Managing through a recession
“Tough times never last. But tough people do”. This is an aphorism that many Nigerians would do well to bear in mind, especially business owners and managers. The problem is that it is better said than done. Many people will give up and make avoidable mistakes during a recession. Many will give up and fold their business plans just because they can’t find their way through the rubble of fiscal and monetary policies in a recession. But those who stay the course and apply some smart solutions flourish during a recession.
The managerial craft is a study in courage and wisdom. The great manager reads the situation well and crafts the most effective intervention. When things get difficult and uncertain the great manager does not give up. Rather he refocuses and moves ahead. Moving ahead is not a matter of just hubris. It is a matter deep sensitivity, critical analysis and bold actions. The managerial art is for the tough. And when the tough times come the tough guy wins.
The Nigerian Bureau of Statistics (NBS) has announced that Nigerian has entered into recession. This is official. From business point of view we will expect shrinkage in productive capacity as businesses suffer under crushing monetary and fiscal policies. Already many companies are falling into the gutter. Aero Contractor, a leading indigenous airline has closed shop. Many shipping firms are out of business as the import and export business are quickly dwindled. The banks are sacking staff everyday are they grapple with increasing cost in a dull business environment. The only serious motor company in Nigeria, Innosen Motors has threatened to close its factory if it continues to experience extreme hardship with securing foreign exchange for its business.
Nigeria is not the only country that is going through difficult economic times now. We have also had experience of much more devastating economic crisis in the world. So, Nigerian businesses could learn lessons on how great managers steered their companies out of the great depression and several other recessions. There are key principles that are important to ploughing through in a recession.
Hardnosed Business Diagnostics:
A recession might be a good thing if it enables you to see clearly the weakness of your business proposition or the vulnerability of your business environment. When the business environment is not good many misfits tend to survive. But when things get tough you are punished for your presumptions. It is therefore, time to discard the presumptions and illusions. Do a reality check. As Robert Ringer put it, “Reality is neither the way you wish thing to be nor the way they appear to be, but the way they actually are. Either you acknowledge reality and use it to your benefit, or it will automatically work against you”. Review your business model. Ask yourself whether the model is fit for the new business environment.
A good diagnostics of the Nigerian business environment in the aftermath of the recession shows a changed landscape. First, the commodity prices crash means that there is a severe public sector revenue crunch. The oil boom did not result in institutional uplift or savings. So we are left with no cushion for the rainy day. What does this mean? Frist, there is no money to throw around. Those businesses that depended on public sector support will be left high and dry. There will be stiff competition for the remainder of public sector work. Corruption had propped up many businesses in the past. The discipline of revenue crush and the new ethical order is that there will be little corruption to grease the wheel of indolent private sector in Nigeria
Strategic Response to a Recession:
Business strategy is a coordinated and coherent response to shifting business landscape. The good business manager is a good strategist. And good strategy shows best in difficult times. Good strategic response starts with sense-making. Unless a business leader understands clearly how things have changed he cannot begin to develop an effective strategic response. Such a strategic process requires clarity and sensitivity. The business leader must gather relevant data and interpret them correctly. He then develops a sound narrative of the business landscape. If he fails in this work of intelligence, then he cannot lead his business through the storms.
The business leader cannot envision a transformative or adaptive path for the business if he has not gained insightful grasp of relevant facts and has not constructed an intelligent narrative of the changing business landscape. The responsibility of the business leader is to lead the enterprise into a profitable future. This might require reinventing its business operations to fit into a changing business landscape. Those companies whose leaders are able to make sense of the changing landscape and are able to envision adaptation or transformation usually come out on the calm side of the tidal wave. Those that flounder at these two critical activities are doomed. So, strategic response starts with data gathering, good analysis and perceptive narrative. The narrative informs a process of re-visioning. Then it moves into visioning change.
Crafting a strategic vision is all about making choices. Choices will determine the fate of the enterprises. You cannot make a good choice out of competing and compelling alternative course of action except you have a good narrative. In planning, it is called scenario analysis. With a good scenario analysis, the business leader now embarks on reinventing the business enterprise to benefit the changed business landscape. It is this capability to reinvent the business in difficult business times that separate winners from losers.
Tough times don’t last. Tough companies last. But how do you make your business tougher than the times. I suggest you follow these time-tested lessons:
First, threw all illusions and presumptions out of the window. In Nigeria those illusions will include the fallacy that we are a rich country. No, we are not. An economy based on a primary produce like oil with a tempestuous pricing cannot be a rich country. We are poorer than our oil receipts allow us to see. Because of total lack of infrastructure and accompanying entrepreneurial values, Nigeria is a difficult business environment. Yes, the return on investment may be one of the highest in the world. But the economic, social and political costs of doing business wipes off the ROI.
Second, accept the reality. Remember that you either accept reality and benefit from the reality or reject reality and get punished by it. Dealing requires what the Marines call ‘awareness’. In their combat manual called “Warfighting”, the Marines argue that “We should base our decisions on awareness rather than on mechanized habit. Rather, we must act on a keen appreciation of the external factors that make each situation unique instead of from a conditioned response”. This is perceptivity, the ability to make sense of what has changed or is changing.
Those who attain this level perceptivity are those who adopt “the beginner’s mind”. We don’t face a new reality with a conditioned reflex. Even if you are an expert on scenario analysis or business strategy you have to be humble to acknowledge the new dimensions of the present recession. No two recessions are the same. And whilst we can learn from the experiences of the past every business leader who would smile from this crisis must be open to perceive the true nature of the present crisis.
Executing Smartly and Efficient:
The bottom line is to be a profitable business in spite of the recession. Every business leader is accountable on results. So in this recession, after you have design a strategic response it has to be executed fiercely and smartly. The major consideration will be to overhaul the costs centers. The wrong focus will be to limit business investment. Just as countries spend themselves out of a recession so businesses need to continue investing to survive a recession. But the catch is redefining investment. This is why frugality and value for money is critical. Smart executing requires another look at costs centers.
In times like this it is not wise to simply cut off indiscriminately. There must be a strategy to cost-saving. That strategy must come from a deep understanding of what is changing and how it is changing.
Recession is not a big deal. A crisis is also an opportunity. It may be an opportunity to re-envision, refocus and retool. It could an opportunity to move from a low profit engagement to a high profit venture. All that you need is the awareness, vision and agility to reinvent in light of changing landscape
Dr. Sam Amadi is a legal expert and writes from Abuja, Nigeria 234-803-329-9879