Corporate Recovery Plan- As envisaged by a future banker

Balagopal

Banking Management, December 08

It is again the time to cull out men from boys.

The world is still pondering over what has hit them while I am writing this article. The news articles are filled with recession economics, what went wrong? , what are CDO’s? , who is to blame? Et al. Are we witnessing one of that black swan event’s which has defied all human logic and predictions? Time will tell. However world would move on and so would the economy.

One of the laws of physics which will stay in almost everyone’s tiny head is that for every action there is an equal and opposite reaction. The action? No prize for guesses since most of the world is well educated about the consequences of this economic catastrophe by now. The reaction is an upswing and prosperous growth in the near future. When? Even I wouldn’t know. The only clear signal to everyone is that there will be a recovery and when that happens there will be a sudden surge in demand. The corporate who would like to be on the right side of that growth need to start working for it now.


Plan of action

GM, Apple, Toyota, P&G, South West airlines ... ring a bell? All these companies came out of recessions and even depressions quite strongly, though some of the companies may not exist now and may go out of business tomorrow there is a lot to learn from their stories if it is to be believed.

I) Product companies

When the dot com burst took place and the world went into a recession post the 9/11 attacks one of the companies was honing their arsenal and getting ready for the next battle. It was Apple which pumped in a lot of money into the research and development for a game changing product, the Apple Ipod. It was a bold move since the times at which they made the move was one in which people were running for shelters. If at all there is something that can be learned from this, it is the dedication of the company to invest in innovation and new products. They foresaw the market upheaval and the market opportunity and eventually they landed at the right place at the right time leaving behind their competitors once and for all. Would they come out again this time? No one knows what is happening in Cupertino.

Product companies like Apple need to introspect into their growth strategies post this depression. It is quite unlikely that the banks around would lend money to help their cause and hence the companies with cash in their kitty would have an outright advantage and it is all about seizing the opportunity. As it is clear from the Apple story that investing in R&D is one of the key strategies that these companies should adopt. Moreover watch out for the M&A space since this is the harvest time for many of the big guns as most of the companies are undervalued. So if one has cash and would like to grow without taking a lot of risk then M&A is the way to go. GM was one of the companies which came out of the depression of 1930’s strongly using this strategy. Innovation in house or acquired is the way forward for these companies.

2) Service companies

One of the fastest growing industries even in these bad times is services. Why? All other companies are trying to cut costs, trying to reduce redundancy, fed up of burning their fingers in doing what they are not good at and the lists goes on. Who can ‘help’ these companies, the answer is IBM’s, TCS’s, Infosys’s, Wipro’s et al. Although the companies that provide the services to help these companies are in a mess of their own, the opportunity is out there to be taken. Since this industry is a nascent one and they never got a chance to look within, they have got it. Most of these companies are looking into the processes within their own companies and trying to streamline the processes which they usually do for other companies.

Again if you look at the premise the success stories are to be believed and hence I pick another success story which is that of South west airlines. Post 9/11 when the airline industry was hit badly and many players were nursing their wounds SWA was comfortably posting profits after profits and why? One of the reasons was their operating efficiency. This was in place with the help of these service companies. It is quintessential during these times for most of those product companies to look into the processes which help them in day to day operations and look out for holes which are dkraining out their balances.  This is where the cash for the service companies lies since most of the corporations out there are with big holes and they are realising it now. The action plan for these service companies has to be to pull up their socks and approach these companies with a competitive solution. How easily and fast can such a solution be provided and at what cost are some of the factors that these companies should look into. Market the service offerings in more effective ways lest you would be left behind.

To sum it all

In these times ‘differentiation’ is that would create value to the clients. Product companies have to put their thinking hat and come up with innovative products and Service companies have to come up with differentiating ways to cater to the services of their clients.