No matter how many times the UK narrowly dodges the technical definition of recession, no one is arguing that the economic outlook looks rosy right now. Significant growth feels like a distant dream, inflation remains as high as it has been for a generation, war and energy insecurity continue to cast long shadows and there aren’t enough workers to go around to fill vacancies.
The British like to pride themselves on our resilient, stoical ‘Blitz spirit’ when the going gets tough. But given the storm-like force of the economic headwinds we’re currently sailing into, you wouldn’t blame anyone in business for deciding a drastic change of course is the required medicine.
But is this the best way to cope with the looming threat of recession? Clearly, pragmatic concessions have to be made to the fact that market conditions are far from ideal at the moment. This is no time to be blase about costs rising and margins eroding. Tough decisions will have to be made.
But equally, there are good arguments to say that knee-jerk cost cutting often does more harm than good. And that within reason, it’s more prudent to grit your teeth, hold your nerve, and do your best to hold your course.
Heavy cuts can damage your brand
Shedding jobs and cancelling investment in things like new technology can actually weaken your ability to get through tough times. First, there’s the reputational aspect. Mass redundancies in particular are bound to attract negative headlines and make already reluctant consumers even less inclined to spend with you.
Then there’s the issue of the levels of service you can provide diminishing in line with cuts. It might seem a good idea to pause a planned digital implementation project for a year or two until your books look healthier. But standing still is a dangerous tactic in the dynamic world of modern business. Consumers are constantly demanding and expecting more, they have little patience with brands whose offer starts to look tired and behind the times. And in the cut-throat world of mass digital competition, there is always an alternative for them to turn to.
Success is a long game
When you’re worrying about being able to cover your costs month to month, all the advice that dips and recessions are just “a natural part of the economic cycle” can come across as annoying. But that doesn’t make it any less true.
Even the deepest recessions don’t last forever. People who have been in business long enough to go through two or three downturns all say the same thing – yes, survival is your first priority if things get tough. But the real trick is getting yourself in a position to take advantage when growth returns. Preferably ahead of the competition.
Dame Angela Ahrendts, CEO of Burberry during the late noughties banking crisis, is credited with borrowing from Winston Churchill to say she’d “never waste a good recession”. Lean periods offer a great opportunity to take a long hard look at your business, figure out what really works and double down on your strengths.
This view served Dame Ahrendts well – Burberry tripled its valuation by the time she left her role there in 2014. The key is basing your strategy on a long-term view of what will bring success to your business, not simply firefighting the adverse conditions.
Spending delivers results
Finally, while cuts are inevitably the flavour of the month with the threat of recession hanging over us, everyone in business knows that you rarely get anything for nothing in this world. Cuts don’t just risk damaging your brand if you go too far. They actually take you in the opposite direction to the one you want to be heading in, which is towards growth.
Whatever else is going on, one universal law of business always applies. If you want results, you have to be prepared to put something in.
The great management consultant and business strategist Peter Drucker famously said: “the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”
The idea of ‘spending your way out of trouble’ might be a little glib. But marketing and innovation are the two areas where you really should carry on with your investment plans regardless. As Drucker elaborated, these are the operational areas that will ‘create’ customers for your business, they are what will differentiate you from the competition. Whatever the economic headwinds, they are where the battle for success is won or lost.