There are always ups and downs associated with any line of business

There are always ups and downs associated with any line of business. IT is not an exception. During downturn profit margins take a toll and consumer confidence plummets. Business executives around the world eagerly scan the latest report on economic indicators and search for good news. Downturn affects many segments. It is not only the industry that experiences the negatives of the economy, but also the common man is affected. Economic uncertainty elicits different reactions from different firms. Some organizations simply tread water and attempt to ride out the storm; others swim upstream with the intent to move ahead of their competitors. As executives rethink their business strategies, they should consider a variety of approaches – including some that are not immediately obvious given today's uncertain economic climate. 2 Problem Definition Understanding the problem is a key to solving it. Howsoever generic this statement may be, it is apt to say that the strategies and actions formulated to emerge strong in downturn may not succeed without understanding how the downturn was caused. It is imperative to understand the factors that influence the downturn and how a particular downturn may be triggered. The cause could be many; a particular industry segment might not meet expectations and could trigger decrease in growth in other sectors. E.g. the dot com burst. In this section we endeavor to list down indicators that could possible play a role in causing the downturn. Along with it we also list down the reactions that companies worldwide give to tackle downturns. By way of research we would like to present how these reactions can indeed be made operational strategies to emerge victorious in the downturn. 2.1 Economic Downturn – Defined Economic Downturn is defined by a significant decline in total output, income, employment, and trade, usually lasting from six months to a year, and marked by widespread contractions in many sectors of the economy. Downturns can be * Industry specific * Economy based * Long term/ short term or * Geography specific The severity of an Economic Downturn is measured through parameters like: Economy * Employment * GDP Growth * Interest rates * Inflation * Investments * Public Expenditure Corporate * Lack of growth in profitability * Falling earning outlooks * Squeeze in margins * Drop in share price Index * Low dividends * High investor expectation * Dried-up cash flow * Low capacity utilization * Urgent need for cost optimization * Increased market competition * Stagnant Markets – Non expanding – Frozen pie vs. Expanding Pie People * Fall in Personal income * Fall in Personal expenditure * Fall in Private Investments 2.2 Company Reactions during downturn Companies adopt various tactics that can help them emerge stronger and subsequently more competitive when the economic upturn arrives. Forward-thinking initiatives that concentrate on lowering an organization's ongoing cost structure are more effective than blanket budget cuts. The tactics focus equally on efficiency and expansion, since businesses keen on moving ahead have to consider both perspectives. In fact, when corporate coffers are clamped shut, companies must rely on efficiency gains to fund expansion initiatives 2.2.1 Cut Costs Cutting the cost is probably the most obvious option for a company when margins are thin. Cost cutting is done in different forms and many of the following options directly or indirectly deal with them. 2.2.2 Improve Focus In boom times, the proverbial strategy is to let a thousand flowers bloom. However, when the financial picture darkens, the businesses tend to do some pruning. An economic downturn becomes an ideal time to focus the corporation's scarce resources -both marketing and manufacturing dollars – on the most popular, promising or profitable products and brands. In other words, invest in the best and ignore the rest. Savings from consolidation efforts can then be applied to further support selected focus areas. Similarly, businesses try to concentrate on acquiring and retaining the most profitable customer sets: How? 1. Forego expensive mass-marketing efforts; instead, market directly to carefully targeted prospects 2. Focus efforts on serving top accounts better than ever. Understand customer cost and revenue drivers to determine the real â€Å"top accounts†, then consider e-commerce and self-service solutions that can increase satisfaction while lowering costs. 3. Learn to effectively use information that is already available in-house to build revenues from the existing customer base. By combining in-house information with proprietary market data, the company can start to understand the â€Å"why† of customer preferences and build a stronger competitive advantage. 2.2.3 Ease points of pain When revenues are climbing continuously, inefficiencies are easy to ignore; declines in per-unit margins can be made up through volume. But when growth stalls, margins come under tremendous scrutiny, forcing companies to inspect every aspect of their business for possible improvements. Rarely can a business simply stop performing a function; instead, it must find a way to accomplish the task differently. This often requires the help of technology. Surplus inventory, high work-in-process and supply-and-demand discrepancies are more costly than ever. By digitally linking the entire supply chain and collaborating electronically with suppliers and customers, companies can potentially lower costs in the short term and improve market responsiveness over time. 2.2.4 Share costs It's not surprising that when margins are squeezed, firms search out and eliminate redundancy. Internal and external best practices implemented through shared or common business models across the enterprise can dramatically lower costs while increasing competitiveness. However, an â€Å"all or nothing† approach to standardization can sometimes backfire. When implementation teams look beneath the surface of â€Å"common functions†, they often discover legitimate needs for variance. Before too long, the cost of processing exceptions outweighs the anticipated synergy savings. An effective shared services strategy requires a deeper analysis up front – pursuing similar parts, not necessarily the whole function. Rather than forcing each function – regardless of line of business – into a standard mold, look for naturally occurring affinities, pinpoint specific areas of similarity, and combine those particular pieces. 3 Analysis 3.1 Reasons for Downturn Studies have shown that the following are the main reasons for downturn: 60% of the respondents feel that this downturn is caused by normal fluctuations in business cycles. The fluctuations in share markets are attributed as the reason for downturn by 20% of the respondents. Only 15% of the respondents felt that the September 11 terrorist attacks on the World Trade Center is the cause for the downturn. This shows that people perceive downturn as a natural phenomenon happening due to ups and downs in the economy. Terrorist attacks and other reasons, are not the main factors causing downturn, but they can trigger an already bad situation worse. 3.2 How do people see the downturn Majority (61%) of the people feel that downturn is an opportunity to find newer markets, restructure their organization and fine-tune the process to increase productivity. The findings here support our arguments provided in the previous section. Downturn is definitely an opportunity for businesses to take a look at their processes, the way they provide services to customers, markets and other factors affecting them and improve their way of working. 3.3 Strategies to focus during downturn Studies found that during a downturn the energies of people are concentrated in keeping their customers happy. 32% of the people have made this as their primary focus area. The other areas where people are concentrating are in strengthening the sales and distribution/marketing. When getting new business is tough, it makes sense to keep the existing customers happy, provide them the extra bit for their dollar and come up with innovative ideas to service them. Keeping the existing business stable can sustain the current revenues and increase. Repeat business can increase the revenues. With these factors in mind, people are following customer centric strategies to face the downturn. 3.4 HR strategies during downturn Human Resources are on of the key focus area during a downturn. Cost can be cut cost by retrenching employees. Productivity can be increased by extending the working hours or by employing cross-functional training. â€Å"Punish the non-performers† is the key mantra. 80% of the respondents have stated that this is the primary task that needs to be accomplished or that their companies have started identifying non-performers and taken steps to ensure that employees perform to expectations. Some of them advocate extending the working hours. There seems to be not much support for unpaid leave or freezing salaries among the people interviewed. 3.5 Outsourcing as an option Downturns might pose a good opportunity to study what the companies are doing the best and discard the rest. Outsourcing to low cost destinations is definitely being looked as a possible opportunity. 76% of the respondents feel that they should resort to outsourcing non-core activities. 4 Suggested Strategy to Manage Downturns â€Å"Recessions, sound a lot worse than they are — in part because they're a great opportunity to move forward on key strategies and to take on competitors.† To get through a recession the most important thing for a company to do is to keep a positive attitude and identify its challenges and convert them into opportunities. There are various strategies that a company can adopt to not only survive but also grow in a reversionary economy. Based on the various arguments and data provided in the previous sections, we are in a position to present these action items to manage business in a downturn. We have grouped them under different functional management areas. 4.1 Core Competencies Recession is the time when a company must concentrate on its core competencies. Core Competence implies Resource, strength, skills or a combination that provide tangible advantage to a firm. It is very essential for the company to maintain focus and do what it does best. It is dangerous for a company to venture into unknown territories with an intention to broad-base itself, as one wrong decision could make it fall deep in the red. Every company must take stock of its strengths and leveraging unique strengths that are difficult to emulate. It should strive to enhance its knowledge and skill by keeping in touch with the market requirements. Identify strengths and axe weaknesses. This can translate in restructuring, selling or closing weak or mediocre businesses. Selling is particularly difficult, as the same division might have fetched much more in good days. In a downturn, this aspect should not change the focus. Companies cannot afford to waste money and management attention in areas that destroy value or limit their ability to invest in the future. Young companies may not have enough run way for the next year or two. They must rapidly adopt survival strategies. Tough choices range from giving up equity at low valuations; merging with compatible product or service companies; partnering to, in effect, use other people's resources; or narrowing the strategic focus to a bare minimum. A careful study and analysis will help in taking the right decision. 4.2 Customer is the King Repeat business from customers is important to maintain profitability. It has been proven that, repeat business accounts for around 70% of the total business in most of the established companies. Customer delight should be the focus. Offer something to the customer, which not only exceeds his expectations but also goes even beyond it. E.g. Special features in a software application/product in line with the customer requirements. Infosys receives 85% of its revenues from its existing customers. This is what we can call as a â€Å"Customer focused capabilities† which Infosys has built over a period of time. Customer delight can also be achieved by actually sending out people on the field and spending time with the customers to find out their requirements, the value they put on the product or service offered by the company, their level of satisfaction with the quality and other suggestions they can offer to better our product. This strategy was recently adopted by Hindustan Lever Ltd. with their â€Å"feel the pulse† drive. 4.3 Human Resource 4.3.1 Talent Retention At the outset, we have shown that recession and growth form a continuous circle. Therefore, it is imperative for companies to resist the temptation of cutting costs through retrenchment, as it sows the problem of rehiring professionals when the economy turns around. Instead, companies should encourage their employees to accept pay-cuts, and cross- train them so as to equip them with the necessary skills that will help the company take advantage of the opportunities that arise once the situation improves. Many companies that want to cut costs during recession adopt the policy of downsizing. A vast number of talented professionals are thus available for recruitment. Managers can take advantage of this favorable situation by recruiting these professionals after thoroughly interviewing them, thus testing their competency levels, attitudes, and the organizational culture fit. 4.3.2 Miscellaneous Actions Companies can resort to cross-train people in view of the opportunities that can come up after the recession is over. This is more like doing an investment in hope of better time to come In case of situations that warrant stopping the production, companies can ask the employees to take unpaid leaves or giving extended weekends. Lucent has adopted this strategy. It can have a downside to it by way of loosing talented employees because of employees getting demoralized. Offering additional perks to those who can get in more business can motivate employees. This can be mainly applicable to the marketing and sales force. Jack Welch, former CEO of General Electric Co. called pay freezes â€Å"the worst crime of management† and underscored his long-held belief in a meritocracy approach that consistently rewards the top 20% of employees and dismisses the bottom 10%. While he was CEO at GE, Welch said, 75% of his time was spent â€Å"evaluating people† and raising the company's intellectual capital â€Å"through candid evaluations.† 5 Conclusion: Economic Downturn is a phenomenon that occurs at different spheres of the society and attracts a lot of attention from the corporate world, the policy makers and of course the common man. The strategies to set things right are also decided at various levels and encompass a wide range of actions. Above study consists of observing typical industry response to downturn, conducting primary research through surveys and analyzing the data and secondary research through analyzing reports and news available in business journals and internet research groups like Gartner, Meta group etc.