Managing a downturn

  The current crisis in the UK steel sector has dominated the headlines with 40,000 jobs said to be at risk. But other sectors, lacking steelmaking’s iconic image, have quietly haemorrhaged even more jobs. The oil and gas sector had shed 65,000 jobs to September 2015 with many more since then and the four main high street banks cut 189,000 positions in five years to 2013. Losses ripple rapidly down the supply chain from blue chip multinationals to SMEs, and it is at the bottom of the pyramid that firms find themselves under most pressure. So how should management react to a downturn in their sector? The first question to ask is, is the downturn cyclical or structural? The only way to adjust to structural decline is to move quickly while your balance sheet is still strong, and move the focus of your business to areas which are growing and your company’s skills and experience can be profitably employed. IBM spotted the decline in the mainframe computer market and in the late 1990s moved decisively into IT consultancy. In 2015, its revenues were over $80bn. Blockbuster Video on the other hand, had 60,000 employees and 9,000 stores in 2004. As the market went digital, it could have become the next Netflix. It didn’t and instead has disappeared completely. Cyclical downturns require a different set of judgements; estimating how long the downturn will last and determining where the market’s hit bottom. Survival becomes a question of hoarding enough cash to last until the market recovers. Downturns are very difficult to spot at the beginning and typically a company may make...