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Managing a downturn

Stephen Choo | Feb. 6, 2009
Recession strategies for the communications, media and technology sector

When exploring the prospects for the communications, media and technology (CMT) sector back in October 2008, the London Financial Times predicted that the industry as a whole is unlikely to be mauled by recession. Well, if you believed that, then you probably also believed that Asia was sheltered from this financial downturn. How times have changed.

What we know now is that the economic theory of decoupling is all hogwash after all. Globalisation is increasingly becoming a pervasive force, whose tentacles are felt at every corner of our planet. According to a Hay Group global report published in December 2008, only a mere 13 per cent of technology companies in Asia reached or exceeded their 2008 targets. Little wonder then that nearly two-thirds of them were freezing or reducing staff levels.

Most economists around the world are predicting that the world economy is going to be in a pretty bad shape in the Year of the Ox. It is ironic that the Ox is the chosen Chinese zodiac animal for a year characterised by economic downturns rather than share markets bull runs. Now the Year of the Ox signifies a time for everyone to put their shoulders to the plow and work even harder.

How organisations in the CMT sector work through the challenges over this year will be critical to their short-term survival as well as their ability to grow and evolve post-recession. We see the following as five keys to success in 2009:

The dash for cash

Conventional wisdom tells us that cash is king during an economic downturn. So, organisations are on a mission to massively cut costs to save money. Deutsche Telekom is seeking cost savings of 4.7 billion euros (US$6 billion); Nortel has US$2.3bn cash and yet is cutting costs. Too many organisations that are under pressure to deliver in the short term go for a slash-and-burn approach, without realising that they are damaging their operating environment forever. So the key is to not to cut across the board, but rather to review operating models, structures or identify where value is lost. The organisation must become healthier and fitter, not anorexic.

Survival of the fittest

Economic recession presents companies with strong financial muscles a rare opportunity to acquire their competitors at attractively low prices. Companies that have succeeded in the dash for cash can take advantage of a buyers market. Deals are happening all around us even as we speak: Yahoo! has asked Microsoft to buy it; Panasonic has bought Sanyo and ALLTEL will disappear into Verizon. More big names will cease to exist in 2010 as a result of consolidation or vertical integration. The big challenge will be to make any integration successful and delivers the expected returns. The biggest failure of any merger and acquisition lies not in the integration of business systems or operating model but in the softer sidepeople, culture and norms.

 

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