Survival strategies to help businesses get through the rapid fluctuations of business cycles. Take the following business survival strategies to insulate your business in the event of tough times.
1. Non-growth Strategies
A non-growth strategy refers to that strategy where there is no growth in earnings. This does not necessarily mean no turnover. A company might pursue a non-growth strategy, if it saw its non-economic objectives as more important than its economic objectives.
The primary reasons for adopting a non-growth strategy may include,
- Pressure from public opinion;
- Maintain an acceptable quality of life;
- Lack of enough additional staff with sufficient expertise and loyalty;
- Enable the owner-manager to retain personal control over operations; and
- Dis-economies of scale of the particular production set-up.
In certain cases, there could even be negative growth, by paying out dividends larger than current earnings, so that shareholders are effectively receiving a refund of their capital investment, and there is a net fall in assets employed. A negative growth strategy can be adopted in pursuit of an objective to increase the percentage return to the shareholders – if the company pulls out of the least profitable areas of its operations first, it will increase its overall return on investment, although the total investment will be less. The negative growth strategy consists of an orderly, planned withdrawal from less profitable areas, and while the shareholder’s dividend may eventually decline, his return can rise since the capital invested also falls. If the company simply runs down, his return will also fall.
2. Corrective Strategies
A non-growth strategy certainly does not mean that the company can afford to be complacent. A considerable amount of management time should be devoted to consider the actions needed to correct its overall strategic structure to achieve the optimum. This involves seeking a balance between its overall strategic structures to achieve the optimum. This involves seeking a balance between different areas of operations and also seeking the optimum organization structure for efficient operation.
Thus although there is no overall growth (or negative growth occurs) the company will shift its product market position, employ its resources in different fields and continue to search for new opportunities. In particular, the company will aim to correct any weaknesses which it has discovered during its appraisal. For this reason the term corrective strategy is also used. A non-growth strategy is bound to be a corrective strategy, but a corrective strategy can also be used in conjunction with, or as one component of, a growth strategy.
3. Risk-reducing Contingency Strategies
A company faces risk because of its lack of knowledge of the future. The extent of the risk it faces can be revealed by the use of performance-risk gap analysis, where forecasts of the outcome in n years’ time takes into account not only the likely return but also the risk involved. While on the subject of risk, it should be remembered that although it is desirable to reduce risk, risk is inevitably involved in any business. In fact there are different ways of looking at risk.
- Risk which is inevitable in the nature of the business; this risk should be minimized as above.
- Risk which an organization can afford to take. In general, high return involves higher risk and a company which is in a strong position might be prepared to take a higher risk in the hope of achieving a high return.
- Risk which an organization cannot afford to take. A company cannot afford to commit penny (and perhaps an overdraft as well) to a risky project. In the event of failure it would be left in an extremely vulnerable position and could even face winding up.
- Risk which an organization cannot afford not to take. Sometimes a company is forced to take a risk because it knows that its competitors are going to act and if it does not follow it could be seriously left behind.