IT SME Strategies to Counter Today’s Global Meltdown
Date: Thursday , January 29, 2009
There is no denying the fact that the world economy is going through one of the most turbulent phases in recent history. One has never seen before such a massive impact on industry across the board, which got sparked off by the housing sector crash in the U.S., opening the Pandora's box of global credit crisis. The spillover from the subprime mortgage crisis is weakening both consumer confidence and the consumer spending — much of it on credit — that has been buoying the U.S. economy. Most of the leading global economies have registered a recession, and this economic slowdown will probably last much longer than the experts initially thought.
The theories point out that troughs like the current phenomenon usually last about 12-18 months. Considering that we are already almost 6 months into this downturn (Though the U.S. market reportedly slipped into a recession since December 2007, we shall take the global recession start time in mid-2008 for reference) we have to hold fast for another year or so before the winds start coming back to our sails again. But it is also a harsh truth that during this testing period, some organizations may cease to exist.
Let's look at the scenario from the context of small and mid-sized IT and software companies and look at some possible strategies to counter this global downturn. Now is the time to put together a survival strategy to ensure your business survival, as conditions could become much more challenging during the next 12 months.
The following are six basic strategies to focus on, assuming you already have got your expenses under control and are maintaining a positive cash flow.
Concentrate on the Customers
Client retention, not acquisition, becomes a top priority now. The best you can do is not to lose an existing customer, build customer loyalty, and at least keep up the same volumes of business with them. Show them how well you've done - show them the savings they make and the profits they earn from the value of their services. Consider conducting client satisfaction surveys for monitoring success. Make your company's offerings more valuable with speedy deliveries or flexible payment terms. Since your customers also feel the pain of the recession, they will appreciate it and will prefer to stay with you.
Keep Innovating on Focus Areas
For IT SMEs to compete against the larger, more established enterprises, they need to invest in innovation. The typical mistake that SMEs make is, in the spree to cut cost, reducing R&D budgets mercilessly, obviously thinking that this is an expense they can do without. This is absolutely wrong! Innovation is the only potent weapon that keeps one competitive, with a focus on new technologies, products, and processes to provide more value for money to the customers. However, to maximize ROI, the SMEs need to align their innovation efforts with their overall business strategies and invest on the areas that will have direct impact on the business in near terms.
Invest in Technology and New Product Development
Saving money often means cutting back on new products and services during an economic downturn. This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers. This is probably the best time to build innovative products. You are not in time pressure and probably the cost of resources is also much less than in regular times. The advantage that one can generate now will start showing in the results when the tide turns. While cost cutting is a must, growth should never be compromised. The companies that compromise on this typically miss the bus when the tide turns, simply because they have not invested prudently and do not have the resources to pull their growth engine.
Another typical mistake committed by IT SMEs during times of slow economic growth is to cut down heavily on marketing budgets. The primary reason, of course, is that the ROI of a marketing budget is not always visible in short terms. Another factor with typical Indian IT services companies is that they are typically delivery centric organizations and are administered by techies at the helm. A mind block can easily set in under the circumstances, which makes the entrepreneurs myopic about the immediate problem at hand, overlooking the long term growth aspect and sacrifice the tool in near term that would have helped them 'get there'.
Successful companies do not abandon their marketing strategies during a recession; they adapt them to suit the times. Restructuring the marketing budgets and cutting down on discretionary spending and traveling should be the order of the day. But the key market facing activities, promotions, and research should be compromised at the danger of drastically falling behind competition in due course.
Keep the Staff Motivated
Keeping staff motivated during an economic downturn is critical. Your employees are the ones who will help the business avoid the impact of a slump, so it's important to keep them motivated and keen to perform well. Wise organizations recognize the need to retain the level of investment in employees because this is the resource that will provide the competitive edge to the business, as the employees are the best ambassadors. Low-cost incentive packages for businesses on tighter budgets - from a retro sports day, a special dinner, a movie show, sharing cash profits, desk-side massages, to a simple text to win the campaign; there is no need to stop encouraging the staff – you've just got to realize the criticality of keeping your employees motivated and so use a little imagination.
Come What May, Hold On to Your Talent
In the obvious plea to cut the costs, lots of companies revert to the age-old tactics of downsizing. They do clean up the bottom performers in the process, but also end up removing a part of the cream of the talent. Most of the time, it is poor or lack of communication to blame, added to a lack of adequate incentives for the performers and potential achievers. The grave gamble to indulge in is undertaking the downsizing exercise without doing anything to counter the spread of the fear factor in the working environment. Not only does the organization lose on productivity, with a sense of insecurity spreading, it ends up taking a severe blow as some key performers are lost.
In conclusion, winners always emerge out of a recession and they almost always beat their competition with something new from their arsenal. If you want to take this recession and turn it around for your company's benefit, take some time to plan and have your top management team huddled together; your think tank has to work overtime now and you have to utilize their collective brains and teamwork and expertise to get you out of this. Most small companies keep an absolute hush-hush about their planning and half the team members of the planning committee are in the dark as to what the other half is up to. This is a recipe for disaster.
Be flexible and creative in coming up with solutions rather than making wholesale changes or slashes to your employee ranks. You will find this simple tip helpful in future. If you keep the big picture in focus and your head down aiming and working towards it, your company will make it through successfully to the other side of the economic 'Down'. All the best!