Recession and inflation can be categorised as two infamous words that send a chill down the spine of any economy. The modern world has been faced with quite a significant number of recessions with losses running up in figures of billions and trillions, however, this hasn’t stopped the market from running. While the world economies did slump down to a sluggish pace, investors incurred huge losses along and employees got laid off heavily or lived under the traumatising fear of being fired, companies sprung back up and things began to return to what was normal once again.
The Great Recession of 2007-09 was somewhat similar, excluding the fact that it was a recession that was long and had significant adverse effects on the entire globe. To give an example from the huge pie of losses, the real GDP of the United States fell by 4.3% from its peak in the fourth quarter of 2007 to the bottom of the graph in the second quarter of 2009. This was the biggest decline in the growth of the country since the Second World War. What was even more shocking was that the employment rate also fell to an almost all-time high of 10% from the 5% which existed before the Great Recession came into being in the fourth quarter of 2007.
Though these figures sound alarming, what is important to note is that the world, despite the huge economic blow that it was dealt with, regained its footing stronger than ever. The fact that since then the economies around the globe have been on more or less a steady rise is itself a display of better leadership qualities and refined leaders that the recession caused to emerge.
Today when the world is faced with yet another Great Recession the source of which unlike before is a virus, we are yet again at the crossroads of how to deal with something this huge the likes of which we have never seen before, waiting for us right around the corner. In times like these, it becomes extremely important for companies, businesses and the people in top leadership positions of these places to remember where leaders had failed to keep companies together during the Great Recession of 2007-09 and learn from their mistakes to work towards solutions that would minimise if not prevent their losses.
“I’ve been a leader during three recessions and I’ve never heard a management team talk about how the choices they make during a downturn will affect performance during a recovery.”
One of the most important aspects of running a company is to create a healthy balance between your short term and long-term goals. For an efficient leader, a robust understanding of these goals is very important especially when dealing with a recession. This is to say that a leader should be adept in weighing what matters most for a company? Are short term goals and immediate profit what reflect the company’s mindset or is it there for the long run.
Honeywell which was managing to get a footing under the leadership of Dave Cote had these priorities straight and this is what allowed the company to deal with the Great Recession effectively. Understanding that long term goals will always outweigh short term profits is key for leaders at this juncture to prepare themselves and the company for facing the brunt of a possible Great Recession 2020 and recover from it.
Recessions like earthquakes are hard to predict, but one thing that is common in both is that they shake you up pretty well and the shock is directly proportional to the position and role you are in. Keeping in mind that a company might have to face a crisis, leaders should always have a plan B for when things begin to go south.
The Great Recession of 2007-09 is a good case in point for how planning ahead can become the defining factor in surviving or succumbing to the wounds of a recession.
Practices like monitoring your inventory during a recession can many times become the deciding factor in that company becoming a prey to the failing market or keeping itself afloat. Since the requirements of products during a recession are almost always less than what a company might need during times of growth, it is a better option to keep that money as a liquid asset instead of tying it to things that might only pull you down.
This point might come across as completely counterintuitive, but it again ties back to the first one of thinking about the larger picture. Laying off employees is one of the easiest ways for a company to build back those profits and produce results that boost the returns of shareholders.
First, this approach doesn’t look beyond the immediacy of the situation. No company can be recession proof, and leaders who have studied, lived or learnt from the Great Recession understand this. Dealing with small immediate losses might upset investors and shareholders until the recession lasts, but navigating through it while keeping your employee base in confidence enables the company to keep a strong workforce, that goes by the philosophy of “We are all together in this. This doesn’t mean that there won’t be layoffs, but instead stresses on the idea of retention more.
The second kickback is more psychological and something that might affect the company’s growth in the future. By laying off a big chunk of employees, the ones in the company begin to doubt the leadership which is certainly not for the best. It adds to the anxiety of a workforce that is already dealing with a number of things at numerous fronts during a recession and in turn reduces productivity and efficiency. To add to this a leadership which promotes gains over employees forgets that it is this very workforce which has made those gains possible in the first place and by laying them off in times of crisis the image that the company projects through its leader also suffers tremendously.
The sound of the word recession rings alarm bells around the idea of investing and buying things. However, if a company has a leader who understands the idea of smart risk taking, a recession might very well turn into an opportunity of a lifetime. Times like that of a recession lead to a sharp fall in stocks, and as a consequence a steep decline in the number of companies that might survive the brunt of it. If a leader of a company then has planned well, and taken his investors, customers and employees in confidence, he/she can take smart risks and work towards expanding the company.
Then when the tides turn away from the period of recession the company not only gains more assets through the ones it has acquired under its skilled leadership but has now also grown considerably in size thus becoming a place more investors would like to put their money in.
The strongest trait of a leader is that he/she is not only a team player but also someone who looks for opportunities even in trying times and has an outlook that inspires the people around him to give their best. IIM Calcutta offers an Executive Programme in Leadership and Management that helps leaders nurture their skills to tackle management challenges and drive their organization forward.
The road to recovery is never easy and recovery in the post-COVID world of 2020 is not going to be any different. However, if there are leaders who understand that the larger picture is what matters as the Great Recession of 2007-09 has taught us, we can hope for a future that would be safer and an economy that would be more robust than the one we have at the present.
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