COLUMNS

Business Matter

With sound strategy, there is an upside to a downturn

By Manish Shah

Recession is associated with cutbacks in budgets, in workforce and in plans for the future. On the flip side, companies that are well managed can use this slowdown to widen their competitive advantage.
If a company sticks to its marketing budget while the competitors are cutting back, it will generate a larger return on the marketing investment. Various studies have demonstrated the positive effects of increasing the marketing spending during a downturn in the economy. For example, research done by Meldrum & Fewsmith indicates that firms that pursued aggressive advertising strategies during recession were able to increase their sales and profits at a greater pace than the firms that cut back on their advertising.
Another benefit of the ebbing economy is that it highlights the good and bad businesses of a company. A good management team will cut its laggards and focus on boosting its leaders. Since economic downturns are not an everlasting phenomenon, when good times return, the company which has focused on its well performing businesses will be in an excellent shape. A bad approach to managing a business during recession is to make budget cuts across all businesses, both good and bad.
An economic downturn can play havoc on businesses. It is, therefore, an ideal time to make excellent acquisitions at reasonable prices. The recent acquisition of Bear Stearns by JPMorganChase is a good example.
Companies can be better positioned to take advantage of a recession only if they have a sound strategy. The strategy would enable a company to increase advertising in areas that it has a competitive advantage, to divert resources from areas that are weak and to utilize its cash to make sweet acquisitions. So despite the doom and gloom that surrounds a recession, it is a great opportunity for a company to forge ahead of its competitors.

Manish Shah is the president of Mid-west Law Printing in Chicago. Prior to this, he worked at Intel, PwC and Motorola. He has an MBA from Kellogg Graduate School of Management, and an MS in Computer Science from Illinois Institute of Technology. He can be reached at manishshahus@ yahoo.com.