Daily Archives: July 6, 2010

Three Easy Steps to Winning a Recession

    1. Get Operationally Efficient This is not about cutting costs, but cutting fat and spending strategically on quality and performance. If a product, service, or piece of software improves productivity by 30% and reduces operating costs by at least 3X its annual cost, you buy it, even if it costs six or seven figures. But if all a product does, like an online T&E application that your employees rarely use, is save you 50,000 a year for it’s 30,000 price tag, you eliminate it and invest the 30,000 somewhere else where you’ll get a return.
    2. Increase the R&D Budget Your prosperity depends upon your ingenuity. That will require innovation, which requires top talent and the resources they need to break through traditional barriers. That requires that R&D have enough money to support pure research in addition to product development and day to day support. And in R&D, a little investment can go a long way. It only takes one breakthrough product to make tens, if not hundreds, of millions (or billions) of dollars of revenue down the road.
    3. Invest for the Long Term as well as the Short Term

This is the real reason most companies fail. Simply put, failure to invest for the long term means that when a new innovation is needed to maintain or secure new market share, it’s not there. Failure to invest beyond the next quarter means that instead of working on new products, the company is focussed on extending the life-cycle of existing products which have sold well, trying to eek out every last penny. The problem with this strategy is that as the market gets closer and closer to full saturation, the profit per sale drops exponentially. In comparison, if the company shifted focus to a new, promising, product, around the 70% saturation point, by the time the market reached the point where the profit per sale was unattractive (which usually happens around the 80% saturation point), the new product would be well into it’s growth curve and profits would hold steady.

That’s it. If you don’t believe me, you can read the very well written, but very lengthy, article on “roaring out of recession” in the Harvard Business Review, but winning a recession is very simple. Stop focussing on cutting costs and start focussing on improving the value you bring to the market. Even in a recession, people still want, and need, to spend. The only difference is that they’re more reserved and willing to hold out for products and services that provide great value at a great price. The first company to offer them the first great product or service they want at a great price typically wins. It’s as simple as that. (And that’s one of the main reasons why 85% of market leaders get dislodged during a recession … they fail to understand that value trumps even long term loyalty when money is tight, giving you an opportunity.)

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AMR Reads the Supply Chain Tea Leaves …

… and probably proves that that they have not yet mastered the art of tasseomancy because, if I was going to bank on any predictions on who will rise in the coming year, I’d rather take my advice from a cartoonist than bank on their supply chain top 25 predictions.

Of their seven “rising” predictions, I wouldn’t bet on the following four:

  • Research in Motion (RIM)Apple & Droid are both taking the market by storm, taking turns leading the monthly sales numbers … and neither are fans of Microsoft (Apple is a direct competitor and Google has banned windows from its campuses), who continues to take a beating in the marketplace; in contrast, RIMs back-office integration is Microsoft (Exchange) heavy
  • Hewlett-Packard (HP)HP might be doing well in the enterprise (server) market, but it faces tough competition from IBM, Dell, and Sun, which now has the financial clout of Oracle behind it; on the consumer side, it’s Windows-centric, and Apple keeps rising while Microsoft keeps falling
  • NokiaWith six of the top ten cell phone manufacturers in Asia (3 in China, 2 in Korea, and 1 in Japan), and with the output of the Chinese manufacturers rising rapidly with a rapidly increasing local market size, how much longer do you think Nokia is going to retain top spot?
  • Johnson Controls (JC)This kind of says it all: the company dropped like a stone this year, as the weak economy hammered its financials. It’s unlikely this US-based company is going to see a quick recovery.

And while I expect the following two to hold rather steady, I don’t see a rapid rise:

  • KraftKraft is solid, but given their primary vertical, I don’t see a rapid rise in demand for their products.
  • General MillsGeneral Mills is also solid, but given their primary vertical, I don’t see a rapid rise in demand for their products either.

    Plus, both these companies are heavily dependent on retailers, whom AMR expect, as a group, to fall this year!

In fact, the only “rising” prediction I’d agree with is:

  • LG Electronics (LG)This Korean electronics giant is currently the third largest producer of mobile (smart) phones in the world and is aggressively pushing its way across the electronics vertical(s), backed up by a serious effort to revolutionize its supply chain.

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