3 Ways Leaders Can Prepare for Economic Recovery

Leaders often panic during a recession. They go into short-term survival mode, managing quarter-to-quarter and propping up their numbers by cutting back on important long-term growth projects.

In the depths of a downturn, it’s the most crucial time for employees to see that the person at the helm is cool, calm, and continues to find creative solutions to challenges. As unpleasant as recessions are, you can use them to set the stage for future gains against your competitors—as long as you stay disciplined and maintain both a short- and long-term approach. 

As CEO and/or of Honeywell from 2002 to 2018, there were many decisions that required this type of independent thinking, especially during the Great Recession of 2008. As leaders face today’s ongoing economic challenges, there are major lessons to learn from Honeywell’s recent history.  

Cutting Costs and Allocating Associated Pain on Customers, Investors, and Employees

When cutting costs, our general approach was to avoid taking steps that would compromise Honeywell’s ability to perform over the long term. That meant, first of all, we wouldn’t cut costs in ways detrimental to customers. Once customers flee, they’re hard to get back.

We would continue to maintain staffing levels and the materials on hand we needed to deliver. We would continue to fund all our process improvement initiatives and the new products and services we had committed to develop for customers. Our fundamental goal was to ensure that customers didn’t feel any impact from us during the recession, because without strong performance on behalf of customers, both investors and employees would suffer.

The key was to cut costs in ways that would better balance the pain employees and investors would feel and that would allow us to respond well to the recovery by preserving our industrial base. While layoffs were a poor option, we couldn’t put the entire burden on investors either. We had a fiduciary responsibility to protect and grow their investment.

But we still had to trim labor costs somehow. Although most of our peers were choosing layoffs, we felt it made no sense. Instead, we stayed firm on furloughs, not only because they allowed people to keep their jobs and were less expensive to execute than layoffs (no severance payments required), but also because they allowed us to retain our industrial base for the long term. All the knowledge that our people had would stay inside the organization, and when the recovery came, we would be in a much better position to deliver for customers and continue to innovate.

Cost-cutting is unpleasant, but leadership isn’t always easy. Leaders have no good choices here—they must choose between the bad and the less bad. The less bad choices would allow us to outperform for our investors (even though stock prices were still down), keep employee pain to a minimum, and ready ourselves for a recovery.

Supplies Will Become Scarce in the Recovery

One of the great difficulties businesses have as they exit a recession is that competitors are also ramping up production, so the supplies required for production become scarce up and down the supply chain.

We wanted our Honeywell businesses to have an advantage when the recovery was upon us, so we prepared for this scenario by asking our business leaders in the depth of the recession to begin working with their suppliers to prepare for the recovery. Our leaders began working with suppliers up front to lock in first priority over our competitors when the recovery came. This represented independent thinking on our part—our competitors weren’t doing this. We also took the opportunity to negotiate better payment terms, price reductions, and long-term deals, which were all easier to obtain during a recession.

As a result of this effort, we got a big lift as the economy improved, outpacing our competitors in our sales growth, to the delight of our investors. Our very profitable Aerospace commercial spare parts business, for example, outgrew its competitors by about 50 percent in 2011–2012 because leaders there had worked with suppliers.

“Be fearful when others are greedy and greedy when others are fearful.”

This Warren Buffett quote is true for Honeywell’s experience during the recession.

When sales began to bounce back in December 2009, our workforce and leadership corps were intact. Our customer relationships were strong, and we hadn’t slid backward on our cultural, process, or mergers and acquisition strategies. On the contrary, we had intensified M&A, seeking out companies we could buy less expensively. In the middle of the recession, we completed a $1.4 billion acquisition of Sperian, a manufacturer of protective equipment, adding it to our Safety Products portfolio of businesses. We also completed a $720 million acquisition of Metrologic to add to our Barcode Scanning business. This ended up being even more strategically important than we ever thought because it was being run by the person, Darius Adamczyk, who became my very successful successor!

Failure to maintain a solid growth program is a classic miss in companies, even smaller ones with 500 people. Whether it’s an investment, acquisition, or needing more people to put on a project, we kept investing in every growth program the way we did before the recession struck.

Wise leaders are always preparing for the next recession, even if they don’t realize it. If you strengthen your company from the inside out, positioning it for long-term growth while maintaining decent quarterly results, your organization will weather even the fiercest economic storms. It worked for Honeywell, and it will work for your team or organization too.

Article from Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term

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