The fate of a business—for better or worse—is often sealed in a downturn. This can be when companies lose their way—yet the evidence is that there is a clear path to better, sustainable growth even in the midst of the most challenging times
Today, many companies are experiencing a global economy that feels different to anything they have ever encountered before. It is not just that firms are cutting forecasts, cutting headcount and beset with uncertainty. It is that uncertainty has become the default.
“Businesses are facing all sorts of volatility,” says Brad Soper, Partner and Head of Industrials at the commercial growth specialist Simon-Kucher. “There is geopolitical uncertainty, there is banking volatility, there is demand volatility. This is systemically different to what has gone on before, in terms of the frequency and the amplitude of the ups and downs. And there is no doubt that makes it very difficult to sit down and just run a business.”
Despite this global uncertainty, many companies are still unprepared for difficult markets and unexpected change. According to Simon-Kucher’s B2B Commercial Trends Study 2023, around 50% of companies have no plan to counter economic downturn.
Yet there is also evidence that companies that treat volatility or even outright recession as a growth and investment opportunity are the ones that prosper in the longer term. One productive response to uncertainty is to think harder about how to make growth sustainable, says Mr. Soper. This means aiming for the kind of “better growth” that provides a firm foundation for long-term prosperity.
“Companies always need to think about growth, whatever the environment,” he says. “But there is a difference between growth just for the sake of it and better growth. Better growth improves corporate staying power, it improves positioning in the market, it lets you command higher premiums and it builds the resilience of the company. Good growth is creative growth, it is growth of the value proposition.”
Learning to avoid trouble
But is this really the time for companies to be planning for growth? In the face of the kind of volatility that pushes up costs and makes even medium-term revenue planning very difficult, the temptation to put investment for growth on ice and turn instead to immediate cost-cutting can be strong. According to Professor Stelios Kavadias, who leads the strategic business growth program at the University of Cambridge Judge Business School, that only leads to trouble down the line.
“When you have periods of great volatility, that’s when a company should be looking at what made them competitive in the first place,” says Prof. Kavadias. “Look at what has added value. You can’t cut your way out of a downturn, you can only innovate your way out. Cutting without innovating only sets you up for bigger failures in the future.”
That view is shared by Mert Terzioglu, Partner and Managing Director of Simon-Kucher’s Turkey office, a market that has experienced more than its fair share of interest-rate and inflation volatility in recent years.
“I think, in the end, volatility can be an excuse for poor performance, and lack of preparedness,” he says. “If you have the right capabilities already built in, if you have better supply chains, if you have a fast response to market changes, if you can innovate faster and monetize those innovations faster, then you are going to ride out the volatility.”
Staying on top of change
Specialists in growth in challenging environments suggest that two factors are critical in strategic responses to volatility. One is to press hard on the lever of investment for innovation. The other is to get much closer to the customer.
“When companies set strategy, the customer is often the one person who is missing from the room,” says Prof. Kavadias. “Companies tend to assume they understand their customers—but customers are always changing. In fact sometimes the best customer to talk to is the customer who just rejected you, because that customer can tell you what you need to change.”
Mr. Soper echoes that. “People always say you need customer data, but it has to be the right kind of data,” he says. “You need hard performance data but you also need qualitative feedback from the sales and marketing teams. And that means getting out and learning what the sentiment really is in the market. Because when a company stays inside its own four walls, it ends up only hearing from whoever is loudest in the room.”
While innovation and customer data are important strategic focus areas, how companies pursue those strategies also matters. As Mr. Terzioglu puts it: “Volatile markets require focus. I always say to my clients that in volatile markets you shouldn’t have too many change initiatives running, you should have just three or four areas of focus where you are trying to realign your organization. Even where you have fragmented markets that demand different approaches, you need focus.”
When it comes to innovation, Mr. Soper says this should be about more than simple product innovation—it should embrace advances in how products are delivered. That may mean exploring the potential for moving to recurring revenue-stream models or adding a data layer to the industrial or consumer goods a company already sells. Or it could mean creating value from customer data—for example, by capturing previously unrealized opportunities to ‘hyper-personalize’ products.
These are often long-term issues for corporate strategists, but Mr. Terzioglu says that keeping a clear view of the horizon is one of the great challenges of volatile times—and one of the most critical.
“What becomes important is to look at the bigger picture and ask: ‘How do I come out of this more resilient?’ he says. “If you look at companies that have come out of a down cycle stronger, they never cut investments. They just got smarter about it.”
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