Whether we characterize the state of the economy over the past year as a small “r” or large “R” recession is, to some extent, moot. Economists tell us the average duration of past recessions has been 11 months – not unlike telling the drowning fly fisherman that the river has an average depth of three feet. What we know is that we can expect a bumpy, uncertain economy well into next year. Market conditions across most industries will continue tobe challenging.

As corporate leaders attempt to navigate this period of turbulence, the first line of attack will be to cut costs – the most controllable segment of a company’s financials. Corporate leaders ask business unit leaders to cut back discretionary programs. Sweeping cuts are made partly because of internal political expediency and partly because decision-makers have neither the requisite information nor the luxury of time to make strategic cost-cutting decisions. These types of short-term responses to recessionary forces often result in weakened long-term competitiveness but, as John Maynard Keynes said with some wry cynicism, “In the long run, we are all dead.”

So if cutting costs in periods of economic weakness is normal and understandable—but often not the best strategy—what can organizations do during this recessionary period?

Paradoxically, economic slowdowns bring tremendous opportunities. As economies slow, formerly unavailable assets become available. Previously protected assets are put on the market at bargain prices. This is true for all asset classes: tangible capital, intangible capital (M&A opportunities) and human capital (talent). In addition, recessionary periods provide new opportunities to take market share – and one the best of these may be upping your organization’s services game.

We know the Internet has created more knowledgeable consumers. Differentiation becomes difficult as consumers view products and prices through the power of search engines. In addition, customers become still more discerning and demanding during weak economic times. Both price and services elasticities increase. Clearly, the role of services deserves a closer look.

Companies with good customer segmentation data will know which customer groups are more or less sensitive to small price changes. Few companies, however, have good data on customers’ sensitivity to improved services other than an awareness that sensitivities are increasing over time and increase particularly during times of economic stress. Service delivery—in particular the what and the how—ends up being an underexploited differentiator. A slowing economy can be used as a rallying cry to for increased service responsiveness to customers. Adversity—as in a bad economy—often drives innovation. Company leaders should ramp up service creativity and take charge in coaching and motivating front-line employees. This helps to frame the imperative and provide practical advice for improving responsiveness.

Technical expertise and product quality are critical to most buyers, but service responsiveness can be a real differentiator particularly during recessionary periods. In a downturn, strategies and tactics that enhance customer service afford an opportunity that may prove surprisingly beneficial to the bottom line.

Richard Woodward
Principal