In a recent article by ITR Economics Advisor for August (Itreconomics.com), in big bold letters, the author states "Make Your Move." This headline is followed by their reasoning: "Consider using today's low interest rates to upgrade your technology; this is one way to increase your capacity and efficiency without increasing headcount."
We’re often asked, "What do you think is going to happen the rest of this year and into next year for manufacturers?" While we’re not economists, based on our many interactions with manufacturers from different industries, we usually begin our answer with "it depends." Not as a cop out, but it really depends on what products and markets the client or prospect is in. It's not a one-sized answer that fits all.
What is important, however, among manufacturers that are struggling during this recession period is how they react to it. We can assume that they've all put protocols in place for how to keep their employees and visitors safe, so we’re not referring to how they handle the daily, tactical efforts.
Rather, how are they thinking strategically to cope with what happens over the next 6-18 months and beyond?
Following the 2008 recession, a Harvard Business Review article posited that companies typically fall into one of four categories regarding their approaches to managing during a recession. These four categories include some combination of either prevention-focused moves and/or promotion-focused moves. Think of promotion-focused moves to include market development and asset investment. Prevention-focused moves, according the authors, include employee reductions and operational efficiency efforts. The breakdown is as follows:
• Focused on competition
• Avoid losses
• Focused solely on growth
• Combine offensive and defensive
• Combine the optimal combination of offense and defense
There's no question that those companies that might have started with employee reductions off the bat were buoyed up slightly with the PPP loans, depending on their size, and that's a good thing. Companies highlighted in the HBR article that cut market development and asset investments and concurrently reduced headcount fared the worst in both sales growth and EBITDA performance (not surprisingly). However, companies that invested in both market development and asset investment, as well as worked on their operational efficiency efforts, outperformed all other companies in the sales and EBITDA measurements by four-fold over the worst companies.
So what does this all mean?
It's natural for business leaders to see sales and backlog decline and immediately look to reduce expenses through headcount reductions. What this data shows, however, is that there are more considerations to take into account when times get tough than simply reducing headcount. In other words, that decision cannot be made in a vacuum. Those companies that considered all four factors (market development, asset investment, employee reduction, or lack thereof, and operational efficiencies) were better positioned coming out of the recession than their competitors.
What move will you make? How do you start?
Let's go back to that other article’s suggestion to "upgrade your technology to help free up capacity and improve efficiency without increasing headcount." Assuming you are also strategically looking to develop deeper penetration into your current markets or expand into other markets, investments in the right technology can help you check three of the four key attributes of successful companies post-recession.
This includes technology like a CRM system so your sales team can be more efficient with their time, dashboards so your team gets the information they need without using multiple spreadsheets, and connected machines that predict downtime and increase uptime. But there are many more examples. Many companies are switching to new ERP systems where things like CRM, dashboards and machine monitoring are all interconnected, rather than dealing with disparate systems that require more people to extract and manipulate data. By then it's usually too late to make an effective decision.
In summary, these are tough times. We might be dealing with more pain in most businesses than we did in 2008/2009. But one thing is clear: Companies that hung onto their people and looked to invest in their futures came out of that recession in better position than their competitors that didn't. The one thing we have today that we didn't have then was the ability to leverage all of the new technology and Industry 4.0 concepts in order to grow profitably, without adding headcount.
Make your move! Click here to learn more about what technology options are available to your business.
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