When the storm passed after the recession of 2001, some firms were in position to increase market share at the expense of those who had made unwise decisions during the downturn. In an effort to reduce costs, many companies implemented across the board cuts and wound up sacrificing their future.
Careful consideration can reveal where efficiency can be increased, costs reduced, and identify essential employees for retention. Each organization is unique and due diligence can help prioritize a strategy to best exploit future business opportunities.
Learning from the Past: A Look at the 2001 Recession
Diamond Management & Technology Consultants examined 415 companies worldwide with revenues exceeding US$100 million. The qualitative analysis investigated how the companies fared from 1998 through 2003 bracketing the 2001 recession.
The report, Don't Waste a Crisis: Lessons from the Last Recession, produced four classifications detailed in the figure below. Stalwarts maintained high performance continuously. Opportunists progressed to improve their competitive position. Disappointed stars saw significant decline. Low idlers performed poorly throughout.
Stalwarts and opportunists improved margins by 20 percent while disappointed stars saw a ten percent decline. Among the significant factors for success was a focus upon what, and who, is core to the company and determining what processes and functions are best turned over to external providers.
Outsourcing: Keep Your Eye on the Prize
Rather than across the board cuts, organizations should closely examine their business and make cuts selectively or outsource with an eye to the future. "It can't be a knee jerk response to the economic environment; it needs to thought out in terms of long-term planning," says Jennifer Daniell Belissent, PhD, a senior analyst for technology product management and marketing at Forrester.
"If you cut across the board, you run the risk of cutting capabilities that will be important coming out of the recession," adds Chris Curran, chief technology officer at Diamond Management & Technology Consultants. "Conduct a spending review across major functions with an eye towards cutting costs without cutting to the bone."
Supplementing internal resources with external expertise for improved business agility and performance reaps many benefits (strategic) including cost savings and a reduced time to benefit (tactical). Companies have many more choices and the ability to customize outsourcing solutions to address their needs today compared to 2001.