevance and maximised business performance because decision-making was held by those closest to markets.

Companies divested non-core parts of their business to raise cash to service debt and fund investment. General Electric sold factories and assets that were less productive but previously difficult to close down. By shedding non-core businesses they were better positioned to pursue growth and profitability.

Only two of the companies actively planned alternate strategies for adverse times in advance of them occurring.

The best example of advanced planning for downturn was Royal Dutch Shell, who in the 1970s implemented a scenario-planning process. One of the first scenarios Shell planned for was the event that petrol prices increased by 400 per cent - which was exactly what happened during the Oil Crisis.

"Planning for such an event, gave Shell time to consider the best strategic approaches and this ultimately led to very astute moves they made that helped them emerge as market leaders."

Like Johnson & Johnson, Shell also holds significant cash reserves to insulate against adverse times.

Almost all the recession survivors went on the acquisition trail during downturns as the entry price is lower when businesses are sold under stress or to liquidate assets, meaning companies can buy businesses that might otherwise be out of reach. IBM acquired in order to obtain new technology it would otherwise have had to develop; and Cisco, to bring new talent into its business in the hope it would spark innovation.

Nearly all the companies increased advertising spend and promotional efforts. During the Great Depression, Proctor and Gamble increased its ad spend while competitors cut budgets. P&G created the daily "soap opera" - a sponsored radio serial - to target housewives. The campaign was so successful P&G doubled its ad budget every two years during the depression.

"When times are tough; we build share," was P&G's motto. Evidence suggests companies that slash marketing spending by half take three to four years to get back to pre-recession sales levels.

Shell had a marketing strategy for the oil crisis that enabled them to gain market share from their competitors. "They used smart manipulation of consumer concerns with taglines such as "keep your tyres pumped at the correct pressure and you could gain extra miles for the same tank of fuel. The company built brand loyalty by demonstrating that it understood the concerns of its cost-conscious customer."

Most companies also tried to increase their speed to market with new products to steal an advantage over competitors. The standout was 3M. During the Dot-com bubble recession they introduced 3M Acceleration aimed at faster and more effective commercialisation, by prioritising R&D investment and cutting not so promising projects earlier in the process. The company launched its first Scotch Tape during the Great Depression, and Post-It notes during the early 1980s recession.

The current global recession has been heralded as the worst since the Great Depression (1929-1933). The NZTE study also covers other periods such as: The Oil Crisis (1973-1977); an early 1980s recession sparked by US inflation-fighting methods; the 1987 sharemarket crash which rolled into the early 1990s recession; the Asian financial crisis (1997-1998) and the Dotcom bust (2001-2003) - the effect of which were exacerbated by September 11 attacks and the fallout from the Enron scandal.

RECESSION SURVIVAL - THE SEVEN RULES

* Focus on core business - Apply resources to core business to create opportunities to gain market share from competitors who diversify and split focus

* Improve process and efficiency - Be flexible and take fast action when executing recession strategies such as trimming costs through process efficiencies or correcting wrong turns

* Strategic divestment - Shed non-core operations to improve liquidity and/or focus on the core strategy. Operating non-core business splits both focus and resources

* Contingency planning - It is never too late to prepare for a downturn. Quickly assemble a plan and put in place a strategy for dealing with adverse conditions. This could be formal scenario planning or careful structuring of the business to maximise resiliency

* Acquisitions and strategic alliances - These help strengthen, re-focus and position the company for increased growth and profitability. Prices are likely to be lower and there may be less competition for acquisition targets. Acquisitions can also help accelerate access to new markets, products, technologies, customers and talent

* Increased advertising and marketing - Spend more to increase market share and take advantage of greater advertising reach, possibly at more competitive rates

* Research and development - Carry out R&D to create new value in core products and services to sway recessionary customers. New product releases can have greater impact as competitors are slower to counter with a 'me-too' offering

Source: NZTE report: Changing the Game