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Aggressive growth strategies are key to surviving recession

Aggressive growth strategies are key to surviving recession

As economic slowdown deepens, companies must do what may not come naturally.

  • October 29, 2001
  • min read

Article

Aggressive growth strategies are key to surviving recession

SA companies, facing economic slowdown, must develop and implement aggressive growth strategies in their core business areas if they are to build solid foundations that will propel them ahead of competitors over the next two years.

A thoughtful, managed risk strategy is essential to survive and enjoy the rewards after the recession.

A thoughtful, managed risk is an investment in core business. It is especially valuable when the market is down and competitors, fearful of investing in uncertain times, bury their heads to weather the storm.

As the rand battles against the dollar and the pound, management teams are increasingly looking to hedge their bets by investing overseas. However, you need to think very carefully before investing in offshore companies; if this strategy is not carefully thought through if the acquisition does not leverage the core business in SA so that the latter can truly add significant value to the company being acquired the risk is neither thoughtful nor managed, and you will get burnt.

Local firms are smaller and less well capitalised than their global counterparts, so the risks associated with investing in growth through recession are significant, but the rewards are handsome, because your business will come out of the slowdown ahead of competitors.

It is unusual for companies to plan adequately for growth in uncertain times. An analysis of 377 Fortune 500 companies and interviews with nearly 200 senior executives indicate that during recession management goes through three phases of reaction: denial, then as the downturn deepens there is overreaction with across-the-board spending cuts, and finally, when there are signs of a recovery, management overspends.

Companies that fail to plan ahead will find themselves planning while in crisis. This often leads to overwhelming and potentially destructive changes during recession, including mass retrenchments. A study of 288 Fortune 500 companies that endured the previous US recession showed that the stock prices of companies which dismissed more than 3% of their workforce performed no better during a threeyear period than those that made smaller cuts or none at all.

Taking drastic steps to control spending can also be dangerous. It is crucial that management acts consistently in good times and bad and manages costs relentlessly all the time.

The companies that will emerge from the downturn the strongest will be those that use this time of uncertainty to their advantage. They will improve market position through targeted investment in their core business either by adding capacity or capability. They will spend on bargain acquisitions to gain market share and take leadership positions. They will also avoid diversification, because it dilutes focus on strengthening the core business.

By being proactive and remaining focused on their core business they will outperform hesitant and struggling competitors.

However, being proactive does not mean overspending particularly as the economy shows signs of relief. Spending that dramatically outpaces growth will eventually force Draconian cost cuts.

Henske is a partner with global consulting firm Bain & Company.

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