Case Studies: Successful Companies during Global Crises
Companies that were successful during past global crises are Priceline, Netflix, Amazon, and Starbucks. These companies managed to stay afloat during times of global crises by diversifying their product lines, implementing creative accounting strategies, cutting costs, and realigning their marketing strategies and focusing on driving new business. When it comes to surviving and thriving during global recessions, experts suggest that companies put focus on decision-making, invest in technology, and identify the areas of most value in their company to help cut costs more effectively, however, they warn that companies should not take on more debt, ignore client relationships, or limit their revenue streams.
Companies That Were Successful During Past Global Crises:
- In the early 2000s, a stock market crash occurred, known as the dot-com bubble burst. During this time, half the index's value was lost within a year due to a significant number of investors selling rapidly in response to an all-time high hit on the NASDAQ. The results of the dot-com bubble were so impactful, that leading tech companies including Intel, Oracle, and Cisco lost 80% of their stock value and resulted in a 15-year-long recovery period in order for the NASDAQ to level out again.
- The dot-com bubble nearly ran Priceline into the ground entirely, right after it had reached a price around $1,000 per share. However, by 2013, the company was the second-largest company in the global travel industry. Stock analyst, Henry Bloget, says Priceline's ability to survive the dot-com crash was the result of "careful management and smart investments."
- According to the company's historical financial records the company had begun a series of cost reduction activities after the dot-com crash date. Pro forma expenses were noted as being significantly reduced, having been reduced a total of 16% within one year after the crash. Additionally, around this same time, Priceline was reporting that it was driving new business. In Q2 of 2001, Priceline "saw significant growth in its customer metrics," adding over one million new customers, now reaching a total of 10.9 million customers. Further, Priceline sold 3 million units worth of travel products in this same quarter, which was a record for the company.
- Around this time, Priceline CEO, Jeffrey Boyd, stated that the success was due to the company working to improve their products and services while simultaneously working to make things more efficient. Priceline's Q2 2001 activities included database marketing, refining their e-mail marketing strategies, roll out of TV and radio advertising, expansion of their product line and new product launches, and developing strategic partnerships with key investors.
- Netflix has been heralded as one of the most successful businesses during the 2008 recession. At this time, the video industry was reaching the intersection of traditional video rental stores, a once profitable but now dying industry, and on-demand video services, a technology that was new at the time and being offered by Apple and Comcast.
- Finding itself at this intersection, Netflix launched a streaming plan in 2009, which was then operating alongside their disc-delivery service, and resulted in the acquisition of 3 million new customers.
- In 2009, Forbes reported that Netflix was catching the attention of investors as the company was able to increase their revenues even as the recession dragged on, noting that "it is one of the few stocks that is trading well above its 200-day moving average and has been increasing steadily." Comparatively, Netflix was showing 30% returns while the S&P 500 was showing a 43% loss during the same time.
- In reference to what aspects of the company were allowing it to maintain such a strong growth prospect during this time, Forbes notes how the company's services aligned well with the fact that consumers at the time were cutting back on more expensive types of entertainment options due to the recession. In a nut shell, the company's business model was 'recession resistant' due to its low-cost nature and convenience.
- Amazon is another survivor of the dot-com bubble crash. At the time, Amazon was primarily an online bookstore. According to a 2018 article published by Harvard Business School (HBS), it was Amazon's accounting strategy that made the company thrive through the dot-cum bubble, while other tech-startups tanked.
- HBS notes that Amazon relied on a Cash Conversion Cycle, or a measure for how quickly a company receives payment for a product that they sell. In other words, the "gap between the time you pay for your supplies and receive payment for your product."
- During the dot-com bubble, Amazon had its payment, inventory, and production systems aligned in such a way that it created a negative cash conversion cycle for the company, which ultimately meant that "Amazon received payment for the things they sold before they had to pay for them," according to HBS.
- Using this stream of income, Amazon grew their business, which reinforced the negative cash conversion cycle, allowing it to become bigger as well. This gave the company a leg up when it came to influencing their suppliers to negotiate even better terms that further increased the negative cash conversion cycle effect.
- Business Today highlights Starbucks as a company that was able to pull out of the 2008 financial crisis by aligning its operations with customer demands through social media.
- During this economic slowdown, the customers of Starbucks customers began to shift to cheaper options. By March 2008, the company's profit had fallen by 28% compared to the previous year and was forced to shut down 600 shops.
- After returning as the CEO, Howard D. Schultz decided that the company must shift its focus away from bureaucracy (as a result of the focus on expansion) back to customers. His objective was to "reignite the emotional attachment with customers." Employees were encouraged to think freely and offer opinions.
- In March 2008, "My Starbucks Idea" was rolled out for customers to give their opinions on products, services, layout, advertising, corporate social responsibility, in-store music, etc. More than 93,000 ideas were shared and the monthly page views had risen to 5.5 million. The company implemented over 100 customer ideas and was able to build its fan base and reignite brand trust.
- Starbucks rebuilt its customer relationships after the 2007/08 crisis by showing that they cared for quality and consistency with an altruistic focus on community building and care for the environment. It refrained from pushing too many products, causes or offers to its followers.
- Tweets such as 'keep calm and make coffee' was to keep in line with their strategy of maintaining a cool image and to build a community. The company linked its social media strategy with other channels such as mobile apps and used technology to come up with trend-setting ideas.
Do's and Dont's for Companies to Survive and Thrive During a Global Recession
Do: Put Focus on Decision Making
- According to a 2019 article published in the Harvard Business Review, studies have shown that organizational structure impacts the way a company is able to manage downturns. These studies have shown that decentralized firms are in a better position to handle macro economic shocks due to the fact that local information increases in value during these times. However, the study also found that centralized firms can take advantage of their ability to make strong decisions based on their broad view of the organization and company performance.
- Overall, the studies found that decentralized organizational model reflected better performance during times of economic crisis. However, these benefits tend to fade as the economy recovers.
- Decentralization is a benefit during times of uncertainty and turbulence because decentralized structures "delegate decision-making further down their hierarchy, [allowing them to better] adapt to changing conditions."
Do: Invest in Technology
- According to a 2018 paper published by the Upjohn Institute for Employment Research and the University of Rochester, there is evidence to suggest that economic downturns serve as a catalyst for the adoption of new technologies.
- Research has shown U.S. cities that suffered the greatest blow as a result of the 2008 recession saw higher levels demand for high-order and computer-related skills. This demand was driven in part by companies becoming more digital and increasing investments in IT.
- When analyzing the cause of increased technology investments during recessions, the Harvard Business Review notes the following: "Economists theorize that it’s because their opportunity cost is lower than it would be in good times. When the economy is in great shape, a company has every incentive to produce as much as it can; if it diverts resources to invest in new technologies, it may be leaving money on the table. But when fewer people are willing to buy what you’re selling, operations need not be kept humming at maximum capacity, which frees up operating budget to fund IT initiatives without dampening sales. For that reason, adopting technology costs less, in a sense, during a recession."
- Additionally, technology has a practical appeal when it comes to the management perspective: it's capable of helping businesses run more transparently, be more flexible, and operate at a higher rate of efficiency. For example, technology can allow businesses to gain access to better analytics, which is key to providing management with insight on how the recession is impacting the business.
Do: Identify Areas of Most Value
- According to insights published by the U.S. Chamber of Commerce, understanding the areas of a business that drive the most value can help businesses stay afloat during times of economic recession. This is due to the fact that during a recession, companies are often forced to cut costs quickly.
- Vice President of Gartner's fiance division, Tim Raiswell says it's important to differentiate the value-driving areas of the business from the low-performing areas. Raiswell recommends using a risk vs. opportunities model to examine the factors that are hurting performance and help outline the actions needed to counteract them.
Don't: Take on More Debt
- Financial counselors warn that businesses should not take on any more debt during a recession unless they absolutely need to. Instead, experts suggest that businesses look for ways to cut costs before they resort to accruing debt.
- Debt is bad for companies during times of recessions, as having high amounts of debt can limit a company's ability to obtain additional resources. Experts suggest that companies should aim to pay off their debt as quickly as possible if a recession is looming.
Don't: Limit Revenue Streams
- According to business coach, Jennifer Allwood, having multiple revenue streams can help a business recession-proof itself, as doing so can help maintain a company's income throughout various states of the economy.
- Allwood suggests "incorporating things like affiliate marketing, digital and physical products, a monthly/recurring membership group, one-on-one consulting, ad revenue, and sponsored content," as these factors can help pad a company's bottom line during downturns.
- Limiting revenue streams is equivalent to putting all the eggs in one basket, inhibiting the company from being able to shift as necessary. On the contrary, having multiple revenue streams can help a company remain flexible.
Don't: Ignore Client Relationships
- Business sales strategist, Susan McVea, says that during times of economic downturn, many companies make the mistake of overlooking their client relationships as they shift their focus to new customer acquisition.
- McVea suggests that downturns are a time to invest in client relationships, especially because this method is less expensive than investing a lot in new client acquisition. McVea stands behind this strategy on the logic that it's easier to get a repeat client, especially when good service and delivering on promises is upheld.
- Further, McVea reminds of the benefits of the word-of-mouth advertising that goes along with maintaining happy clients, which is a more cost-effective way of gaining new clients as well.