Why economic downturn should be no barrier to business transformation

As the unwel­come return of stagfla­tion looks ever more like­ly in sev­er­al economies, busi­ness­es with trans­for­ma­tion plans may well be encour­aged to shelve them to secure short-term cost sav­ings and pro­tect their cash flow. But what if they were to go the oppo­site way, fly­ing straight into the eco­nom­ic head­winds with rad­i­cal ideas and gut­sy invest­ments?

Hakan Bul­gurlu is CEO of Arçe­lik, the Turk­ish com­pa­ny that owns house­hold appli­ances brand Beko. He believes that, while con­ven­tion­al wis­dom might sug­gest that focus­ing on cost con­trol is the most pru­dent approach dur­ing a down­turn, there are always new invest­ment oppor­tu­ni­ties to be seized when times are get­ting tough. Last year he invest­ed €93m (£80m) in R&D, spot­ting poten­tial for prof­it as the seeds of the UK’s cost-of-liv­ing cri­sis were being sown. 

“There has always been demand for ener­gy-effi­cient prod­ucts as a more sus­tain­able option for house­holds,” he says. “But, with ener­gy prices ris­ing, there is a renewed appetite for effi­cient, high-per­form­ing prod­ucts that are like­ly to shape the future of prod­uct devel­op­ment.”

Bul­gurlu advo­cates har­ness­ing robust data on every aspect of the busi­ness to make the best trans­for­ma­tion choic­es, as well as main­tain­ing a detailed under­stand­ing of how mar­kets are devel­op­ing. 

Arçe­lik had also spent heav­i­ly on upgrad­ing its IT infra­struc­ture in ear­ly 2020 while the glob­al econ­o­my was reel­ing from the shock of the unfold­ing Covid cri­sis. And, despite the cur­rent uncer­tain­ty, the firm is invest­ing in improv­ing the dig­i­tal capa­bil­i­ties of its work­force. 

Bul­gurlu says that the pur­pose is “to reimag­ine our future. We have found that robust tech­no­log­i­cal trans­for­ma­tion can lead to sig­nif­i­cant oper­a­tional improve­ments and high­er pro­duc­tiv­i­ty. There’s a ten­den­cy to shy away from major invest­ments dur­ing peri­ods of eco­nom­ic uncer­tain­ty. But, as we’ve seen dur­ing the pan­dem­ic, it can be a strate­gic risk worth tak­ing.”

An “ideal time” to invest

Noam Tois­ter, co-founder of Israeli com­pa­ny Book­away Group, is anoth­er CEO who has retained the courage of his con­vic­tions in a cri­sis. In ear­ly 2020, the firm, which aims to “rev­o­lu­tionise the ground trans­porta­tion indus­try by digi­tis­ing out­dat­ed meth­ods”, had raised more than $80m (£66m), includ­ing a series‑A fund­ing round that had been signed off only days before the pan­dem­ic was offi­cial­ly declared.

The company’s belief that there was still “tens of bil­lions of dol­lars’ worth” of bus and fer­ry book­ings ready to move online in emerg­ing mar­kets enabled it to keep faith with its pur­pose. Today, hav­ing com­plet­ed four acqui­si­tions in eight months to achieve “mar­ket dom­i­nance and the right tech­nolo­gies”, Tois­ter claims that Book­away has tak­en less than a year to become the world’s largest ground trans­port aggre­ga­tor.

He adds: “Start­ing to build a busi­ness when demand is con­strained by exter­nal fac­tors is not for every­one, but the extrem­i­ty of the sit­u­a­tion inten­si­fied our resolve. Any­one oper­at­ing at the sharp entre­pre­neur­ial end of an indus­try must be flex­i­ble enough to nego­ti­ate the inevitable head­winds. But that flex­i­bil­i­ty must exist in a con­text of stead­fast­ness and the belief that your idea can rise above adver­si­ty and flour­ish.”

Ella Gold­ner, co-founder and gen­er­al man­ag­er of ven­ture cap­i­tal provider Zinc, agrees. Despite the gloomy eco­nom­ic out­look, she high­lights how her firm will con­fi­dent­ly fund a range of 500 “mis­sion-dri­ven entre­pre­neurs” over the next three years. She believes that this will equip the star­tups that Zinc is back­ing to tack­le big soci­etal prob­lems over the long term, irre­spec­tive of short-term fluc­tu­a­tions in their mar­kets. 

“We think this is the ide­al time to dou­ble down and invest in tal­ents who want to build com­pa­nies from scratch,” Gold­ner says. “Those that start today will be get­ting into their stride in a few years. By that time, the glob­al econ­o­my will have moved on from the chal­lenges it’s fac­ing.” 

Her advice to longer-estab­lished firms would be to “invest in inno­va­tion; rethink your sup­ply chains; stream­line oper­a­tions to reduce com­plex­i­ty; spend on train­ing and reten­tion; and build strong dig­i­tal infra­struc­ture. All this will cre­ate a com­pet­i­tive advan­tage and enable a much faster bounce-back when the econ­o­my picks up again. Invest­ment in inno­va­tion, cou­pled with rig­or­ous, well-exe­cut­ed cost man­age­ment, will sep­a­rate the win­ners and losers in this down­turn.”

Don’t stand still

Press­ing ahead with a busi­ness trans­for­ma­tion when times get tough will also “shine a spot­light on the long-term via­bil­i­ty” of the com­pa­ny con­cerned. That’s the view of Ema Linaker, MD of mar­comms con­sul­tan­cy BIB Inc Ltd. Doing so, she argues, should enable “far-sight­ed lead­ers” to ensure that any change effort is suf­fi­cient­ly ambi­tious.

Linaker worked as man­ag­er of cor­po­rate com­mu­ni­ca­tions and pub­lic affairs at Google for five years, a peri­od that coin­cid­ed with the glob­al finan­cial cri­sis of 2007-08. She points out that the com­pa­ny con­tin­ued to make sub­stan­tial invest­ments in R&D rather than dialling back as GDP growth in many regions ground to a halt. 

“We focused on under­stand­ing what the end user real­ly want­ed from us and then improved their expe­ri­ence by mak­ing it sim­pler and more per­son­alised,” Linaker recalls. 

She believes that today’s cor­po­rate lead­ers should “ramp things up a notch” and imple­ment “ways of rad­i­cal­ly trans­form­ing the busi­ness”, sug­gest­ing that down­turns can pro­vide a great oppor­tu­ni­ty to cap­ture a larg­er mar­ket share. 

“It may sound risky, but it is also nec­es­sary,” Linaker argues. “Dur­ing dif­fi­cult eco­nom­ic times, out­per­form­ers antic­i­pate the poten­tial for impact and make the first moves. They pay atten­tion to the ear­ly warn­ing sig­nals of dis­rup­tion, then pri­ori­tise, refine their focus and act ear­ly.” 

Warn­ing that “sta­sis equals death”, she advis­es busi­ness lead­ers to heed the words of Walmart’s founder, Sam Wal­ton. When asked for his views about the US reces­sion of 1990–91, he is reput­ed to have quipped: “I thought about it and decid­ed not to take part.”