Recessions are inevitable, and while most recessions don’t last over three quarters, navigating the same can be quite treacherous for companies. Drastic steps like extreme cost-cutting & layoffs, or over-investments tend to backfire. Procurement, operations, and finance need to work synergistically to improve operational efficiencies and productivity for the long term.
In this 3-part blog series, we explore-
- Historical recessions; typical, short-term responses from organizations, and why they fail
- Zycus’ 3R framework, that enables companies to evaluate their cost structure, prioritize investments that dynamize productivity & generate insights, and facilitate a modern work environment, as a three-pronged response to a recession
- In the final part of the series, discover how 2 global organizations thrived during the pandemic- led recession and managed to create & retain their competitive advantage!
The series ends with ‘Additional Opportunities In Adversity,’ a section that includes additional counterintuitive strategies outside the core procurement and finance functions which CPOs and CFOs can support given their expanded strategic roles within their organizations
Recessions are inevitable
A recession is on the anvil. The ongoing war in Eastern Europe has further fueled the fear of an imminent recession, and rising fuel prices, reduction in consumption, other inputs exacerbating the lingering inflation point toward a singular outcome. The recent flurry of news about massive layoffs in the tech sector has further instilled the fear of a recession.
“A KPMG survey conducted with 1,325 CEOs recently revealed that 86 percent of CEOs believe a recession is expected shortly, making post-pandemic recovery harder. “
This blog series examines what the game plan should be, for procurement and finance professionals to help their organizations navigate the recession.
But before that, let us take a quick look at historical recessions and some takeaways from the same.
World Bank analysis of global recessions over the past 150 years indicates that there have been 14 on-record recessions. i.e., one recession every decade, give or take. The COVID-19 pandemic-induced recession in 2020 was the deepest since the 1945-46 post-World War II recession. If the downturn starts in 2023, it will be two quick recessions.
The length of the average recession depends on the time frame you’re considering. Considering data since 1854, the National Bureau of Economic Research (NBER) places the average recession at 17 months. However, if we only consider the post-WWII period, the average American recession has lasted ten months.
Not many may know this, but the COVID-19-led recession lasted only two months. Yes! Only two months! Not even a full quarter. However, its profound impact and the aftermath of the pandemic continue to linger much longer.
- Most corporate leaders have survived at least two recessions (possibly more) in their careers. Hence, they have a real-life experience of navigating one
- Recessions don’t last forever. About 58 percent of the CEOs in the KPMG survey mentioned above expect the recession to be “mild and short”
Navigating a recession is tricky.
Good leaders know how to fight a war; great leaders win peacefully. Aptly, many organizations often, in a frenzy, undertake multiple ‘wartime’ initiatives to cope with a recession, and encounter mixed results.
As per an HBR report,
- Firms that cut costs faster and more profoundly than rivals don’t necessarily flourish. They have the lowest probability—21%—of pulling ahead of the competition when times get better
- Businesses that boldly invest more than their rivals during a recession don’t always fare well They enjoy only a 26% chance of becoming leaders after a downturn
- And often, companies that were growth leaders coming into a recession can’t retain their momentum; about 85% are toppled during bad times
- There is no sure-shot magic bullet for dealing with a recession
- However, extremes – deep cost cuts or overtly ambitious investments clearly don’t work; the procurement, operations, and finance leadership need to work synergistically to navigate a recession
We’ve now established that short-term thinking and cost-cutting & layoffs are half-measures.
How can you as a ProFiT (PROcurement, FInance & Technology) Leader not just survive, but thrive in the recession?
Read on for Part 2 of this series, and discover Zycus’ 3R framework to navigate the impending recession!