Five Things Companies Must Be Doing to Get Through Recession

by: Mark Fidelman

If senior executives in the companies you are invested have less than 14 years experience, then they have not managed in a difficult economic period. Equally as challenging, analysts that are covering company stocks with less than 14 years of experience may not have the experience to properly evaluate the activities of senior management. So what clues should investors look for in properly evaluating whether the company they are following is going to survive the downturn?

From my own experience, executives of publicly traded companies are first seeking to reduce costs, closely followed by increasing revenues. My purpose is not to debate those priorities, but to explain the top five initiatives that every best-in-class company (BICC) above $100m should be doing today in order to survive the current down turn as well as come out stronger when the economy recovers. To enact these and other initiatives, BICCs today create a sense of urgency and pursue change relentlessly. They understand how to manage the naysayers who insist change efforts will not work.

#1 Strategic Sourcing

Every company should regularly evaluate their direct (product or service related costs) and indirect (overhead or non-product costs) spending for cost reduction opportunities. They should be categorizing their spending then asking suppliers and vendors to re-bid for the right to have that company business. For example, most companies have “office supply” category spend. Smart BICC’s are asking their office supply vendors to participate in reverse auctions or multi-round request for proposals (RFP’s) in order to compete for their business. Once the spend is properly categorized (this is no small task), a spend reduction team should be set up to renegotiate each of the spend categories. The team should achieve a percentage bonus for the total amount of cost savings obtained over the life of the project.

Of course, careful consideration should be given to strategic suppliers (especially on the direct side), but in most cases, letting the supplier realize the business is not forever safe through renegotiation efforts usually leads to cost reduction or ancillary benefits (e.g. longer warranties, shorter delivery schedules, etc.).

#2 Most Sales Organizations Cut Sales and Marketing Activities

The majority of companies fall into this trap. They need to use the savings from initiative #1 to increase lead generation and customer contacts to weaken the competition. By strategically targeting and segmenting their customer and prospective customer base (see initiative #3) with more messaging and contacts, BICC’s will steal competitor customers, keep them front of mind with prospects, and receive higher referral rates from existing customers.

Since target customers are facing the same difficult economic situation, in most cases, BICCs will need to shorten the ROI timeframe to less than a year. That means retooling the product/solution value and compressing the sales cycle so that prospective customers can more easily buy the product/solution and generate immediate return. BICCs need to be prepared to understand their prospects better by doing extensive research and becoming an expert on how to help them achieve their goals.

#3 Leverage the Customer Relationship Management (CRM) System

Investors would cringe if they truly understood how little most companies know about their customers. Most CRM implementations are done without much thought and planning and thus are not used strategically by Sales, Marketing and Customer Support. What they have is an expensive customer contact database without much customer intelligence.

Conversely, BICCs have set up CRM systems to be a strategic corporate asset with enterprise level value. They can segment their customers and prospects countless different ways and are able to:

  • know their most profitable customers
  • increase cross selling opportunities
  • understand why they are losing sales to the competition
  • understand where to spend marketing dollars and achieve the highest ROI
  • automate the lead process to sell more by making sure the right people are talking to the right leads
  • maintain customers by measuring the touches and quality of interactions
  • more quickly recognize and address market trends
  • identify product or service quality issues sooner

BICCs understand that salespeople do not like entering data into a CRM system so in return for their cooperation; BICCs provide actionable intelligence for the salespeople through CRM. For example, BICCs will add customer knowledge tools to the CRM system so that a salesperson can quickly capitalize on an opportunity before the competition. Knowing that your customer is in discussions to buy from another company may be of great benefit to the salesperson selling M&A (mergers & acquisitions) related services.

#4 Leverage Business and Social Networking for Lead Generation

Unfortunately, most publicly traded companies are led by executives and boards that did not grow up with social networking sites. Since they do not understand it, most make mild, fruitless or no attempts at leveraging the power of these influential networks. Those at the lower levels in the organization do not have the authority or budget to properly take advantage of these networks and thus countless revenue opportunities are lost to shear lack of understanding.

BICCs (and there are not many here) use social and business networking sites like Twitter, Facebook, Wiki’s and LinkedIn to build a strong brand and sociable reputation to connect with people on a personal level. If they like you, they may recommend the company to others or use the company’s services themselves. The fortunate become viral phenomenon and quickly become household names. Smart BICCs build up their reputations by helping people with problems, answering questions and making sincere recommendations and suggestions that will help people flourish. Social networking is an inexpensive channel to obtain vast amounts of customers and promote a company brand by word of mouth (the best kind).

For example, companies that understand their customers better or can present interesting facts that lead to a stronger brand connection will generate more revenue. Using Twitter, Coca Cola (NYSE:KO) is showing old Coke ads, Coke trivia and answering questions about the product. There are links within the dialogue leading the consumer to purchase sites or landing pages that capture consumer information. A cigar maker can create a campaign where they educate the consumer about cigars, the history behind their brand and do it across multiple social networking platforms simultaneously. Links or natural curiosity will lead consumers to the cigar maker’s site to purchase their product or at minimum give the cigar maker more information on their potential customers.

Here’s one tip that is not being utilized by most of the small to medium sized companies in the S&P. At minimum, every company should have a non-commercial page on Wikipedia that objectively explains their product or service. Since the site is highly reputable with the search engines, most information in Wikipedia shows up on the first few pages of the major search engines. There’s much more, but the point is that companies need to learn how to use these social networking tools with content that informs but engages the customer to buy.

#5 Increase Channel Partners Who Know How to Find the Deals

Often overlooked and underused sales conduits are industry channel partners. Not only do companies not have to pay the partner until a sale occurs, they may have better customer relationships than the primary vendor. For a small or medium size company in a challenging economy, leveraging channel partners is mandatory to maximize sales opportunities.

Managing a high quality channel is not easy and in essence, they are an extension of a company’s sales and marketing teams. Careful thought and planning is needed to ensure the channel is performing optimally. In addition, reaching out to a broader partner network (especially internationally) and building strategic relationships takes time and can be challenging. However, nothing inhibits a competitor more than a "locked up" partner network which also increases their risks of hiring people to fill additional sales roles.

In summary, of course there are more initiatives that could be added and you may disagree with how I have prioritized them (please send your comments). However, companies and executives ignoring these core initiatives are wasting your money and therefore you should give some serious thought to selling their stocks today. Investors and analysts should ensure these initiatives are being carried out by asking tough questions of management. There are only a few BICCs that are properly prepared for this recession and I’ll wager those that understand and execute on the above will far outperform their competitors.