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Spending after the recession ?


To spend or not to spend, that is the question.So we’re not quite out of recession despite all the positivity of the markets. It’s not the most inspiring way to start a day as a business owner is it? Knowing that the economic and financial environment has collapsed around your ears and that the prevalent mood is one of doom and gloom. Unless you have decided to curl up in a ball of soporific apathy and decided that your business life as you know it has come to a sudden and abrupt commercial stop, then it’s time to figure out what to do and develop a plan of attack to ride out the storm and start the climb back towards growth and enhanced profitability.Economists as we all know define a recession as two successive quarters of negative growth. This is the classic model as it relates to a national or global economy, but what about when it’s applied at the micro level, when it’s applied to a small business? How has your business fared over the past 12 months?, are you showing negative growth in two successive quarters? If not, then you are ahead of the game, you are bucking the national and global trends and are in comparatively rude heath. However if you are current showing successive quarters of negative growth then your business is in recession and needs to adapt to survive.This introduces the question of what to do? Not an easy decision when presented in an atmosphere of chaos, worry and uncertainty. Professors Peter Dickson and Joseph Giglierano have developed an interesting concept of “missing the boat versus sinking the boat”. Essentially this presents two distinct choices for business leaders. “Sinking the boat” implies that a business can be destroyed by gambling incorrectly with company funds during the tough times and “Missing the boat” introduces the possibility of handicapping a business by missing a huge opportunity through non investment during the lean times.In a recession the natural temptation is to trim costs, reduce spending, rationalise the business, in effect baton down the corporate hatches until the worst of the storm has passed us by. What can businesses achieve by doing this? Well firstly they reduce the odds of ultimate failure and certainly they become a leaner, and in theory more efficient organisation. However they also become a defensive entity, and have little or no scope for offensive action in the market. To paraphrase the sporting adage goes if you’re on defence you’re not on offence, ie you’re creating little internally and limiting scope for corporate wins. It would be naive in the extreme to suggest that cost cutting is not necessary during a recession but it’s also a mistake to assume that assuming a defensive position in reaction to the market is the absolute correct solution also. The truth is that the challenge for businesses is to find the balance between cutting the fat and shedding the inefficiencies that have accumulated during the boom years of economic expansion, and investing available funds in driving the business forward. During the 1930’s, commonly accepted as the worst of our economic meltdowns to date, there were two main players in both the soft drink and the breakfast cereal markets. Kellogg’s and Post foods battled it out for the breakfast markets whilst Coca Cola and Moxie were the main players in the beverage sector. Post foods and Moxie decided, that in the economic carnage that was depression America, to reign in their marketing spend and to focus on cost cutting, Kellogg’s and Coke decided to take the alternative route by upping their spend on marketing and advertising. With respect to Post and Moxie it’s fair to say that their two competitors kicked on and became the global juggernaughts they are today whilst the other two regressed in their respective markets. When Coke and Kellogs were making their decisions the marketing media was changing, mass communications was becoming a reality, new media such as commercial radio and nationally distributed publications were allowing firms to send their message to more consumers than ever before in a different way than was previously possible. We are at a similar stage now in the recession of 2008/09, media channels and methods of communications are changing allowing us to reach people in different and often enhanced ways. Who in the 1930’s would have foreseen the internet, social networking, bespoke direct marketing campaigns et al as communications channels that could enhance a company’s message and brand.Various different studies ranging from the definitive Roland S. Vaile study of the great depression to the famous American Business Press project of the 1970’s, to more contemporary studies by consultants such as McKinsey have all shown a correlation between growth during a recession and advertising and marketing spend. More importantly it shows that companies that have spent well during a recession are better equipped than their competitors who have trimmed budgets to emerge from the other side and avail of opportunities once the economy shows its inevitable upturn.This paradigm is impossible to apply universally as all organisations differ and find themselves in varying states of commercial flux, however when we balance the above examples against the current trend of cost cutting and risk aversion we must also consider the cost of doing nothing. Money spend cleverly that is linked carefully to a tangible return on investment is of more strategic importance to an organisation than a cost cutting inwardly focused tactical plan. Budgets certainly have to be managed but not at the expense of future growth. Bill Gates once declared that if he were down to his last dollar he’d spend it on marketing.A firm that manages budgets and rationalises costs will become very good at being a cost focused conservative organisation, but will it be a firm ready to increase market share?, to increase its brand identity?, or become a firm poised to understand and service its customers when the upturn starts as it surely will?. Research following the last great recession has showed that firms finding themselves in the upper quartile of their respective markets had outspend their rivals by up to 9% on marketing. They were spending money to make money rather than trimming costs for short term positives on their P and L.The second logical step for firms who are prepared to spend their way out of recession is investment training and in people. Reduction in human or capital resources and tactical redundancies have become a byword for prudent housekeeping amongst many organisations in the current recession. But is this a practical long term strategy? Let’s examine the benefits of training within an organisation. After culling people and creating redundancies are firms in a position to capitalise on the opportunies that exist within the economy now? and even if they have cut their cloth in a necessary cost reduction, are they positioned to capitalise on the opportunities that will arise in the upturn ? Human capital is arguably the most significant resource that a firm has, and like any other resource it needs to be managed and maximised. Firms that adopt a defensive position now run the risk of being stagnant and unable to adapt in the future if their culture is one of reduction and fire fighting. Managers need to become leaders and drive performance, saleforces need to become sales professionals and capture more of the market share, innovators need to be allowed to innovate and bring new products or new ways of servicing customers to the table.How much of this is feasible within a culture of penny pinching and regression ? There exists little historical or empirical statistics for relationships between training and recessions as professional training and coaching is such a relatively new discipline, however you only have to look at companies that have taken their great leap forward in previous recessions to identify its importance. Hewlett Packard, IBM, Domino’s,Toys R Us all emerged as vibrant firms from periods of recessions, the ipod and itunes became a reality during a recession as Apple continued to spend despite being in a not particularly healthy shape, SouthWest airlines in the US virtually trained their way out of the last recession, Viacom and Dell the same. The point is that training is a soft option for the penny pinchers during a recession; training is seen as a luxury when in fact it’s a necessity. If the old adage that “repeating the same process hoping for different results is a definition of insanity” then there is a lot of insanity in the current market. Simply put, firms will not get the same results with the same people (or less people) doing the same thing when the market has changed so utterly. This applies equally to one person start ups as to huge global conglomerates.Consider a sales force, if they are asked to achieve better results during an economic downturn but are not given the tools to do so then they will inevitable fail. However add an element of sales training to the mix and suddenly you allow your sales teams to try different approaches, innovate in their pitches, create stronger customer relationships, develop greater customer understanding, you build ambition through changing the internal belief system and you inevitably create a stronger sales culture within your organisation. Customers have not stopped spending totally during a recession, what they have done is become more prudent and hunters for value. Surely creating value in a product, service or brand is a fundamental marriage of the marketing and sales teams. Whether you are a professional firm on the hunt for fees or a retail operation seeking to drive footfall, the message is the same, if you can afford to train your people to sell/innovate or simply to motivate, then do it, the long term rewards will outweigh the short term risk if the training is right. Understanding the spending patterns of existing and potential customers will be key in the coming months as will equipping your sales force with the tools needed to sell your products and services whilst enhancing the customer experience. Training brings you closer to achieving this.Secondly we know that training increases morale within an organisation. Development of a firm’s human capital is linked with output. The challenge for business leaders is to position their charges and organisation to be in the best possible position to capitalise on the opportunities that will arise. If some firms will go to the wall in the coming months what happens to their customers? They still have a need that must be serviced. Who will service that need? Are you positioned to do so? Are your sales teams informed and trained sufficiently to capitalise ? Do they have the techniques and savvy to capture and keep these floating customers ? Training offers the tools to capitalise on this. On a less dramatic level, what of those firms that due to internal cost cuttings fail to service their existing customers or clients in the way these same customers have come to expect. Where will these disenfranchised customers go to have their buying needs serviced? Training allows you to service these needs and create a loyalty to your brand or organisation. A learning culture facilitates innovation and enhancement of service and this in turn allows you to maximise business opportunities.Finally consider the medium to long term risk of neglecting your in house stars? These are the people in your firm who punch far above their weight and offer tangible above average benefits to your bottom line. These stars are unlikely to desert you in uncertain times as the barriers to changing organisations are currently so high, but when as an economy starts to grow again, they will spot opportunities to advance themselves elsewhere and you will start to incur the dreaded cost of employee attrition. If you look after your people and develop them professionally their morale is higher, the culture of the company or firm is stronger, and just as customers have brand loyalty, so too will you have employee loyalty within your organisation allowing you to plan and build more effectively. For example If the cost of training someone who produces say £100,000 for your bottom line is £5,000 this year, isn’t that money well spent if they stay with you and produce £120,000 next year (through a combination of increased skill sets, innovative outlook and enhanced motivation), rather than saving this £5000 training investment and have them desert your organisation when the employee transfer market is more vibrant, necessitating a candidate search (cost),the integration of a new employee(cost) with no guarantees of producing the same results (cost).In summary we know that clever firms do clever things. We know that successful firms do the right things well. The question for business leaders of today is whether cutting costs and adopting a defensive position is either the clever or the right thing to do. There is no doubt that cost cutting and prudent husbandry is essential in the coming months, that cash is king and that we are in an environment of survival of the fittest. However can we bracket marketing and training spend into this? As leaders are we missing the boat or sinking the boat by cutting back? History shows us that great firms don’t miss the boat and that many of the icons of the business and professional worlds have risen to their current positions of greatness by being different, daring to try an aggressive outwardly focused approach during a recession and by being ahead of the game when the green shoots of recovery finally blossom. Not all firms suffer during recession, but any firm standing still and having a survivalist mentality lessen their chances of “kicking on”. Managers and leaders need to have this enlightened mindset and make the requisite adjustments. It is possible to sell your way out of a recession but you won’t do it by sitting still and waiting for it to happen. Your revenue stream is the snapshot of your ability to win and retain customers, this is a measure of how well you are growing, cost cutting on the other hand is not a benchmark for how well you are performing as a business, its a measure of how much you have saved. Great marketing strategy and quality training to accompany that strategy are two of the most potent commercial catalysts that we have. Don’t allow yourself as a business leader to have regrets in the coming years. .

Simon Kenny,Director, Corporate trainer, Skills4Sales

One Response

  1. spending habits on recession…

    The recession has began, a lot of economists and business analysts have been tracking consumer habits to gauge what the effect has been, especially on spending habits.  Overall, fewer people are using credit like credit cards for unnecessary purchases, using more payday loans overall, and also committing to spending practices geared for saving money.  Fewer people are eating out, and a lot more consumers switch to generic rather than name brands in the grocery store.  Perhaps these are habits they should keep up.

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