3 defensive strategies & 3 offensive strategies in downturn€¦ · – the u.s. recession of...

Copyright © 2010 Executive Study GroupStrictly Confidential

1

3 Defensive Strategies & 3 Offensive Strategies

in Downturn

2016©ESG | Confidential for The Chinese Manufacturers’ Association of Hong Kong Sep 30 2016

Research shows that 9% of companies come out of a recession stronger than ever.

Dr. Mark Lee

[email protected]

2016©ESG | Confidential for CMA Event Only Sep 30 20162016©

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8th Anniversary Review

2016©ESG | Confidential for CMA Event Only Sep 30 2016

Sunset Industry Challenges

• Our Vision

i. Business Growth of the Companies for

ii. The Continuing Success of Hong Kong

• Our Mission

– To gain insights from business cases of the East and the West

– To disseminate knowledge to local businesses

– To share ideas and experiences among executives

• Our Value

– Sharing ideas, experiences and opinions

– Inspiration triggered by other industries

– A culture of lifetime learning

2016©

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Hong Kong

Industries

Companies

Executives

Vision Pyramid


Bi-Monthly Research Report

2015©ESG

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Platform for Executives to Share Ideas and Experiences

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Next Topic in October

• Conflict Management - How to Use “Empathy Strategy” to

Transform Your Enemies into Allies

– In the martial arts of Judo, the masters know how to deal with

opponents who are bigger or even stronger than them.

– We will share how to see the other side as your ally regardless of

the type of conflict. It is much easier to “empathize” or collaborate

with partners successfully.

• Registration

– By Email: Attach and send business card image to

[email protected] and highlight your prefer session

(Cantonese 1, Cantonese 2, Cantonese 3, Cantonese 4, or English).

2016©

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Exclusive Peer Learning Group for CEOs

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Hong Kong

Industries

Companies

Executives

Vision Pyramid


Learning Methodology

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Step 1. Site Visit Step 2. Real Experience Sharing

Step 3. Lecture and Discussion Step 4. Luncheon and Networking


Syllabus

• Information Overflow

– New rules of competitions by changing customer demands

– Internet creates information overflow

– Lack of system to decide and plan what to learn

• Growth Topics

– Module 1: Downturn Strategy

– Module 2: Design and Innovation Strategy

– Module 3: Re-Branding and Marketing

– Module 4: Alliance and Plug-and-Play Strategy

– Module 5: Organization Development Strategy

2016©

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Creativity is just connecting things.Steve Jobs, Founder

Apple Inc.


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Table of Contents

Tightened Resources for Survival during Recessions

3 Defensive Strategies

3 Offensive Strategies

Optimizing Resources for Growth by Recessions

2016©ESG | Confidential for CMA Event Only Sep 30 20162014©ESG

12

Prof. Nitin Nohria

Dean

Harvard Business School

Research shows that 9% of companies

come out of a recession stronger than

ever.


13

Tightened Resources for Survival during

Recessions


Matching the Right Strategy

• Economic Reward to the Right Match

– Different economic environments typically reward different

business strategies

• High-growth Economic Periods

– Strong consumer demand for many products and services

– Companies’ revenues increase

– Managerial focus is on acquiring and allocating resources

– To meet growing demand

• Focus on Supply Development

– Firms add employees

– Invest in equipment

– Increase production

• Key Success Factors

– Strategic success requires the skillful management of growth

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Case: Recession of 2001

• Recession Definition

– Formally defined as two or more consecutive quarters of falling Gross

National Product

– From January to November 2001

– Recessions during this period lasted 11 months

– Reduced real GNP by 2.6%

• Boosted Business Failure Rates in Recessions

– With the economy mired in recession from March to November 2001

– Debt-burdened United States businesses filed for bankruptcy in record

numbers

– Up 14% for the year

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Five Defensive Strategies


Six Defensive & Offensive Strategies in Downturn

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Defensive Strategies

1. Add on Less-Cyclical Business Models

2. Position in Less-Cyclical Market Segments

3. Leverage on Regions at Different Phases of Economic Cycles

Offensive Strategies

4. Maintain Advertising with Customer-Focus Selling Pitch

5. Find Alternatives to Price Cuts

6. Attract New Customers with Different Needs


Case: Inchcape’s Diversity of Revenue Streams

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Case: Inchcape

• Services over Durable Goods

– Use maintenance and parts to hedge its cyclical factors

– Financial KPI “Gross Profits %” (not Revenue %) for analysis

• Gross Profit is an Effective Indicator to Show Contributions

– Large revenues do not guarantee a good gross margin

– Gross margin is quick indicators of cash flow from operations

• Challenge of Durable Goods

– Cyclical industries typically provide durable goods

– Durable goods depreciate over time

– Older goods can be repaired while new purchases can be delayed

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Business Model Innovation

• Increasing the Servicing Elements

– The demand for services is generally stable

– Because services cannot be stored

• Recurring Revenue Model with Monthly Fees

– A creative firm used to totally rely on one-off projects

– Offer monthly plan to provide outsourcing-type of services

– Stable but smaller revenue per month

– But need to develop new mindsets and skills in sales, marketing and

creatives

• Sharing Economy Model Charging Per Use

– Photocopier industry is more selling or leasing machines anymore

– Expand the incomes sources from machines to papers and inks

– Less sensitive to the business cycles

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Cyclical Industry Gets Hurt The Most

• Cyclical Industry Identification

– Industries are classified based on a recession’s effect on their sales

– The performance of a cyclical industry coincides with the phases of

the business cycle

– In a recession, a cyclical industry is characterized by stable or

falling prices

• Examples of Cyclical Industries

– Durable goods manufacturers such as auto makers

– Producers of paper and paperboard mills

– Computer manufacturers

– Home builders

• Examples of Counter-cyclical and Non-cyclical Industries

– Counter-cyclical industries experience increased sales during

recessions

– While rare, such industries include Food, home remodeling and

maintenance, alcoholic beverages

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Case: Ford vs. Chesapeake Utilities Corporation

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Position in Less-Cyclical Industries

• Seek Non-Cyclical Industry as Customers

– Position in the Government

– Medical brands (e.g. GE, GSK)

– Medical service providers like hospitals

– Utilities like HKE and Towngas

– Education like universities and high-schools

• Challenging of Tendering Businesses

– Despite of lower margins, increase your registrations in government’s

vendor lists of different categories

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http://www.google.com.hk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjeutG6x5zKAhUCJZQKHTMkBD8QjRwIBw&url=http://www.tradingeconomics.com/hong-kong/government-spending/forecast&psig=AFQjCNHsRlrK3GG4hWZUYbaLHjDYNSbodw&ust=1452422811507121

http://www.google.com.hk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjeutG6x5zKAhUCJZQKHTMkBD8QjRwIBw&url=http://www.tradingeconomics.com/hong-kong/government-spending/forecast&psig=AFQjCNHsRlrK3GG4hWZUYbaLHjDYNSbodw&ust=1452422811507121



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Different Levels of Impacts by Locations

• Different Degrees of Impacts

– Recessions do not affect all places equally or simultaneously

– The U.S. recession of 1980—1981 had a great influence on the

Midwest

– The recession of 1990—1991 hurt the states along the Eastern

Seaboard in the New England, Middle Atlantic, and South Atlantic

regions

– The 2001 recession had a particularly strong impact on California

• Impact Levels Are Different by Regions

– Recessions usually affect one region of the world more than another

– When the economy contracts in one part of the world

– It usually expands, or at least is stable, in other parts

• “Industry Cluster” Effects on the Region

– As regions differ in their mixes of industries

– The business cycle imparts a differential effect on regions

– Based on their industrial bases

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Multiple States, Provinces, Countries Strategy

• Case: California Recession

– The harsh effect of the 2001 recession on California was

– Due to the concentration of communications and computer

equipment suppliers in the Silicon Valley

• Post Internet Bubble

– In the late 1990s, the forecasted demand for Internet services proved

overly optimistic

– Producers of communications equipment were

– Hurt by their buildup of telecommunications service capacity

• Case: Axisoft (Asia Pacific) Limited

– Set up in Hong Kong in 1998

– Focus on Private Banking IT Solutions

– HK Government posted to many rules after financial tsuinami

– Opened new offices to Singapore in 2008

– To capture the growth of private banking in Singapore

– Within 3 years, 8 major banks’ private banking use its software.

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George Ong

Founder

Axisoft


Case: European Multinational Manufacturer of Personal-Care Products

2010©ESG

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• Mainland China can be

considered as an Europe.

Different provinces have

different levels of

impacts by soft-landing.


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Five Offensive Strategies



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Case: Inchcape

• New Marketing Strategy

– Toyota’s warehouse sales during recession 2009

• A New Customer Experience

– Create a new buying experiences at the warehouse rather than in the

showroom

• Innovative Advertisement

– Only a map of New Territories warehouse

– Low key with very simple design

– To imply it is a kind of secret

• Result

– Long queue and needed to wait for hours in cars

– CEO helped to distributed soft drink to guests

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Case: Inchcape

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28,254

22,160

29,658 33,525 34,697 34,806

5,608

5,613

9,541

7,810 8,195 8,395 9,412

4,860

7,882 8,281

8,661 9,896

-

10,000

20,000

30,000

40,000

50,000

60,000

2008 2009 2010 2011 2012 2013 Full YearEstimate

Vo

lum

e (

Un

its)

2008 - 2013 Total Vehicle Market Sales Volume

Passengers Car sales Passengers Car Parallel Import sales Commerical Vehicle sales

After 2008 Financial Crisis, the market rebounded back to normal and continue to grow


Different Kinds of Opportunities from Recessions

• Tend to Reduce Promotion Expenditures

– It is tempting to abandon initiatives and

– Reduce expenditures on promotion and marketing

– Reductions convert directly to profitability

• Recessions Create Opportunities

– During a downturn of the business cycle

– Customers are often willing to rethink their existing contracts and

relationships

– More willing to switch to other suppliers

• More Returns on Marketing Activities

– Recessions are likely to increase the returns on marketing activities

– Advertising usually becomes cheaper during recessions

– As newspapers and TV networks and stations seek to fill their

timeslots

– Earn a higher return from marketing activities during downturns.

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Manufacturers Can Support Private Label Development

• Price Cut Impacts

– Send the message that they have reduced quality

– Especially if product or service changes are involved

• Private Labeling Strategy

– To remain price competitive and attract newly price- and value-conscious

customers

– Many retailers opt to increase their stock of less expensive private label

products

• Case: JCPenney

– Rebound recession was driven by increased sales of

– Penney’s own labels of Stafford menswear

– Worthington women’s wear, and

– Arizona casual wear

• Case: Loblaw (Canadian Grocery Chain)

– Relied heavily on its 1300 President’s Choice private label products to

maintain sales

– Estimated that the private label program increased their gross margins by

3% during the recession

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Maintain the Same Price but More Values

• Add Values by Bundling Strategy

– Bundling allows vendors to subtly decrease prices without apparent

price cuts

• Case: Microsoft

– Microsoft sells individual software programs such as Word, Excel,

and PowerPoint

– At premium prices when purchased separately

– A bundled package, Microsoft Office, includes all three programs

and is priced at a lower total than the three individual programs

• Product Alliance with Partners

– Whether accomplished through pairing existing products

– Or through an alliance to offer complementary products, bundling

can create value for customers without the poor signal of a price cut

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Case: Dixieline Lumber & Home

• A 10-unit San Diego chain in California

– Two marketing initiatives helped increase company sales

– By 9% during the recession of 2001

• New Solution for B2B Market

– The first was directed to the building trade and

– Involved training the in-store sales force

– To assemble hardware packages for custom-home builders

• New Solution for B2C Market

– The second initiative was directed at homeowners

– Involved increasing marketing on millwork (woodwork)

– As home-owners switched from spending on traveling and

entertainment

– To fixing up their homes

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Identify Customers Needs under Recession

• Offset Customer Loss by New Customers

– Attracting new customers should be a priority

• 1st: Cyclicality Study

– Qualify their prospects based on product fit

– Dollar and profit potential, buying patterns,

– Credibility, and growth potential

– As part of positioning, to consider the cyclicality of the customer’s

business and industry.

• 2nd: Solution Selling

– Concentrate on selling solutions, not products

– After analyzing customers’ needs, firms should focus on selling the

company’s value-added selling systems that meet those needs

– Result in satisfied customers who recognize the value of working

with these companies

– During and after the recession

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Steps to Identify New Customers Needs

• 3rd: Marketing Events

– Maintaining or even increasing presence at industry tradeshows and

exhibitions

– Other indirect marketing methods can

– Convince customers that the firm stands ready to serve, despite the

economic difficulties

• New Channels of Distribution

– Firms should also be prepared to enter new channels of distribution

– Recession often creates shelf space in otherwise inaccessible

retailers

– Distributors are willing to rethink traditional suppliers as their own

margins shrink

• Digitalization Channel

– Aggressively seeking new accounts

– Some found through the Internet

– Is likely to pay dividends during recession

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Optimizing Resources for Growth by

Recessions


Conserve Resources to Attract Resources

• Ten Prescriptions

– Complementary, not contradictory

– In terms of managerial time and resources

– Can do all nine, or choose to do fewer

• Cash Is Needed for Offensive Strategy

– Spending on marketing versus spending on acquisition

– Compete only in that each requires cash

– Possibly a significant amount of it

• The Heart of Offensive Strategy Is to Acquire Customers

– To assist in the tradeoff

– Managers might ask whether customers are more cost effectively

– Acquired through competition or acquisition

– Winning profitable customers is the purpose of the expenditures

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Optimizing the Right Resources

• Recession Induces Value Declination

– Declines in the market value of resources not only create new threats

– Also provide important new opportunities

• Operating Effect and Strategic Effect

– Operating effect is that the decline in resources affects our firm

– Strategic effect is that the decline affects all firms

• Resource Optimization

– Defensive Strategy: Conserve, maintain, and attract resources relative to

competitors

– Offensive Strategy: Deploy those resources to capture customers

– Goal: Competitive advantage can be built

• Take Advantages of Both Up-and-Down Economic Cycles

– Companies typically build their strategies to

– Take advantage of the growth and expansion of an economy

– But it is equally important to prepare for periods of economic stagnation and

decline

43


Next Topic in October

• Conflict Management - How to Use “Empathy Strategy” to

Transform Your Enemies into Allies

– In the martial arts of Judo, the masters know how to deal with

opponents who are bigger or even stronger than them.

– We will share how to see the other side as your ally regardless of

the type of conflict. It is much easier to “empathize” or collaborate

with partners successfully.

• Registration

– By Email: Attach and send business card image to

[email protected] and highlight your prefer session

(Cantonese 1, Cantonese 2, Cantonese 3, Cantonese 4, or English).

2016©

44

3 defensive strategies & 3 offensive strategies in downturn€¦ · – the u.s. recession of...

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