As economists and advisors have predicted, the U.S. economy is beginning to experience slowed economic growth. U.S. GDP growth is predicted to slow to 2.1% in 2019 from 3% in 2018, according to the most recent forecast released at the Federal Open Market Committee meeting on June 19. The good news, however, is that this should be temporary, with renewed economic strength predicted in the second half of 2020.* When the economy softens, there are several ways leaders may react – either defensively, offensively, or perhaps a combination of both:
Hunkering Down & Laying Off
In a softening economy, you might be inclined to stop spending – to pull back until the storm subsides. However, pulling back on spending money could lead to dangerous consequences, as it could cascade down to the rest of the economy and create a further drag on growth.
Or you might consider layoffs as a defensive strategy to cut costs. Contrary to popular belief though, there’s not much evidence that layoffs are a cure for weak profits, or that they reposition a firm for growth going forward. “There is no evidence that cutting to improve profitability helps beyond the immediate, short-term accounting bump,” according to Peter Cappelli, Wharton management professor and director of the school’s Center for Human Resources. In fact, companies that rely solely on cutting the workforce have only an 11% probability of achieving breakaway performance after a downturn, according to Harvard Business Review (HBR).
Improving Operations and Processes
Companies that focus on improving their operations fare better than those that focus on reducing the number of employees. Investing in Continuous Improvement initiatives, such as Lean and Six Sigma, is a cost-effective strategy to help reduce costs, increase productivity, and improve your company’s bottom line. DVIRC’s Continuous Improvement services combine both technical and soft skills, such as leadership and organizational development, to help leaders dramatically improve operational efficiencies, increase profits, and create a more empowered and engaged culture.
Expanding Market Share
An offensive approach to tackling the softening economy is to take it head on; developing new business opportunities by making greater investments than your rivals do in research & development (R&D) and marketing. DVIRC’s more proactive, progressive manufacturing clients seek to increase their industry penetration, expand client diversity, and optimize the mix of margin-rich clients. Those efforts are the necessary precautions for a soft landing when heading toward any potential market slowdown, and companies will reap substantial gains when the market returns in full-force. DVIRC often functions as an outsourced Sales & Marketing team to manufacturers, helping companies build a competitive edge when entering new markets, developing new products, or acquiring new customers.
What are you doing to prepare for a potential economic downturn? Are you taking a defensive approach or an offensive approach? The ideal approach may be the delicate balance between the two – both cutting costs to survive a potential recession while investing to spur growth. According to HBR, both are essential to manage at the same time if your company hopes to emerge as a leader.
Whatever your strategy, let DVIRC help you. For more information on how DVIRC can work with your company to improve your operations, invest in your people, enter into new markets and more, contact us today.
Additionally, if you want to learn more about economic predictions for the next four quarters, sign up to attend our Greater Philadelphia Manufacturing Summit. Brian Beaulieu, CEO & Chief Economist, ITR Economics will provide his entertaining and accurate perspective to help business leaders increase profits through business cycle trend analysis, forecasting and effective planning. DVIRC’s Content Experts will also be leading various sessions on how to leverage marketing and sales, and well as Continuous Improvement tactics to set your company apart from competitors.
*Beaulieu, Brian. “Insights From Our CEO: Three Indications Economic Conditions May Be Worse Than You Thought.”