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  • Lik Wai Toh

    January 22, 2022 at 9:16 pm

    The macroeconomic discussions on unemployment, inflation, and growth often end in conflicting policy approaches and government intervention. What are the most important managerial challenges at times of crisis? How do we manage crises efficiently at times of recession / economic downturn?

    Effective managers – whether or not they have past recession experience – must analyze the downturn’s repercussions and what they mean for their business and its survival. Then they should answer the critical questions – what should we do differently, and what should we do better?
    The key to survival is often to get the small things right rather than radically altering every area of the operation. Numerous practical measures can mitigate the downturn’s impact and position the business to thrive when economic conditions improve.

    Understand your customers: During an economic crisis, the customers often get hit due to poor cash flow. Thus, the management should need to understand how the customers behave. Whether or not we need to extend the payment term for the customers to avoid bad debts. Moreover, management needs to understand the customers whether or not they will downgrade to the entry-level model, purchase the same product less frequently, or seek an alternative product or service. When resources are scarce, it is crucial to consider the profitability of specific consumers and products.

    Effective working capital management: When ‘cash is king,’ everyone in the business should be focused on reducing working capital investment. Also, cash collection should be managed proactively. Inventory balances should be kept at the minimum level to ensure that agreed-upon customer service criteria are met.

    Cost reduction: During a downturn, management must prioritize expense control and cost reduction, and management should begin with a clean slate. Sustainable cost reduction entails transitioning from your current cost base to a lower-cost model.

    • This reply was modified 8 months, 1 week ago by  Lik Wai Toh.