Strategic Planning in Recession

The global economy operates in cyclical patterns, experiencing periods of growth followed by economic downturns every 7-10 years, commonly leading to recessions. These challenging economic scenarios pose significant hurdles for businesses across various industries, including escalating costs, declining sales or growth, shortages of raw materials, accumulation of inventory, customer/vendor defaults, and higher costs of capital. While recessions bring short-term difficulties, they are generally temporary downturns in the economic cycle. As long as a business can weather the storm and adapt to the new realities, the long-term outlook tends to revert to a more favorable course of business.

During tough economic conditions, the primary objective for any business is to ensure survival. This necessitates taking immediate measures such as reviewing commercial policies, reassessing business strategies, implementing cost rationalization initiatives, or even undertaking comprehensive restructuring if necessary. This initial step is logical as the ability to survive during such times is crucial for subsequently taking the next steps. In this article, we posit that after ensuring survival, strategic planning is the next best step for any organization.

Five Good Reasons to Consider Strategic Planning during a Recession

1. Higher Value for Every $$$ Invested: During a recession, many businesses face challenges and some may even struggle to survive. This can create opportunities for companies that are well-prepared and strategically positioned to acquire good businesses at much lower valuations. By engaging in growth planning, a company can identify these M&A opportunities, acquire distressed assets or expand into new markets at lower costs.
2. Opportunity to Optimize the Market Positioning: A recession often leads to changes in consumer behavior and market dynamics. Strategic planning enables a company to assess these shifts and adjust its market positioning accordingly. It may involve refining products or services, exploring new customer segments, or enhancing the value proposition to better meet the evolving needs of customers. By doing so, a company can strengthen its market position, improve efficiencies in business models, and capture market share from competitors who may be struggling during the recession.
3. Excess Resources for Resource-Intensive Projects: There are some strategic initiatives that require significant resources, strategic focus, and downtime of existing infrastructure. Examples include upgradation, capacity expansion, efficiency enhancement, etc. While it is difficult to execute such projects during the normal course of business, it may be possible to execute such projects when the business is already facing downtime due to a decline in demand.
4. Appetite for Innovation and Adaptation: Recessions often drive businesses to rethink their strategies and find innovative ways to survive and thrive. Strategic planning encourages companies to think creatively and explore new avenues for growth. It may involve diversifying product lines, developing new business models, or embracing technological advancements. By fostering a culture of innovation and adaptation, a company can emerge from a recession with a competitive edge and a stronger market position.
5. Gain Stakeholder Confidence: Engaging in strategic planning during a recession can signal strength, resilience, and confidence to various stakeholders, including investors, employees, and customers. It demonstrates that the company is proactive, forward-thinking, and committed to long-term success. This can help attract capital, retain top talent, and maintain customer loyalty even in challenging economic times.

Key Constraints and Considerations:

However, the key constraints during such times include the following:

• Survival as the Top Priority: Ensuring survival (step 1) may not be easy and can consume a significant portion of the business or organization’s resources during a recession. While strategic planning is crucial as a second step, prioritizing survival should be the primary focus for any business.
• Limited Availability of Capital: Excess capital may not be readily available for strategic acquisitions, investments, or expansions during a recession. In such circumstances, exploring external sources of capital becomes necessary. Although credit can be costly, flexible structures can help reduce borrowing expenses as interest rates decline.
• Shareholder Pressure: The business may face pressure from shareholders due to poor performance. In such situations, effective investor communication and managing expectations become essential to communicate the potential benefits of strategic planning initiatives.
• Uncertain Timing of Economic Recovery: Estimating the bottom of the economic cycle and the timing of economic recovery can be challenging. In such scenarios, adopting a broader perspective and considering the bigger picture can enhance decision-making. Organizations should maintain a 5-10 year time horizon for investments and new projects.

If you are a corporate leader, investor, or entrepreneur seeking expert guidance and support for strategic planning for your business or organization, I invite you to visit our website and schedule a call for discussion.