Strategy Teams: Revving-up in the Recession
It is almost a year since the World Health Organization officially declared a global pandemic for COVID-19. While vaccination provides a route out of the health crisis, the economic crisis is only beginning to emerge, with many economies experiencing, or dealing with the aftermath of, deep recessions.
So far the response of corporates has followed a familiar playbook: drastic cost-cutting, organisational restructuring, reigning-in of capital spend, and squeezing of the supply chain. Companies in sectors which have been severely disrupted by mandatory social distancing have had to resort to creative strategic pivots at pace; notable examples include the dating platform Match.com (which quickly shifted into video chat services to enable “distanced dating”) and Disney (which is now releasing movies via its own streaming platform – much to the chagrin of the major movie theatre chains).
Evidently, proven tactics which deliver tangible near-term benefits have been prioritised on the management agenda, and there is limited appetite for “big picture” thinking. In these circumstances, it can be hard for internal strategy teams to define how best to serve the enterprise, as management time and energy becomes fixated on operational efficiency and delivery. Received wisdom is that these teams should either temporarily take a ‘back seat’ or roll their sleeves up to pitch-in on cost cutting efforts. However, there is also a need to ensure that the business is positioned for success when market conditions eventually recover. Below we set out 5 key considerations and ideas for strategy teams to help them decide how to effectively contribute to the business in these challenging times.
1. Really re-base the strategic plan
We don’t mean flicking the switch to “Downside Scenario” in Excel and plugging-in some cataclysmic assumptions. Given the increased market volatility during a downturn there is a real need to stress-test the strategy over the medium term, and examine whether industry trends may be accelerated (or delayed). For example, the disintermediation of retailers by FMCG companies in favour of D2C models has been catalysed by the pandemic, and big brands such as Nike are rapidly scaling-back their physical retail presence/distribution and heavily incentivising consumers to join their e-commerce platforms (expect more “please download our app!” messages heading for your inbox…)
2. Dust-off those M&A plans and look out for bargains
Strategy teams which adhere to the principles of programmatic M&A will have a point of view on desirable acquisitions going into the downturn. In a weaker economic environment, there are often opportunities to acquire strategic targets at an attractive valuation, and thus its worthwhile for strategy teams to spend time re-examining the strategic rationale for M&A and refreshing target screens. An extreme example is Shell’s $53bn acquisition of BG Group in the aftermath of the last global financial crisis; some of Shell’s staff had been looking at BG Group as an acquisition target for so long, that they had retired before Shell finally decided the timing was right to proceed with the transaction in 2015.
3. Consider hedging your core bets
What do FedEx, CNN, and Uber have in common? All were founded during recessions and became major forces of disruptive competition for incumbents in their respective industries. Other examples include WhatsApp, Instagram, and Pinterest, which were all launched during or shortly after the 2008 financial crisis. Recessions tend to catalyse entrepreneurship and the creation of innovative and disruptive business models. CEOs and corporate strategy teams rightly should be paranoid during downturns, but rather than lose sleep, they can assuage their concern by taking a step back, critically examine their own and competitors’ business models, and challenge themselves to find the next source of industry disruption (before others do).
4. Play Devil’s Advocate on cost cutting
The imperative to cut costs during a downturn often drives businesses to eliminate capability and resources critical to the future success of the business, but are not immediately contributing to the bottom line. Strategy teams have an important role to play in representing the corporate’s interests and being the custodian of strategic capabilities that will enable successful realisation of the strategy. Consequently, they are best placed to provide challenge on restructuring and cost cutting decisions, by ensuring that the trade-offs and longer-term implications are fully understood.
5. Decide if the Strategy Team’s capability is better deployed elsewhere
There’s no point painting the walls if the house is on fire. If the business is under major pressure, resources from internal strategy could be better used supporting priority performance improvement initiatives within the business. There are also longer-term benefits of strategy teams getting experience of working “on the other side of the fence”, to understand the business practicalities and implications and challenges for strategy implementation. The main caveat here is to ensure that sufficient resource is retained in the strategy team to ensure the ball isn’t dropped on core enterprise management processes (e.g. planning, investment reviews).
The pressures exerted on businesses during recessions tend to shift the organisational focus towards short-term operational priorities. Although this is justified to certain extent, entirely neglecting strategic considerations can result in businesses being in a more vulnerable position, or unable to capitalise on valuable opportunities when the economy eventually recovers. Rather than being side-lined by operational directives, strategy teams need to step-up and be deliberate in deciding where to invest their resources in order to ensure the long-term success of the business.
