Managing Hard Times

When times are good, parties run wild and champagne flows free, and it's easy to be corporate executives. But when the going gets tough, it becomes a very different game. Although not all hard times are necessarily generic by nature, it is generally understood that they all mean one thing for the company as a whole - shortfall in earning.

Almost as a formula, companies in economic downturn switch from an operation mode of aggression and expansion to one of conservation and contraction. The standard path a CEO and therefore his executives readily take under such testing circumstances usually surround these things:

• Defer capital investments;
• Cut expenditures - entertainment, advertising and any other activities doubtful for not adding substantial value, eg, consulting, will readily go first;
• Reallocate resources - from loss-making operations to money-making opportunities;
• Squeeze suppliers;
• Hoard cash, therefore, defer payments - ie, further screwing suppliers;
• Sorry or not, lay off jobs;
• Sell off loss-making entities - of course, only when buyers could be found.

The idea of conservation is logically and generally about reducing any excess production capacity to such a point when it can be economically sustained by the contracting market demand. But all these things companies do would no doubt bear knock-on effects throughout the supply chains in any industries and therefore the ultimate purchasing power of consumers that the whole economy would have to be dragged into some form of vicious circle of further downturn before, for whatever reasons if not by the mere nature of ups and downs, it might have a chance to recover. That means, whenever there are initial signals of slow down, things tend to get worse before getting better. Paradoxically, I think it is a matter of luck for how long or short the suffering needs to be.

Of course, a shortfall in earning of a company may not necessarily be caused by a contraction in market demand but other reasons - eg, exceptionally rising costs, as in the current oil crisis. In any case, however, chances are that demand will eventually be affected if the rising costs have to be passed on to the final consumers.

For the employees, however, the definition of hard times may be very different. Times could be hard even when the company they work for was making money - as characterized by grim working conditions, lack of manpower for sharing overflowing demand, or, in general, perceived or real labour exploitation in any forms.

Under all circumstances of hard times, by whatever definition, I believe that a little bit of compassion from the managers for the general staff will go a long way for helping them - and the company - in surviving the hardship.