In today's environment characterized by massive layoffs, declining revenue and obliterated enterprise values, many companies are pulling back to weather the storm. That may be the right move for some, and the absolute wrong move for others. It simply depends on your company's level of "Corporate Conditional Fitness".
There are many perspectives one can use to dimensionalize their company during these challenging times--revenue, profit, growth rate, headcount, cash. However, benchmarking your organization on just two key attributes--financial and competitive strengths--can help chart a roadmap to identify whether your company is poised for growth, or in need of a holding pattern.
According to a recent study conducted by Booz & Company, respondents were asked to assess their financial and competitive strengths--specifically, if they were able to carry on without immediate and external financial support, and whether they were better or worse than their key competitors on five dimensions (costs, product/brand positioning, technology/capabilities, leadership/management and the ability to influence and collaborate with regulatory authorities).
Based on the answers, there emerged four states of a company's health, or what I'll call, "Corporate Conditional Fitness", with apt metaphors applied to each:
"World Class" -- characterized by both financial and competitive strength
"Physically Fit" -- financially strong but competitively weak
"Out of Shape" -- a strong competitive position but weak financially
"Morbidly Deconditioned -- those weak both financially and competitively
"Physically Fit" -- financially strong but competitively weak
"Out of Shape" -- a strong competitive position but weak financially
"Morbidly Deconditioned -- those weak both financially and competitively
Putting all other variables aside, and evaluating companies across just these four scenarios can provide a clear strategic course of action, depending on the level of "fitness".
However, what companies should be doing, and what they are doing, is not always the case. For example, conventional wisdom would suggest that companies who are "Out of Shape", or "Morbidly Deconditioned"--those that were financially challenged during this crisis--would be taking steps to improve near-term cash and preserving working capital by either cutting costs, disposing of assets or seeking outside funding. Surprisingly, according to the Booz & Company study, only 25-43% of companies in the bottom two segments are taking steps in these areas, and in some cases, no more aggressively than before the crisis hit.
The same disconnect seems to be taking place relative to growth for the more "fit" companies--those identified as "World Class" or "Physically Fit" based on financial/competitive strength criteria. For example, one would assume that "Physically Fit" groups--those with cash but in a weak competitive position--would undertake strong efforts to shore up their competitive strengths by acquiring financially weak companies in their space with a strong competitive niche, especially in what is generally regarded as a buyer's market relative to M&A. Unfortunately, the study showed just the opposite. According to the research, only 21% of both the "World Class" and "Physically Fit" organizations are pursuing an M&A strategy relative to growth.
That is not, by the way, the route being taken by what are widely considered "Most Admired" companies. As Fortune Magazine reported, the Most Admired are far liklier to be expanding globally now than their less admired peers. This fact is supported by Coca-Cola CEO Muhtar Kent, who stated for the report, "We continue to make sure that our brands stay healthy and that we exit the tunnel with more market share than when we went in."
Cisco has $30 billion in cash reserves, making them by all measures, "World Class". According to CEO John Chambers, Cisco is actively on the hunt. Technology that would have cost $100 million a year ago is now available for $10 million.
So, how should companies be viewing opportunities as they approach restructuring their strategies during the downturn?
First, get an accurate read on the environment and your organization's position within it. Dimensionalizing your company and the competition on the two attributes mentioned here is a starting point. Next, choose the appropriate actions. If you are in the "World Class" or "Physically Fit" strata, pursuing acquisitions, introducing new products, entering new markets or building your talent pool should top the list. The key is identifying a limited collection of initiatives that can be executed within the context of both internal and external circumstances, with the potential to make gains immediately.
If your company is in the bottom two tiers--"Out of Shape" or "Morbidly Deconditioned", the "hunkering down" approach may be best, with one caveat: over the course of recessions during the last 30 years, it has been shown that deep slashes in marketing expenditures should be avoided if at all possible, even with those companies struggling. Your customers need to know you are still a viable brand, and the "out of sight, out of mind" scenario certainly holds true here. Another reason to keep your foot on the marketing pedal is that with your less enlightened competitor whacking his or her marketing spend, the airwaves become less cluttered, and your company message gains greater share of voice.
Greater share of voice means you stand out--even if your spending does not increase. A crisis such as the one business finds itself in does not have to mean paralysis. In fact, there are no greater opportunities to be seen, heard and grow.
