To Invest or to Cut? The Best Mobility Business Recession Strategy
When a recession hits, years of careful business planning become unusable. No matter how carefully executives charted growth strategies, boomtime game plans are worthless when customers vanish. That’s why it’s so difficult to know how to react to a sudden, unexpected downturn.
Every industry will feel quarantine’s ripple effects. Mobility executives have to be able to turn on a dime and overhaul business plans quickly.
Fortunately, two of the world’s most respected institutions, Harvard Business Review and Bain & Company, have completed in-depth analyses of recession strategies. They showed which succeed – and which fail.
Both studies look at three different strategies: “Cut,” “Invest,” and “Thread the Needle.” Let’s go through each of them, starting with the least effective.
The Worst Strategy: Cut, Cut, Cut!
In their study, Bain analyzed 3,900 companies that had double-digit earnings growth between 2003 and 2007. During the subsequent downturn, some of those companies continued to grow at a 17% compound annual growth rate – while others hit 0%.
According to Bain, one of the most common strategies among the zero-growth companies was “slash and burn.” They write that these businesses were:
“under the misconception that extreme cost-cutting would be enough to survive the storm. They cut R&D across the board, scaled back on sales and marketing activities, laid off the valuable talent and ruled out acquisitions.”
Harvard’s study analyzed 4,700 public companies during three recessions: the 1980 crisis, the 1990 slowdown, and the 2000 bust. They also found that “slash and burn” companies ended up faring the worst during recessions. According to their analysis, these businesses saw:
- Post-recession sales growth of 6%.
- Post-recession profit growth of 4%.
As we’ll see, these results are much worse than those of companies that chose different strategies.
The Less-Bad Strategy: Invest, Invest, Invest!
According to Bain’s study, companies that doubled-down on investments also had trouble maintaining growth. They write:
“Other lagging companies strayed outside their core business, investing in the latest hot sectors.”
Harvard found that these companies performed better than “slash and burn” companies, but not by much. According to their analysis, an investment-focused strategy resulted in:
- Post-recession sales growth of 8%.
- Post-recession earnings growth of 6%.
The businesses that got the best results used a third strategy – one that involved both cuts and investments.
The Best Strategy: Thread the Needle
Both the Harvard and Bain studies came to the same conclusion. In Bain’s words:
“Companies that ranked among the eventual winners… focused intensively on cost transformation (and) also looked beyond cost.”
Harvard found that companies that followed a cut and invest strategy:
- Grew post-recession sales by 13%.
- Grew post-recession profits by 12%.
Mobility managers can easily adopt two primary points of these businesses’ successful recession strategy:
- Pair cost reduction plans with investments in operational efficiency.
- Invest in digital technologies that, according to Bain, “provide new ways to move faster and simplify business.”
Let’s dive into the first point – cost reduction and efficiency investments.
How Mobility Operations Can Reduce Cost and Boost Efficiency
While recessions often force companies to tighten their belts, it’s important to trim fat, not muscle. A cost-reduction plan that reduces strengths will starve business to death. A cost-reduction plan that reduces inefficiencies will make companies leaner and faster even after recessions have ended.
How can fleet managers separate fat from muscle? By using:
- Fuel Waste Analysis tools to cut gas spending. These tools identify the drivers and vehicles that are wasting the most fuel – and show exactly why they’re wasting fuel.
- Workforce Management tools to identify top-performing employees. These tools reveal an organization’s over-performers and under-performers.
- Engine Diagnostics tools to cut maintenance spending. These tools send managers automatic, engine specific fault codes when engines are in trouble.
Use Cutting-Edge Technologies to Move Faster and Simplify Processes
Bain clearly explains what investments businesses should make during recessions: “The winners this time around will deploy new technologies coupled with cost management tools.”
Today, there are a number of new technologies specifically designed to boost logistics businesses. In addition to the efficiency-maximizing tools already mentioned (Fuel Waste Analysis, Workforce Management, Engine Diagnostics), features like Trip Share and Driver Safety Scorecards improve customer relations and employee performance. Logistics businesses that invest in an all-in-one telematics platform won’t just cut waste – they’ll head into post-recession boom-times with a running start.
As the Harvard Business Review explains, “The best companies do more than survive a downturn. They position themselves to thrive during the subsequent upturn… Waiting to move forward with such investments may compromise your ability to capitalize on opportunities when the economy rebounds.”
Don’t hesitate and let a fast-moving recession run over your business. Grab control of the steering wheel and accelerate into the next bull market.