During these tough financial times, probably even more so for nonprofits and government than business, the ability of management to realize the opportunity within the threat is key.
In our area, this would be an excellent time to consider a new governing structure for the Parkway—a Joint Power Authority—bringing in new public funding and opening up the opportunity of much greater private philanthropy, which we discussed in the January 20 Press Release on our website.
Discovering the opportunity in threat is the subject of a Harvard Business Review article.
An excerpt.
“No one needs convincing that the economic situation we’re facing today is almost unprecedented. Yet much of the advice that executives have received is remarkably similar to what they heard during the recession in 2000. Particularly in Western enterprises, the preferred antidotes seem to be standard ones: Evaluate your risks, develop contingency plans, focus on your core, reduce costs, expect the unexpected, and so on. The unspoken objective appears to be to survive or, at most, to maintain market share.
“Like many orthodoxies, however, this will not serve companies well today. The world has changed so much because of, among other reasons, deregulation, lowering of trade barriers, rapid technological advances, demographic shifts, and greater urbanization, that strategies that worked a decade ago are unlikely to do so anymore. Previously, downturns often favored incumbents, which possess economies of scale and customer relationships that allowed them to prevail over upstarts. What’s different now is that companies from several emerging markets are poised to wrest market share from, or even take over, Western firms. What’s more, recessions can alter industry dynamics. Studies conducted by both McKinsey & Company and Boston Consulting Group show that around a third of the companies in the first quartile of their industries tumbled from their perches during the 2000 slowdown. Only 10% of them had clawed back five years later, while 15% of today’s market leaders vaulted to the top during that recession.
“Smart companies perceive not just threats in a recession but also opportunities. Their goal is to grow so they can emerge stronger from the downturn. In fact, during the Great Depression of the 1930s, companies like General Electric, Kellogg, and Procter & Gamble outmaneuvered rivals to become leaders. They turned adversity into advantage in different ways, but a quick analysis reveals one common thread: During the Depression, these companies developed value-for-money strategies: They grew by delivering products and services that enabled hard-hit consumers to do more with the same resources and become more effective; to do the same with fewer resources, thereby improving their efficiency; or to do less with far fewer resources, which helped them economize.
“Value for money has again become a strategic imperative—and not just because of the recession. Even before the slowdown began, there were signs that it ought to be a major consideration for companies. In developed countries, increases in household income over the past decade have favored the top 20% of earners, while the spending power of most families has stagnated or declined. Many people in the United States, for instance, have found it difficult to maintain their standard of living after paying for such necessities as their mortgage, transport, utilities, and health care without borrowing money. More recently, small salary increases and the steady drumbeat of job losses have turned many consumers into value shoppers, as they tighten their belts.
“Unsurprisingly, Wal-Mart has been gaining share from premium retailers, and apart from luxury cars, only sales of small or fuel-efficient vehicles have been growing over the past five years. In Western Europe, according to a recent Credit Suisse study, the market share of value-priced store brands rose by two percentage points in 2007 while that of premium labels fell by the same amount.”
