Is your company taking action during this economic lull, or sitting on it haunches?
Today's slumping economic climate presents plenty of opportunities for the lean and mean. For companies that aren't lean and mean yet, it also provides an awfully powerful incentive to get that way: U.S. bankruptcy courts are full of filings from the formerly fat and happy, and there's always room for more.
Companies are following a variety of strategies during the current downturn. Downsizing seems to be the most popular. Plant closings get the most attention, but many other firms quietly are reducing staff through layoffs and attrition.
It's an incredible turnaround from just a year ago, when companies were desperate to hire warm bodies, not to mention trained, talented workers. Obviously all of the staff cutbacks are creating a pool of available, experienced personnel. So, how is your company taking advantage of this opportunity? Are you cutting payroll to match the current business level, or are you cherrypicking some of the newly available whiz kids now in the job market? Chances are pretty good that one of those tactics is best for your firm, or maybe a combination of both.
The same goes for debt. This is not a good time to be heavily leveraged, and many firms are furiously selling off assets — sometimes at fire-sale prices — in an effort to reduce debt or meet loan covenants. But if your company can afford to take on some debt, or has available cash, this may be the best opportunity in years to pick up some bargains.
Two years ago, our news pages were filled each week with stories about companies with aggressive acquisition strategies on the hunt to buy processors and toolmakers of any size. Merger and acquisition activity has slowed, but not disappeared. Today, buyers are being much more careful. No longer are they taking on operations that should by all accounts be shut down. Read the stories carefully, and you'll see that in many cases they're just buying the assets and leaving the former owners' creditors and suppliers twisting in the wind.
We've also seen examples of companies in dire straits simply because they chose the wrong customers. The cell phone market is a prime example: A select group of custom molders did everything their customers wanted them to do — added capacity, built plants in new locations, added lots of decorating and secondary operations — all to see the business disappear to the Far East, Eastern Europe, and large contract manufacturers. What happened? A downturn in sales hit that the manufacturers did not anticipate. Suddenly a great strategy for many custom molders became a disaster.
It's not a pretty situation, but that's the way business is done today. Companies constantly must evaluate their strategies, their customers, their size and their product mix, because yesterday's blue-chip customers like Polaroid Corp. are today's bankruptcy babies.