By Dave Formaston, deputy CEO at National Hickman
Companies tend to keep themselves on a fairly tight leash during times of economic uncertainty, and I don’t blame them – it’s a natural response. A recession is typically associated with a reduction in business investment and a general slowdown in industry growth and innovation. There is then a noticeable knock-on effect as the economic downturn escalates with business after business drastically cutting costs to attempt to stay afloat.
Doing business in times like these can seem like a never-ending battle. For many organisations, the focus shifts from the notion of expansion and profitability to merely sustaining current footholds and preventing financial loss. However, taking these measures and making significant reductions can really be quite damaging to the business in the long-term. Although these decisions may seem like a good idea at the time, it may mean that you end up on the back foot – potentially outmanoeuvred and outclassed by your competitors.
Take calculated risks
The recent recession hit the manufacturing and construction industry particularly hard. Manufacturing output fell by 14.5% between 2008 and 2009. But while some businesses were lamenting the financial crisis and waiting around for things to pick up, we made a conscious decision to invest quite a substantial amount of money into robotics for our production lines and subsequently further growing the business.
It was towards the end of the recession when we invested £1.5 million in the new technology that made 95% of one of our manufacturing divisions fully automated, with 7 bespoke robots. A little later on we also invested further money into recruiting more people into the company and training them up to work with this new technology.
Spending that amount of money during a period of economic decline was a potentially risky decision – especially considering the impact it was having on our industry and those working within it. But after careful consideration, we agreed to take that gamble with the knowledge that it could significantly improve profitability in the long-run.
Listen to your customers
If we hadn’t invested our money into new technology, keeping up with industry demand long-term could have been a real challenge for us. It was our customers that inspired us to invest the money. During a downturn, your customers will also be taking a hit and may have suggestions for your company. Listen to their ideas, your relationship with them is incredibly important during this time. Due to our customers’ advice and trust we were able to gain market share during the recession which set us up for a prompt recovery.
The new technology has tripled our production capacity and allowed us to offer our customers security of supply, unlike a lot of our competitors. We came through the recession having not lost any money and we have almost doubled our turnover since.
Avoid the knee-jerk reaction
This isn’t to say that investing a lot of money in a recession is always a good idea. Obviously it’s very much dependent on your industry and your current economic position at the time. But there needs to be a real shift of focus and instead of thinking about short-term goals and contributing to the overall pessimism, companies need to consider potential long-term opportunities. It is a delicate balance, and one that certainly needs a lot of thought. Rather than pull back on innovation and business growth, while the market is quiet you can use the time to recognise opportunities.
When the economy heads into a tailspin, it’s difficult to avoid that automatic knee-jerk reaction to cut costs and reduce investments. But rather try to look at it as an opportunity to reassess your business trajectory and focus on the long-term goals rather than short-term. Invest time in your customers and continue to be innovative.
They key is to understand your situation and then make calculated decisions – I think it’s much more productive than just quickly seeking to reduce costs. Any large business investment decision is potentially risky – whether it is during a recession or not. So assess it on its own merits, and in the words of Warren Buffet “the market may go up, the market may go down, the economy may fluctuate, but there will always be intelligent things to do.”