The economy's down. Alan Bird outlines some strategies that could help your company survive—and maybe even get stronger.

Even before last September's terrorist attacks in the US. business executives were padding furiously to traverse the economic doldrums. Now it's almost certain that the crossing will be longer and harder. This article outlines three practices which could help ease your company's passage through the difficult times ahead.

Build strategic contingency planning into your culture

The contingency measures that World Trade Centre tenants adopted after the landmark's 1993 bombing are widely credited with saving lives and businesses in the wake of the most recent disaster. The impending downturn; however; calls for more: you'll need entire strategies crafted to address your worst-case scenarios.

What if your risk profile shifts dramatically? Act now to spread that potential risk, or buy it down. US insurers rethought risk sharing in the wake of 1992's Hurricane Andrew, which caused a then-record $16.8 billion in losses. Primary insures began to share risk more broadly among themselves, and to sell off more to reinsures, who upgraded their computer models to predict payouts and avoid over-extending themselves. As a result, the industry expects to fare better today even though damages from September attacks may be double those of Hurricane Andrew.

What if demand suddenly falls off? Could you quickly find allies who could help you consolidate the industry and save jobs? Arrow Electronics, a distributor of electronic components and computer products, faced just such a dilemma when computer sales flattened in 1985. Arrow, the industry's scrappy No 1 position, which it still holds.

If you think you may experience a drop in regional demand, map out alternative markets that could absorb your additional supply. Many Asian consume - products suppliants had to shutter or trim production when the region's economy went south in 1997. But firms like Emerson quickly shifted product to export markets, and kept Asian plants running. By locking in talent and capacity, they were able to gain market share when local markets rebounded.

What if prices drop precipitously? In difficult times, the low-cost producer sets the price, thereby controlling the level of competitors profile margins. Dell halved its prices and still makes money—unlike some of its competitors. Firms must scrutinize their purchasing costs and cycle times relative to their competitors, detect the inefficient processes, and fix them.

What if a global recession hits? The adds if a synchronized global recession happening are fairly good, which means that companies will have nowhere to turn to shift supply. In such an extreme scenario, do you have cash reserves to help consolidate your industry and save jobs? Have you evaluated which competitors you should acquire based on your core businesses? Or, if you have a weaker financial position, have you identified where you can cut costs without cutting out the heart of your business? Where do you hold the most competitive cost position? Gillette recently concluded that it could improve its chances for profitable growth by selling of its stationery and some consumer—appliances businesses, and focusing on shaving products and batteries.

Strengthen the bonds of loyalty
To help customers to get back on their feet after the terrorist attacks, hundreds of companies offered price breaks, even though it meant taking a financial loss. Many firms set up counseling sessions and gave employees time off to support others. The lesson here, as the economy heads toward recession: now is the time to prove that you deserve you stakeholders' loyalty and trust.

· Pay special attention to you employees. Morgan Stanley had 2,700 employees based on 22 floors of World Trade Centre 2, almost all of whom make it out. Within an hour of the attacks, CEO Phillip Purcell put in motion a plan to help survivors and all employees' families through the trauma. He brought in counsellors, and set up a hot line to locate and assist employees. Such measures won't always be necessary, but as the downturn becomes more severe, employees will feel added stress. Your efforts to support them will reap benefits for the company.

· Be a good vendor. Get close to customers; unless you're looking to exit a particular business, now is not the time for running short-term profit optimization models. Dell lowered prices on many of the servers, laptops and desktop computers it sold in the first week following the attacks. You can bet its customers won't forget. Granted, not every business is a loyalty business, but for strong customer-facing businesses, our research has shown that a 5 per cent increase in customer loyalty can lead to between 40 and 90 per cent increases in the lifetime value of a customer across a variety of industries from automotive services to advertising.

Protect your core assets
Downturns often make cuts to personnel unavoidable. But just as the human body

Diverts blood to vital organs during physical trauma, so should companies protect their core businesses and critical functions. The temptation, however, is to give more attention to the most troubled businesses and take the core for granted. Case in point: the resources New York City-based Loral devoted to its troubled Global-star initiative at a time when its core satellite business was slowing down and losing market position. This loss of focus hurt the core business. Loral went from one of the great growth companies of the 1980s and 1990s to a company in trouble: in the last twelve months, its share price has dropped by 95 per cent.

Reinforcing your core assets helps recession-proof your business have proved much more volatile than strong ones. Our research has found that over the course of a business cycle, the profitability of weak businesses or companies as measured by margins, or return on capital can be two to three times less than that of strong business in the same industry.

In a recession, employees need to know that their actions matter. Explain to them in detail how their efforts can help protect your core assets. You may need to ratchet down targets and extend time horizons. Realistic targets will help the people who power your core to get back on track failing. But it's surprising how overly optimistic companies can be: a recent analysis we conducted of long-term company targets for revenues and profits revealed that, in spite of the slowdown, nearly 80 per cent of companies are targeting long-term performance levels that only 15 per cent of companies have manage to achieve in the last decade.

Don't set up stakeholders for disappointment. Clear-eyed expectations and strategic contingency planning will reassure them that your company can be counted on in a recession.