Media’s Offensive-Defensive Combination Works Best Against Economic Headwinds

Ahead of Labor Day, JP Morgan Chase and KPMG weighed in on whether the country is headed for an economic downturn over the next year. Chase Models put the chance at less than 50%. But they note that “the volatility and significant corrections in stock and bond markets put a much higher risk of recession at between 75% and 80%.” KPMG talked to CEOs; 91% of those in the US expected a recession within 12 months and only 43% thought it would be minor.

Whether the downturn is imminent or has arrived, media and entertainment companies are already making announcements of cost cutting and layoffs. Saturday’s update from disney added this company to a list that already includes Warner Bros. Discovery, Comcast and Meta, Facebook’s parent company. And then there’s Twitter, whose so-called “Chief Twit” Elon Musk shut down just before Halloween and almost immediately killed half of the email staff.

It’s true that one of the best ways for a business to survive an economic downturn is to react quickly. The companies that are most successful in coming out of a recession are those that see it as an opportunity and respond to it with a carefully crafted plan. At the same time, prudent leaders are aware that they will need experienced and skilled employees to implement change.

In 2010, the Harvard Business Review published an article titled “Coming out of the recession.” The three authors began the article by saying, “Great leaders know that how they fight a war often decides whether they will win the peace.” By examining the results of three previous recessions – 1980, 1990 and 2000 – they created a study group of 4,700 public companies. Of these, only 9% emerged from the recession in a better position than they were before the financial crisis. These were companies that continued to significantly outperform their peers. This elite group was significantly better on “key financial metrics” and at least 10% better, in terms of sales and profit growth, than its competitors.

Strategy, how companies approached the recession, seemed to be the main differentiator. By dividing the study group into four broad strategic approaches – “prevention-focused”, “promotion-focused”, “pragmatic” and “progressive” – they determined that these were the few companies that took the approach progressive, what the authors described as “the optimal combination of defense and offense,” which were most likely to thrive when the economy improved.

Regardless of the strategic group, the odds of a company emerging from an economic downturn to outperform the competition are not encouraging. Only 37% of those the HBR authors classified as “progressives” passed. But compare these results to those of the “prevention-focused” group; they were only 21% likely to be improved by at least 10%. The other two groups didn’t fare much better. Those ‘focused on promotion’ came in at 26% and the ‘pragmatic’ category measured 29% likelihood.

Of course, no two recessions are the same. What worked in 1990 or 2009 may not be the best solution today. Nonetheless, it makes sense to pay attention to lessons learned from the past and consider how they might apply to current circumstances.

One of the things that strikes me about the HBR article is that deep, broad-based spending cuts, especially those on personnel, don’t seem like the solution. Cuts are the first response of the prevention group. The authors specifically point to the downside of the downsizing tactic saying, “Companies that rely solely on downsizing have only an 11% chance of achieving breakaway performance after a downturn. ” It’s a long shot, at best.

What makes this approach even more concerning now is that companies are still suffering from the decision to cut jobs during the pandemic-induced downturn. When things quickly turned around in 2021, they found a competitive hiring situation with desirable candidates demanding higher salaries and expecting more benefits. Despite recent high-profile layoffs, there are still more jobs than qualified candidates to fill them. This means that companies looking to hire again when things improve could face even higher costs, putting downward pressure on their future profitability.

Another thing to consider is that significant reductions in a company’s workforce must be done in a way that is arguably non-discriminatory. In practice, this means approaches such as last in, first out; redemptions; or the elimination of a certain category of employees. All of these factors are likely to reduce diversity and lead to the loss of valuable institutional knowledge. Both equal fewer opportunities for different perspectives.

The HBR article points out that “companies that focus on improving operational efficiency do better than those that focus on reducing the number of employees.” In fact, the two seem to complement each other. Companies need the different perspectives offered by employees who truly understand the business to come up with efficiency improvement strategies.

Despite the lingering uncertainty, the current financial instability is a real opportunity for media companies and their leaders. Those who can find the right balance between offensive and defensive strategies could well find themselves in a better situation within three years.

That doesn’t mean it will be easy. But companies like Disney, which take the time to form a task force to look at the situation across the company, have a better chance of success than companies like Twitter, which have already had to rehire laid-off workers because they were essential to the planned new products. and then backtracked on plans for a subscription service that new management had promoted as a key part of the solution to the service’s profitability crisis.

It will certainly be interesting to watch how this unfolds.

Former President and CEO of the Media Financial Management Association and its subsidiary BCCA, Mary M. Collins is a change agent, entrepreneur and executive. She can be reached at [email protected].

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