By Wendy Kram 

Would you like to emerge from this recession a winner instead of merely a survivor? You have most likely spent the past two years reacting to the economy, yet your strategies for survival might not be positioning you for post-recession success. A study of pre and post-recession companies reported in the Harvard Business Review found 80% of firms had not regained their pre-recession growth rates for sales and profits three years after a recession. More concerning, 40% of the firms hadn’t returned to their absolute pre-recession sales and profits levels by the end of that same time period. The good news— 9% of the firms did achieve growth and outperformed their competition by at least 10% in sales and profits following a recession. What made these firms post-recession winners?

Offense versus Defense

The primary difference was a balance between offensive and defensive strategies. A football team whose strategy relies solely on defense can at best hope to end the game with a zero-zero tie. Conversely, a team who relies only on its offense may post a lot of points on the score board, but will likely be unable to stop their opponent from outscoring them. A combination of offensive and defensive moves is the best strategy for winning the game. Many business leaders adopted a defensive strategy during the economic downturn by reducing operating costs, shrinking discretionary spending, lowering head count and preserving cash. They also postponed investments in marketing, research and development, and new assets. These companies reported post-recession growth averages of 6% in sales and 4% in profits compared with 13% and 12% for companies who took a more balanced approach.

On the flip side, some firms took a more aggressive approach to capitalize on opportunities to acquire talent, assets, or businesses and make strategic investments that had long-term payoffs. Companies who went on the offensive fared slightly better than defensive firms, but their post-recession performance still fell short of firms who adopted a more balanced strategy.

A Winning Combination

The most successful companies found an optimal combination of defense and offense to successfully emerge from a recession. These companies cut costs primarily by improving operational efficiency instead of slashing overhead. They were able to reduce costs on a permanent basis resulting in faster growth in profits when demand returned. Office Depot and Staples implemented different approaches to cope with a recession in 2000. Office Depot slashed 6% of its workforce, but did little to reduce operating costs. Staples closed underperforming stores, but increased its workforce by 10% to drive sales of high-end products and services. It also contained its operating costs and emerged from the recession stronger, larger and more profitable than before 2000. Staples was approximately 30% more profitable than Office Depot in the three years following the end of the recession.

You can improve your odds of emerging as a post-recession winner by considering the following:

Create Operational Efficiencies

For most small businesses, labor is one of the largest expenses, yet business leaders don’t invest adequate time and resources to organize and manage their labor assets effectively. Here are five ways to improve operational efficiencies:

1. Define operating processes.
   
2. Eliminate waste. Analyze your current operating processes. Use this test, “What activities in your business is the customer willing to pay you to do?” Identify opportunities to eliminate redundant practices, non-value added tasks and realign responsibilities to deliver your products and services more efficiently.
   
3. Clearly define responsibilities and accountabilities to improve productivity. There is often overlap in job responsibilities, poor communication and a lack of accountability for job performance. Chaos and confusion can exist in a 3 person office; just because you are lean doesn’t mean you are efficient. Document and refine job responsibilities, define accountabilities and authorities, and communicate performance expectations.
   
4. Empower employees to make decisions. Give employees the responsibility, authority and tools to make decisions so they can keep processes and products moving with fewer people touching them.
   
5. Increase throughput. Evaluate your product and service mix to understand the ratio of throughput versus pass through revenue. Identify opportunities to increase product and service offerings that maximize your throughput and minimize outside service providers; this can create more operating cash to fuel growth.

Invest Now for the Future

Now might seem like a risky time to invest, but post-recession winners strategically invested to fuel future growth. Investments can be funded in part by savings generated from operational efficiencies. Here are five ways to invest in the future:

1. Take advantage of depressed prices. Evaluate opportunities to buy property, plants or equipment. This will allow you to respond faster than the competition when demand returns and lower asset costs will result in relatively higher earnings than your non-investing competitors.
   
2. Increase spending on sales and marketing efforts. An investment now can lead to substantial sales and profits following a recession. Target increased its marketing and sales expenditures by 20% and capital expenditures by 50% during the 2000 recession. At the same time, they worked to reduce costs, improve productivity and increase the efficiency of supply chain operations. Target grew its sales by 40% and profits by 50% during the recession. By contrast, its competitor TJX Companies, which operates T.J. Maxx and Marshalls, took a less balanced approach leading to a significant drop in bottom-line growth following the recession.
   
3. Assess your resource needs to support growth. Defensive companies run the risk of scaling up too late. Hiring quality employees can prove to be a more challenging and time consuming process than is often anticipated.
   
4. Increase research and development efforts. Volatile markets produce opportunities. Be on the lookout for changes in customer preferences and needs; find innovative ways to meet these emerging needs.
   
5. Form strategic relationships. Reach across the value chain to create strategic relationships to boost innovation, increase capabilities and expand solution offerings. Aligning with the right partner can accelerate growth as you emerge from the recession.

Companies have emerged from recessions stronger, larger and more profitable than before adversity struck. What strategies are you implementing to make sure you are one of them?