Recessions are predictable—and this is liberating.
As much as we might want them to be, economic crises are not once-in-a-lifetime events.
In the last two decades alone, we have endured huge global downturns caused by 9/11, the Credit Crunch, and the coronavirus. The times between them were hardly plain sailing, either. We have lived—and worked—through the dotcom bubble, the tsunami, Hurricane Katrina, and various localized banking and real estate crises, not to mention the odd war and corporate failure. Plus, for good measure, sovereign debt crises, banking crises, stock market bubbles and stock market corrections, Fukushima, floods, fires, a recession, global warming and—in the U.K.—Brexit.
It is right to take moment to reflect on the human pain and misery caused by each of these crises. Society has a responsibility to do what it can to avoid and alleviate this wherever possible. But for businesses the message could not be clearer: markets rise and fall. Downturns happen. And, however good times get, the next crisis is always on its way.
As horrible as this sounds, in this acknowledgement lies the kernel of a liberating truth. History offers ample evidence that it is possible not only to survive recessions, but to thrive through them—if leaders take the right action.
To put it another way: there is a playbook for recessions. Over 20 years and multiple downturns, I have seen myriad businesses use it to survive and thrive. It is accessible to organizations of all sizes, industries, lifecycle stages, and circumstances.
When things take a turn for the worse, the recession playbook requires leaders to avoid the temptation to panic or play a game of “wait and see” (a surefire way to let competitors steal a march), and instead get proactive and productive. The task is not to react—but to respond.
The playbook has four components.
The recession playbook has four components.
1. Take all necessary precautions
Conservation is component one of the playbook.
The first conservation requirement is to balance the P&L, stripping out all unnecessary cost from the organization while at the same time securing ongoing contracts. In reality, this is basic good business practice: if your organization is in the habit of wasting money and playing fast and loose with its customers, then this suggests that significant room for improvement exists even when times are good. Recessions have a horrible habit of bringing existing weaknesses into focus.
The second requirement is to ensure that sufficient funding is in place for short and medium-term goals to be met. Again, history offers clues about the right courses of action. At the time of writing, consumer debt, company debt and sovereign debt are all likely to spiral in the coming months and years—they have done so in similar situations in the past. And significant defaults are likely to take place, perhaps sequentially (in all probability, sovereign debt defaults will follow company defaults, which will follow consumer defaults). This suggests that leaders would do well to secure the credit they need now, while they can.
Conservation is the most natural of the recession playbook components for many leaders—but it is easy to panic and wildly overstep the mark. Self-protection can quickly turn to self-harm if leaders don’t think smartly about what the future will bring. This brings us to the second component.
2. Focus all strategic efforts on the medium term
The long-term plan is dead. It was always little more than an exercise in corporate day-dreaming—and the VUCA world now renders it fully redundant. We shouldn’t mourn its departure (if nothing else, just think of the hours saved in writing unnecessary PowerPoint presentations).
The recession playbook asserts that leaders should focus on six-month planning windows—12 at most. This period of time is sufficiently lengthy to enable a sensible amount of activity to be completed, but is not so long that it runs the risks of events overtaking it or starts to feel like an unhelpful exercise in abstraction.
Mid-range strategic planning focuses on two questions that sit at the heart of all effective change management: “what are we doing now?” and “what are we doing next?” Leaders developing such plans should pay close attention to building learning competencies and behaviors that enable these questions to be answered quickly and well (see point 4, below).
The challenge with mid-range planning is that timescales limit the number of actions that any organization can take. Such parameters are, of course, the essence of good strategy—but arriving at them requires leaders to balance agility with rigor in their thought processes. Being too ambitious, not ambitious enough, or simply focusing on the wrong strategic priorities are all common sources of failure in this step.
Execute in short, energetic cycles.
3. Cross-check organizational competencies and readiness
Next up, the recession playbook requires you to align strategy and execution. People are the first call here—or should be. Even the best strategy will not make it out of the starting gate if the organization is not ready and willing to deliver it. This requires leaders to focus on two things:
- Emotional readiness: ensuring that people feel energized, resourceful and well-supported—and therefore able to deliver what is being asked of them
- Functional readiness: ensuring that the right talent is in the right roles in order to satisfy the functional requirements of the strategy.
In our practice, it never fails to surprise us how many leaders bypass the human factors. Instead, it seems, they prefer to regard their people as having both superhuman levels of resilience (negating the need to consider emotional readiness) and a sort of virtuosity-on-demand (negating the need to consider functional readiness).
Understand: your strategy may not succeed if your people are energized and well-organized, but if they are not energized and well-organized it is guaranteed to fail. (This is why so many digital transformation projects end up hanging in rags.)
The competency check also contains a hidden benefit. Your people may well have skills and experience that are under-leveraged by your organization. Discovering and harnessing those can itself be a route to developing a viable medium-term strategy.
4. Execute in short, iterative cycles
Crises have a habit of changing the ways that people think and operate. These changes are largely predictable (human behavior mostly is, even when it appears irrational), but how competing organizations will respond to them is not.
So, “plan, do, review” is the mantra of the recession playbook. Strategy should be planned at a high level over 6-12 months, but tactical execution requires an agile approach to testing and learning—and an ability to adjust course in real-time depending on the results the organization achieves and the competitor activity that it observes.
This means that leaders need to get clear on what lessons they need to learn about their customers, services, pricing, supply chains, competitive sets and so on—and evolve hypotheses as a basis for ongoing experimentation. Fast execution then becomes paramount.
This is unfamiliar territory for many organizations—who prefer, for reasons of convenience (not least of the budgeting sort), to define a course of action, then execute it. But that’s the problem with “waterfall”-style approaches—they tend to sweep businesses over the edge.
The recession playbook really is that simple—or complicated, depending on your perspective and the state of the organization that you are in. And equally simple are the consequences. At times of crisis, those who embrace the playbook survive and thrive. Those who do not risk becoming just another footnote in history.
