Benjamin Franklin almost had it right. Everything in life is uncertain, it turns out, except for death and taxes – and recessions.
Rising widespread anticipation of an economic downturn has led consulting firm Russell Reynolds Associates to interview corporate executives about their preparations for surviving a recession.
The study – Preparing for Economic Uncertainty: Are Your Operations Teams Ready? – is based on a survey of 534 senior executives, including 148 chief human resource officers, 179 CFOs, and 79 executives responsible for operations and supply chain functions.
The findings were were nearly unanimous — 96% all of the surveyed executives believe that a recession is likely to happen sometime soon.
Despite this, only 8% say they feel prepared to navigate the economic downturn.
The study defined the key component in creating an effective recession plan: communication among CEOs, COOs, and chief supply chain officers. According to the report, 51% of COOs and supply chain officers said that their CEOs didn’t encourage them to have a contingency plan in case of economic downturn.
“The people in the C-suite now were not in the C-suite back then,” said Pascal Becotte, a coauthor of the study and consultant at Russell Reynolds. “For new executives who have not faced the storm before, it’s going to be their first high volatility environment. It’s hard for them to know exactly what they’re facing.” Cooperation is the most important part of managing risk.
Another important factor in fighting a recession is having the right people in positions of power, people who can manage the risks and hardships related to sluggish economy. Only 5% of senior operations and supply chain executives believe that their team is ready for the upcoming challenges, but 62% say that they have the right people to help the company brave a storm. Many of those who believe they have the right professionals in place say they don’t yet have an adequate strategy. According to Becotte, the planning process needs to be a priority: “The CEO needs to make this a discussion point on a regular basis.”
Proactive companies that are ready to take action have a better chance of coming out on top than companies that wait to see hard evidence of an economic slowdown before taking steps to handle the problem. Long-term consequences of recession also need to be taken into account. “All of the data shows that in 2008, companies that at the earliest possible point started making adjustments before a downturn are the ones that rebounded first,” Becotte says.
The study also points out that CEOs shouldn’t focus on the recession alone. They need to put contingencies into their plan, but they also need to prepare a strategy for a rebound after the economy stabilizes itself. If the company wants to perform well, it needs a plan for future growth. Focusing on cutting costs alone tends to be a bad strategy. The report cites Boston Consulting Group data showing that 14% of companies grew their business during a recession. “The COO needs to build in agility and flexibility in their organization. They need to quickly make decisions that may not have come naturally before,” notes Becotte.
The study suggests several steps that companies can take to prepare their team for a recession: