IT SME strategies to counter today’s global meltdown

There is no denying the fact that the world economy is going through one of the most turbulent phases in the history. Never before one has seen such a mass impact on industry across the board, which got sparkled by the housing sector crash in the USA opening the Pandora’s box of global credit crisis. The spillover from the subprime mortgage crisis is weakening both consumer confidence and the consumer spending—much of it on credit—that has been buoying the U.S. economy. Most of the leading global economies are in recession and this economic slowdown will probably last much longer than the experts initially thought. We can only take heart from the fact that it’s not the end of the world!

We all know ups and downs in business, economy and more so in the stock markets, are cyclical and periodic, so while there’s no need to be overly optimistic when you are riding through the peak (like a year back) or be overly pessimistic when you are riding through the bottom (like we are doing now). Fact is all these phases will pass and 80% of the cycle time you are in that zone when profitable business happens and economies prosper. When will that 80% zone come up again? Well, no one is God and can predict that. But the theories point out that the troughs like the current phenomenon usually last about 12-18 months. Considering that we are almost 6 months into this downturn (Though the US market has reportedly slipped into a recession since December 2007 we shall take the global recession start time at mid of 2008) – we have to hold fast for another year or so before the winds starts coming back to our sails again. But it is also a harsh truth that during this testing period, some organizations may cease to exist.

Let’s look at the scenario from the context of small and mid sized IT and software companies and look at some possible strategies to counter this global downturn. Recession times mean lower consumer spending, lower consumer spending means lower marketing budgets and lower sales, all these soon become a cycle. Now is the time to put together a survival strategy to ensure your business survival when conditions could be about to become much more challenging for the next 12 months. Following are some basic strategies to focus on, assuming you already have got your expenses under control and are maintaining a positive cashflow.

Pricing and understanding customers
Pricing strategy varies with time. In global downturns, some customers may feel the credit crunch and if you can understand that in advance, you can adopt a variable pricing model to suit various customers’ pockets. You do not necessarily have to cut list prices, but you may need to offer more temporary price promotions, reduce thresholds for quantity discounts, extend credit to long-standing customers, and price smaller services packs more aggressively. Remember, IT and software development budgets are the first ones to get slashed in global downturns. Rather than vanilla services, packaged services with clear value driven results and ROI will provide better results. The numbers are few, but there will be takers for critical business areas that need IT for survival and growth.

As with investing, diversifying services and products offer you a wider market and hedge your risks. Even simply repackaging product and services to sell to different markets can show good results.

Concentrate on customers
Client retention, not acquisition, becomes a top priority now. Show them how well you’ve done - show them the savings they make, the profits they earn, from the value of their services. That way, if economic conditions do take a serious dive, you have demonstrated the essential value of your services, and the need to retain them under much tougher market conditions. Consider conducting client satisfaction surveys for monitoring success. Make your company's offerings more valuable with speedy deliveries or flexible payment terms. Your customers are also feeling the pain in recession time. They will appreciate it and will prefer to stay with you.

Retaining existing business is the key, and one has to be extra cautious. These are times when new customer acquisition is much more difficult and the decision cycle times increase two folds. The best you can do is not to lose an existing customer, build customer loyalty, and at least keep up the same volumes of business with them. Your existing customers will keep you afloat, albeit sometimes with lower volumes and increased credit periods.

Keep innovating on focus areas
For IT SMEs to compete against the larger, more established enterprises, they still need to invest in innovation. The typical mistake that SMEs make is, in the spree to cut cost, they reduce R&D budgets mercilessly, obviously with the understanding that this is an expense they can do without. Absolutely wrong! Innovation is the only potent weapon that keeps one competitive, with a focus on new technologies, products and processes to provide more value for money to customers. However, to maximize ROI, SMEs need to align their innovation efforts with their overall business strategies and invest on the areas that have direct impacts on business in near terms.

Invest in technology and new product development
Saving money often means cutting back on new products and services during an economic downturn. This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers. This is probably the best time to build innovative products. You are not in time pressure and probably the cost of resources is much less than in regular times. The advantage that one can generate now, will start showing in the results when the tide turns.

Also these are the times, when the rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This gives all the reason to be one step ahead of your competition by investing in right technologies. While cost cutting is a must, growth should never be compromised. The compromising companies typically miss the bus when the tide turns simply because they have not invested prudently and do not have the resources to pull their growth engine. By turning defensive, top managers take innovation off the top of the official agenda and replace it with systems management and squeezing costs. It is extremely hard to reverse this when growth returns.

Cutting back on outside consultancies also seems a quick way to save money. Yet one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants. They know what companies across a broad range of industries around the world are doing to promote change. Not receiving this information can hurt a company's global competitive position.

Accelerate Marketing
Another typical mistake done by IT SMEs during slow economic times is to cut down heavily on marketing budgets. The primary reason of course is that the ROI of a marketing budget is not always visible in short terms. Another factor with typical Indian IT services companies is that, they are typically delivery centric organizations and are administered by techies at the helm. A mind block can easily set in under the circumstances which makes the entrepreneurs myopic about the immediate problem at hand, overlooking the long term growth aspect and sacrifice the tool in near term that would have helped them “get there”.

Now is the time to leap ahead of competitors in the minds of your clients through a more aggressive and integrated marketing approach. Also, instead of cutting the market research budget for example, you need to know more than ever how consumers are redefining value and responding to the recession. Successful companies do not abandon their marketing strategies in a recession; they adapt them. Restructuring marketing budgets and cutting down on discretionary spending and traveling should be the order of the day. But key market facing activities, promotions and research should be compromised at the danger of falling behind competition drastically in due course!

Keep the staff motivated
Keeping staff motivated during an economic downturn is critical. Your employees are the ones who will help the business avoid the impact of a slump so it’s important to keep them incentivised and keen to perform well. Wise organizations recognize the need to retain the level of investment in employees because this is the resource which will provide the competitive edge for your business and they are their best ambassadors. Low-cost incentive packages for businesses on tighter budgets, from a retro sports day, desk-side massages or movie shows to a simple text to win campaign or dinner or sharing cash profits; there is no need to stop incentivising staff – you’ve just got to realize the criticality of keeping employees motivated and use a little imagination.

Come what may, hold on to your talent
In the obvious plea to cut costs, lot of companies revert to the age-old tactics of down sizing. They do clean up the bottom performers in the process, but also end up a part of the cream of the talent as well. Most of the time, it is poor or lack of communication to blame, added to lack of adequate incentives for the performers and potentials. The grave mistake to indulge in is undergoing the downsizing exercise without doing anything to counter the spread of fear factor and in the working environment. Not only does the organization lose on productivity, with a sense of insecurity spreading, it takes a hit of losing some key performers as well.

While a clean-up action on performance basis is necessary, even in peak of economy, a downsizing exercise always comes at a bigger cost – a loss of total employee morale, spread of negative energy, loss of some good performers and brand ambassadors, productivity and eroding brand value in the long run. Effective communication across ranks and levels and visible incentive programs should be in place to counter the ill effects. But given a choice, a down sizing strategy should be an absolute last resort.

In conclusion, winners always emerge out of recessions and they almost always beat their competition on the basis of something new. Apple worked on iTunes, iPod and its retail stores during the last recession and came out swinging once growth returned to destroy its competition. Apple didn't make the typical recession time errors, neither should you!

If you want to take this recession and turn it around for your company's benefit, take some time to plan. Have your top management team huddled together. Your think tank has to work overtime now and you have to utilize their collective brains and teamwork and expertise to get you out of this. An economic offsite can be most productive, a little added cost here can save lot of other costs in future! Most small companies keep an absolute hush-hush about the planning and half the team members of the planning committee are in dark as to what the other half is upto. This is recipe for disaster.

More the pressure, more you should talk it out within the team and go for collective decisions. Also, this is the time when typically you see more and more negative energies creeping into your organization. A little budget on team building activities and games, even counseling sessions can keep up the tempo and morale high. The working environment can never be compromised. If you preached “work hard, play hard” philosophy in good times, stick on to it. Dropping the “play hard factor” can result in vanishing of the “work hard factor” too.

Be flexible and creative in coming up with solutions rather than making wholesale changes or slashes to your employee ranks. You will find this simple tip helpful in future. If you keep the big picture in focus and your head down aiming and working towards it, your company will make it through successfully to the other side of economic "Down". All the best!