In the April-June quarter of FY21, gross value added (GVA) for India declined by 22.8%, while for manufacturing by 39.3% and mining by 23.3%. Gross fixed capital formation (GFCF) contracted 52.9% and construction activities 50.3%. Unemployment rate stood at an alarming 23.9% in April’20 showing business shutting down and the ones running laying off employees in large numbers, especially hard-hit sectors such as Travel, Hospitality, Auto and Retail. During such crisis, there are companies that do not survive, some that take time to recover and a select few actually emerge stronger. However, this happens to be a less researched area on strategies that companies undertake to not only survive the recession while at the same time ready for growth once the conditions improve by focusing their efforts on becoming “fit for the future”.
Predicting a recovery has been more of an art with first wave, second wave impacting industries and companies globally. Predictions have ranged from V-shaped recovery to U-shaped or a K-shaped one. It is, however, key for companies to think about the strategies that will help them emerge stronger from the current crisis. Looking at past precedents on how the companies emerge out of a crisis will give us a perspective on the strategies that work in the light of such adversity. Nitin Nohria’s, 2010 HBR article, “Roaring from Recession”, articulates the strategies that work for companies and the inspiration that we can draw from the same. In fact, companies that rely mainly on cutting costs deeper and wider have the lowest probability of being able to take advantage of good times when they emerge.
In business, desperate times call for progressive measures
COVID-19 is neither the first crisis the world has seen nor is it going to be the last. There are major learnings for business from previous crisis, such as the 2008 financial crisis or the 2000 Dotcom bubble, which businesses could and would have used during these times. There are several strategies that companies have used to tide over crisis in the past, but some have been more successful than others. Based on a study by HBR on strategy selection and financial performance in a crisis, companies generally take one of the following three positions in a crisis:
- Position 1: Prevention-focused – More concerned about minimising downside risks and make defensive moves such as reducing operating costs, eliminating discretionary expenditure and reducing headcount.
- Position 2: Promotion-focused – Focus on converting crisis into opportunity by making aggressive moves such as making large investments in R&D, developing new markets, and on assets.
- Position 3: Progressive – Optimal combination of defensive and offensive moves (Improving operational efficiency - not simply reducing headcount and investment in R&D and marketing and investing in assets).
The results of the study clearly showed a winning strategy.
|Companies taking position 1 showed an average a growth of
|Companies taking position 2 showed an average a growth of
|While companies taking position 3 showed on average a growth of
in sales and profits respectively post crisis.
This research clearly shows importance of expert operational efficiency strategies (performance improvement or PI) such as reconfiguring supply chains and reducing operating costs on a permanent basis rather than simple cost-reduction plans. It also shows there is no better time to implement operational efficiency than a crisis in order to breakaway from competition post the crisis.
Time for operational excellence is now but where do you start?
It is important for companies to know what level of PI capabilities are present in their company to determine what they need to do to reach where they want to be in future. In order to help companies find this out, Grant Thornton Bharat have developed a model that enables companies to specifically know how mature activities related to PI are in their organisation. Based on the position of companies on the maturity curve for PI, there are several specific activities that need to be performed to reach to the next level in the curve.
Five levels of maturity for PI activities in companies are:
Based on the level of planning, execution, review, and importance attached to PI related activities in a company, all companies can be classified into one of the five above-mentioned levels. Companies such as GE or Toyota with world-class established practices for cost-reduction and PI will most likely lie on top of the curve at the culture-driven level. While companies that have embarked upon PI journeys will most likely lie on either the strategic or the tactical level depending on the maturity of practices there. Meanwhile, companies who have still not begun or just begun their journey will lie on the absent or the nascent level.
Irrespective of where a company lies on a curve, there must be constant focus on PI especially in these uncertain times to emerge stronger and better placed than its competition post crisis.
Bhawik Jani has contributed to this article.