Why the worst of times can also be the best of times

What are the learnings for the Indian economy and corporates from the pngoing global financial crisis? Here is an expert view by Sudip Bandyopadhyay, Director & CEO, Reliance Money

The world has changed. After years of benign economic conditions, the four horsemen of financial apocalypse – credit crunch, recession, volatility and uncertainty – are blazing a trail across the horizon. Executives must now reassess their organisation’s agenda and communicate it clearly. If history is a guide, most will frame the current conditions as a threat and take action to protect what they have. Mitigating threats in tough markets is prudent, but companies that adopt a defensive position ignore a counter-intuitive truth: the worst of times for an economy as a whole can be the best of times for individual companies to create value.These are probably occasions when a company can create value significantly in excess of the cost of the resources required to seize an opportunity, whether by acquisition, innovative product launches, expanding in new markets or buying resources.

Golden opportunities do not come along every day, and most people think they are more likely to arise when the good times are rolling. In fact, the moment when you can transform your fortunes often emerges during the toughest times. Companies can also use difficult trading conditions to drive a hard bargain on tangible assets. Emirates purchased Airbus A380s on favourable terms one month after the September 11 attacks, at a time when many airlines were reluctant or unable to make large commitments.

A crisis marks a clean break with the past and creates an external rationale to make unpopular but necessary changes. In a downturn, investors and Boards are more forgiving of short-term earnings dips that might result from actions to improve the organisation in the long term. Kun-Hee Lee, Samsung’s chairman, for example, welcomed the currency crisis that roiled Asian markets in the late 1990s. A decade earlier, Mr Lee had initiated a set of changes to transform Samsung from a competent Korean player to a global leader. Mr Lee harnessed the energy unleashed by the external crisis to reinvigorate the internal changes.

Many companies alternate between growth binges and periods of sober cost cutting. The better approach is to maintain cost discipline throughout the economic cycle. When considering cost cuts, managers should ask themselves how the process will help to maintain cost discipline in the future. The worst of times can be the best of times to create value for leaders alert enough to spot opportunities and courageous enough to seize them