IN THE first of a three-part series on recession strategies for SMEs, we examine different strategies for surviving a period of economic downturn.
Small business and recession: 1. Innovate
For some analysts, recession is regarded as a period of ‘creative destruction’, during which a number of businesses and industries decline, while new ideas, technologies, products and industries emerge to become the driving force of economic growth.
In this way, innovative new businesses have an important role to play in leading economies out of recession. Innovation is not only good for the economy, but also good for your bottom line.
Small business and recession: 2. Adapt
Adaptive behaviour is something businesses must master in order to survive. Typically, during recession market leaders are prone to organisational inertia, which prevents them from adapting appropriately to environmental shocks.
Firms who are willing to innovate see the opportunity costs of not taking such action to be lower than during buoyant times.
Small business and recession: 3. Retrenchment
This involves cutting operating costs and divestment of non-core assets. This is the most common recession strategy, especially in the short-term. Payroll reduction and expenditure cuts on R&D, marketing and training are typical. Firms who follow such a route to the exclusion of other options are rarely well placed to take advantage of subsequent economic upturns.
Small business and recession: 4. Investment
Investment strategies involve expenditure on innovation and market diversification. Recession is regarded as an opportunity to implement strategic change that would otherwise not have occurred. Many firms are too preoccupied with short-term survival to think about innovation and growth, ignoring the reality that countless household brands used recession as a launch pad, including iPod, FedEx, Rice Krispies, Hyundai and Penguin Publishing.
Small business and recession: 4. Mixed strategies
This combines both retrenchment and investment – a halfway house between judicious cost-cutting behaviour and investment in product innovation and market development.
This blogpost was drawn from ‘Business Strategies and Performance During Difficult Economic Conditions’, published by Kingston University Department of Business Innovation and Skills. Click here to download the entire report.
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08/04/2010
