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Recession requires ingenuity

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As a result, too many vulnerable businesses will have made insufficient or the wrong restructuring moves.

There have been few high profile collapses as yet. MFI and Woolworths are just the initial and largest to date of the retailers facing collapse. Others will follow during the first quarter of 2009 as they run out of cash or are unable to refinance debt. Private equity deals concluded over the preceding couple of years will not be far behind. Like MFI and Woolworths, many other companies sealed their fate months ago when they failed to recognise that their management did not possess the attributes required to be successful during an economic downturn and change their leadership and their business model in anticipation of the turbulence to come. There is an important lesson here for those companies not yet in serious difficulty.

Leading a business through a recession requires something other than the more stringent application of the scientific management techniques of control and analysis. The natural tendency to take the risk out of companies by re-establishing a previously successful business model reflects the impossibility of seeing beyond the short term. It has the strategic logic of driving a car forward while concentrating on the rear view mirror. To succeed during a recession requires the adoption of counter intuitive processes.  What directors are confronting is not an external problem of economic turbulence. It is also an internal problem of not knowing how to operate in such conditions. Only those able to lead with ingenuity, formulate creative options and act with the confidence to abandon previously favoured plans and projects will see their company emerge with the strength to prosper in the eventual economic spring.

*Anthony Holmes is a turnaround expert

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