A recession as we all know, is defined as the decline over two or more consecutive quarters, in the market value of the goods and services produced within the country in a given period of time, this being the country’s Gross Domestic Product.
Recessions often pose serious challenges to corporate leadership, as by the definition, they are known to be characterized by tough economic and market conditions which result in operational and financial difficulties to the institution. This could be attributable to factors such as the decline in demand and therefore threats to production orders, sales and resulting profits.
With the Covid-19 pandemic-driven recession, the leadership of companies across Africa, would likely try several solutions to keeping earnings and profits from nose-diving. In some cases, the leadership challenge is even tougher and would include keeping the company from collapse.
The key issue for leaders of companies therefore, would be how to keep their organizations afloat during these challenging periods, and possibly how to perform well as the economy emerges into more positive territory.
One of the key strategies will include managing what could be called the Cost Minimization Temptation. Here the natural inclination for leaders is to cut costs to minimal levels, especially through aggressive lay-offs, as well as investment and assets down-sizing. While there may be some logic to this line of thought, the reality is that companies may need to consider doing this more sensibly. This means focusing more on cutting costs that create operational efficiencies while maintaining costs that give them a competitive advantage and the capacity to exploit unique opportunities that emerge as the economy climbs out of the recession. Action points here will involve scrutinizing the entire business model for areas that require efficiency enhancements and provide significant cost-savings, including organization, structure, etc. Also included here are areas of duplicated activities and processes that in the past were key, but currently have little relevance or value. The message therefore is to be careful of extreme cost cutting that kills capacity.
Also, recessions create new dynamics in the market place, such as shifts in customer needs and buying behaviour. The ability of the leadership to quickly scope these changes in customer needs and position the institution to exploit such emerging needs through new products and new markets, is fundamental. This calls for intelligent investment in innovation, research and development, as well as digital sales and marketing. These are very key in providing the needed visibility and capacity needed as the tides turn.
Against this background of changing customer needs and opportunities, there would be need for the organization to carefully identify and implement requirements for strategic staff hirings as well as training and staff development. Interestingly, these tend to be the first doors that get shut, in the aggressive cost cutting reaction that comes with the onslaught of a recession.
Finally, in implementing the above, leaders of African companies may be running their strategies around the economic forecasts that indicate that their economies will begin to see significant economic turnaround from this year 2021.
Source: World Economic Situation and Prospects 2021: Africa
While this is a positive perspective to work with, with the global nature of the recession and the global linkage of world economies and Africa’s peculiar debt and policy challenges, one will advise that leaders also work with a parallel scenario of a slow 2021-2022 recovery.
Shaiyen – Executive Vice Chairman, H. Pierson Associates Hpierson.com