When business slows down, as it has in recent months, it is not unusual to lose track of what is really important and instead focus on what is more immediate. For instance, as customers of packaging companies pack and ship fewer products, the immediate response in the packaging industry is to cut back on a wide variety of investments and reduce costs. While we have not yet heard any major layoffs in the packaging industry on a scale that some of the larger companies have announced, I suspect that some companies are already doing this on a smaller scale. Similarly, I am also aware that several companies are scaling back on R&D and new product development.
While most of us recognize the potential long-term hazards of cutting down on research and development, I think the way we are structured, these are inevitable. However, there are certain things that a slowdown should allow us to do. I might even say that a brief slowdown is healthy for an economy as well as an enterprise. During a rapidly growing economy, we are all forced to keep up with demand for our products and services, have to make investments for productivity enhancements, and need to compromise on quality of resources that we employ to meet short-term commitments. I am sure a lot of you would agree that we are essentially forced to cut corners, which is not the way winners generally work.
Why a slowdown may be good
It provides us an excellent opportunity to fix what we think is not best-in-class. Resources that are now freed up to some extent can be utilized to improve our processes. There is no better time to test the efficacy of your systems than in a fast-changing business environment. I have been told by several industry executives that they have learned a lot about the limitations of their processes in recent years. This is, then, a perfect opportunity to use that new knowledge to eliminate the bugs from the system.
Similarly, I am aware of hundreds of companies that had to hire employees who were not the most suitable for the jobs that they were hired for. Many of these new employees struggled in their new jobs and, while some were able to pick up speed, others are still having a hard time. This may be a good time to train these employees. So before you decide to get rid of these employees, think hard about the staff you might need in case the economy picks up steam again.
The final area that we can all work on is new product development. When the economy was going through the roof, what customers wanted was packaging that would get their products from point A to B. It really didn’t matter how the design looked and how much protection it provided – speed to supply current products was more important. On the other hand, as economy improves, it will do so only gradually. The implication of a U- or V-shaped comeback is that customers will be more selective. Thus, product differentiation and quality will be absolutely critical. The current slowdown might well provide a perfect opportunity to approve all those dollars that your R&D group has been asking for years. It will payoff real soon.
What are the short-term risks?
It would be appropriate to disclose the short-term risks inherent in this strategy. Almost all public companies are struggling right now to meet their revenue and earnings expectations. The way our economy is currently set up, no matter what happens next year, you still have to meet your expectations for this quarter. This means that a lot of companies are not at liberty to undertake the steps that I am recommending. However, if you can in any way allocate funds for these projects today, do it. It will be a productive and judicious use of your resources.