What Should Corporates and Business Leaders do in Low Growth and Recessionary Times
The World Economy is in a Perfect Storm of Economic Events
The world economy is stagnating and while the stock market is booming, the real economy that consists of manufacturing and agriculture is in dire straits.
While the United States is being nudged towards recession due to the effects of the US-China Trade War, Europe, and Germany in particular are suffering due to fall in exports and loss of competitiveness.
Even China, which for long has been the Bellwether for the Global Economy appears to be slowing down.
And, who can leave out India, the Elephant in the Room that is in the throes of a serious and severe recession with growth barely above 5%.
Indeed, one can go as far as to say that what the world economy is now going through is the culmination of several trends resulting in a Perfect Storm of events that threaten to derail the recovery in the aftermath of the Great Recession.
Thus, corporates and businesses have to contend with not only falling demand but also extreme levels of Debt and too much inventory which is leading to plant closures and bankruptcies.
In this context, one can very well ask what business leaders should do in the face of such extreme macro and micro economic conditions.
What Should Corporates do During Low Growth and Recessionary Times
To start with, it is the practice in Free Market and Capitalist Economies for corporates to downsize and layoff the workers in bad times.
Indeed, one of the cornerstones of capitalism is that businesses can hire when the times are good and fire workers when the times are bad.
This is what is happening in India where from the mighty Automotive firms to the Biscuit makers are all laying off workers by the thousands.
While India cannot yet be classified as a completely Free Market Economy, nonetheless, there are indications that India Inc. is now aping the West when it comes to business strategies during recessions.
In addition, corporates are also cutting down on costs in the form of perks and bonuses for their employees.
For instance, many Indian and Multinational firms are withdrawing the transport facilities for their employees as well as giving minimal salary hikes.
Indeed, across the board, the pay hikes this year have been mostly single digit if at all they have been given.
Moreover, many firms are also withholding bonuses to their employees so that they save on such costs.
There are Other Ways to Ride the Recession
Having said that, it must also be mentioned that downsizing and cutting slack by targeting the employees and the workers is not the only way out for corporates during recessionary times. There are other ways as well and these include spending some of the cash hoards that many corporates have.
For instance, Infosys is sitting on a huge cash pile and it can very well use some of those reserves to pump it into the business without laying off or downsizing.
In addition, corporates can also reduce their debt burdens so that debt servicing costs come down.
For instance, Reliance led by Mukesh Ambani is aiming to be a Zero Net Debt company in two years times.
Apart from this, business leaders can also lobby the government for tax breaks and supply side stimuli to ensure that they remain in business.
This is already happening in India and elsewhere where the Governments are stepping in and providing corporates with generous incentives to lower prices as well as trying to stimulate demand by cutting interest rates. The point here is that it is always not the case that employees should bear the brunt of the recession and that there are other ways and strategies that can be pursued.
Managing Internal Dynamics by People Centric HRM Policies and Tough Messages
On the other hand, turning to the Internal Dynamics within the firms, it is necessary for Business Leaders to take their employees into confidence and ensure that they work together to Ride the Recession.
Indeed, in this context, even the Human Resources Managers have to get involved in communicating the message that Shape Up or Ship Out or get your act together or face the consequences.
In other words, there needs to be a message sent to the entire workforce that if they have to retain their jobs, they must work beyond their normal and moreover, they must work with the interests of the company in mind.
In addition, business leaders can adopt technology in a big way to ensure that efficiencies from economies of scale and synergies from integration make up for loss of revenues by lowering the costs associated with doing business.
Therefore, there are many strategies that businesses can adopt that are both People Friendly and at the same time, tough enough to make them work harder and in a more efficient manner.
Already some business leaders such as Anand Mahindra are employing these strategies in their firms now.
Last, recessions and downturns are part and parcel of the game and hence, there is no need for corporates and business leaders to panic over them.
At the same time, there is also no reason for them to be complacent either. Thus, a mix of strong medicine and some sugar to sweeten the bitter pill are needed if corporates and businesses have to survive the bad economic conditions.
To conclude, tough times don’t last and only tough people do and hence, it is better for everyone, whether leaders or employees to pull up their socks and tighten their belts now.
Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
- Leadership - Introduction
- Importance of Leadership
- Role of a Leader
- Qualities of a Leader
- Leadership and Management
- Leader versus Manager
- Authority vs Leadership
- Leadership and Motivation
- Emotional Intelligence for Leaders
- Organizational Leadership
- Leadership Ethics
- Leadership Strategy
- Leadership Styles
- Personal Leadership Brand
- Level 5 Leadership
- Situational Leadership
- Situational Leadership and Motivation
- Leadership & Subordinate Development
- Leadership Development - Introduction
- Intrinsic vs Extrinsic Motivation
- Inside Leaders vs. Outside Leaders
- Transformational Leadership
- Leadership for the 21st Century
- The Transleader
- Three Traits of Effective Leadership
- Importance of Compassion in Leadership
- An Important Advice to Future Leaders
- Avoiding Focus on Quarterly Earnings
- Reinventing Management for 21st Century
- Ambidextrous Leadership
- Invest in Oneself
- Social Media Skills for Leaders
- Social Stratification and Hierarchy
- The Ethical Imperative
- Leadership in the Face of Adversity
- Emotional and Spiritual Intelligence
- Leadership Theories
- Blake and Mouton’s Managerial Grid
- House’s Path Goal Theory
- Great Man Theory
- Trait Theory
- LMX Theory
- Transformational Leadership
- Transactional Leadership
- Continuum of Leadership Behaviour
- Likert’s Management System
- Hersey Blanchard Model
- Fiedler’s Contingency Model
- Leadership and Trust
- How to be a Good Leader ?
- Effective Leadership Skills
- Leadership Vision
- Different Types of Power
- Women and Leadership
- What are the Challenges in Leadership ?
- Tips to Overcome Challenges in Leadership
- Role of Communication in Overcoming Leadership Challenges
- Role of Management/Organization in Overcoming Leadership Challenges
- Tips to Strengthen Bond Among Employees
- Vision of Leaders has to be Actualized by Middle Management for Organizational Success
- Leadership in the Time of Epic Changes and Struggles Over Ethics and Values
- Great Leadership is about Initiating, Sustaining, and Carrying through Ones Vision
- Cultural Dimensions of Leadership
- Scarcity vs. Abundant Mindsets in Leaders
- Different Folks, Different Strokes! The Many Leadership Styles in the Real World
- Persuasion and the Art of Changing Minds are Essential for Contemporary Leaders
- Managing in Chaos: A Necessary Skill for Managers and Leaders
- Leadership in the Contemporary World
- Need to Develop Network Thinking and Seventh Sense for Success in the 21st Century
- Why Do Some Business Leaders Attain Greatness Whereas Others Fail?
- Hands on Approach to Leadership: The Need for Leaders to be Good Administrators
- How Great Leaders Transform Organizations, Nations, Societies, and the World
- Why Business and Political Leaders Must be Institution Builders to Ensure Longevity
- Qualities of an Inspirational Leader and their Benefits
- Foundation Pillars of Successful Leaders
- Self Assessment for Leadership: Assessing the Strengths and Vulnerabilities for Improving Leadership Effectiveness
- Self Motivation for Leaders
- Techniques for Developing Self-Motivation
- Leadership Development Plan
- Writing a Leadership Development Plan
- When Hope Meets Reality: The Challenges for Leaders to Sustain the Momentum
- The Challenge for Contemporary Leaders is to Restore Trust and Faith in Institutions
- The Ever Shortening Business Cycles and What They Mean for Business Leaders
- Leadership Case Study: Steve Jobs - The Man Who Ushered in the Smartphone Revolution
- Why Leaders Must be in Control over the Direction and Pace of Organizational Change
- The 4Cs of Leadership Styles for Leadership in the Digital Age
- Lessons for Business Leaders from the Downfall of Charles Ghosn of Renault - Nissan
- Truly Great Leadership is All about Walking the Talk in All Aspects of Being Leaders
- Examining the Crisis of the Leader – Follower Relationship in the Present Times
- How Great Leaders use a Mix of Micromanagement and Hands off Approaches
- Leadership during Crises is what Distinguishes Great Leaders from Manager Leaders
- What the Dalai Lama can teach Corporate Honchos about Leadership and Management
- Why we Need more Emotionally Intelligent Leaders and Managers in Chaotic Times
- Why the Digital Age Calls for a New Approach to Leadership and Team Management
- Business Leadership in the Age of Nationalism and Populism and the Rocky Road Ahead
- Leadership in a Collapsing World When Faced with Insurmountable Problems
- The Importance of Thought Leaders and Influencers in the Age of Social Media
- Leadership by Optics Management: Taking the Howdy Modi Event as a Case Study
- What Should Leaders do in Low Growth and Recessionary Times
- What Ails India Inc. and is it a Crisis of Leadership or a Structural Issue to be Addressed?
- The Tyranny of the Quarterly Results: Why Business Leaders must Avoid Short-Termism
- The Perils of Leaders and Their Personality Cults in Times of Authoritarian Rulers
- Leadership in the Digital Age and Why Contemporary Leaders Must Master These Skills
- Misdemeanours by Senior Leaders Must Be Handled Firmly and the Right Message Sent
- When Hope Meets Reality: Why Visionary Leaders Have to Balance Dreams with Realities
- Power as a Managerial Tool
- Why We Need More Self Aware and Less Self Centred Leaders, Who Can Self Evaluate