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Recession calls for balance

Posted: 10 Mar 2009 ?? ?Print Version ?Bookmark and Share

Keywords:recession US downturn? plans cost reduction? iSuppli? R&D management?

The U.S. economy has been in recession for more than a year, but many companies are just now rolling out their cost-reduction plans. Industry observers say some of the movesjob cuts, plant closures and reductions in selling, general and administrative expensesare textbook remedial measures. But they point out that companies must balance the need to contain operating costs with the requirement to remain competitive.

"Companies will find themselves in different situations through this downturn, and market segments will also behave differently," said Dale Ford, senior vice president for market intelligence at iSuppli Corp. "Some will have the resources to manage through this crisis, while others will be in a more difficult position."

EE Times polled sources for their take on the pitfalls companies must avoid during a recession. Here are the top 10:

  1. Excessive cost cutting. Cost containment is a normal reaction to bad times, but companies that cut too deeply risk putting themselves at a competitive disadvantage. Decimating critical design and R&D staff, for example, could leave a company with an outdated product lineup when the market recovers.

  2. Underinvestment in R&D. It's hard to make a case for continued R&D investments when funds are tight, but the companies that emerge stronger following a recession tend to be those that keep workers involved in product development activities throughout the downturn.

  3. Fixation on recession management. It's easy to concentrate on survival strategies and ignore normal competitive business practices during a downturn. Compartmentalize operations by having one senior executive coordinate the reorganization effort, leaving others to focus on regular business activities.

  4. Inadequate communication with suppliers. Suppliers are critical to competitiveness, and best-in-class companies keep them updated about current and post-recession product planning.

  5. Failure to assess value propositions. Use the quiet period of a downturn to examine operations and exit non-critical markets if necessary. Ask: What do we do best? Has demand changed? Can we support our top products?

  6. Failure to capitalize on investment opportunities. Companies with a strong cash base are positioned to pick up complementary products and rival operations at bargain prices. Shop for opportunities among distressed operations that can bring a competitive edge.

  7. Cash flow challenges. With sales dropping, many manufacturers are finding it difficult to meet operational obligations. Ford of iSuppli counsels companies to develop multiple scenarios for managing through the recession based on how much money is needed to maintain a healthy operation.

  8. Crippling struggles for market share. Memory IC manufacturers know this situation all too well and are paying dearly for having fought for market position at the expense of their companies' viability. Don't be forced into offering disadvantageous pricing concessions to gain market share.

  9. Overestimating government's role. Governments worldwide are pouring billions into their nations' economies to stanch the bleeding. Such actions can buoy consumer confidence and unfreeze the credit markets, but an industry's customers remain the final arbiters of who wins in the marketplace.

  10. Limited options. Some companies have the resources to manage through a recession, while for others, even a cursory assessment would quickly reveal the need to take extraordinary measures, including bankruptcy or strategic alliances. Don't let others make this decision for you.

- Bolaji Ojo
EE Times

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