You don’t need me to tell you that today’s business world is unpredictable. We can quickly become overtaken by events outside our control. But that doesn’t mean that we can’t raise profits even when the economy is going south.
Here are 10 ways to grow profits in difficult times:
- Have clear strategic objectives. Any boat in a storm will need to alter course to survive. However, only those that have a clearly identified port of call will know just how far the course should be altered. Similarly only those companies with a clear strategy will be able to make the best trade-offs in the downturn.
- Identify new, high-potential customer segments. When the recession hit Sainsbury’s benefitted from customers who had forsaken the higher-priced M&S food offer and Virgin Atlantic targeted business travellers who can no longer afford to travel full business class into its Premium Economy cabin.
- Focus on recession-proof markets. Not all markets are hit equally by any recession and some only see mild downturns or even experience upturns. Healthcare, pet care, food, outsourcing services, home entertainment, security, the tobacco and drinks industries and utilities tend to be more recession-proof.
- Ensure cost reductions follow your strategic focus. Having run several cost reduction programmes I know from (bitter!) experience that democratic cost reductions do not work. All cost reduction should be focused on delivering your strategy. This means making real choices and will inevitably mean making bigger cuts in some areas than in others.
- Unbundle your products and services. Unbundling allows you to better match your value with your customers’ individual needs. For example, Ryanair’s business model is based on extremely low fares with add-ons for in-flight food, extra baggage and even for check-in!
- Integrate suppliers into your operations. Toyota has been the exemplar of supplier integration for several decades, but their real advantage is in creating supplier integration that is cultural – involving real, two-way partnerships – rather than just transactional.
- Integrate customers into your operations. Ikea has transformed the furniture market by establishing self-assembly as the norm at the value end of the market and Amazon has used its customers to do the heavy legwork of its product marketing by encouraging them to write reviews and recommendations.
- Hire newly available talent in core areas. Other businesses are shedding staff or maybe even closing down. This may create opportunities for you to attract new leaders with new skills to help take your business forward.
- Share unproductive assets. During any downturn immediate and detailed attention is given to reducing revenue expenditure. Far less attention is paid to reducing existing capital investments, mainly because it is harder to achieve and has a longer time frame. The irony, however, is that most companies face the same problem. Where it is not possible or sensible to exit unproductive assets, an alternative is to share assets. Sharing warehousing space, office space or retail space with other organisations may create win-win solutions.
- Drive down inventory. How much cash is tied up in your inventory and what options exist to reduce this investment? Carrying a long tail of infrequently purchased items may have been possible in times of profit growth, but when cash is needed it is a luxury you possibly can’t afford. Even Amazon, the exemplar of ‘the long tail’, has lead times of up to several weeks on their slower moving products.
© Stuart Cross 2011. All rights reserved.