Some Good Advice From The New Yorker on Spending in the Downturn

The New Yorker is doing a good job reaching out to bloggers of late, and thanks to their efforts, I came across this piece which highlights something Michael Lamoureux over on Sourcing Innovation has been harping on for months -- namely, that companies should think long and hard before cutting back on investment spending in the downturn. The column, by James Surowiecki, provides some history behind how some companies use downturns to their advantage, doubling down in an effort to pull ahead of competitors. Citing the case of Kellogg, Surowiecki describes how the company "doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies [as the depression began]... By 1933, even as the economy cratered, Kellogg's profits had risen almost thirty per cent and it had become what it remains today: the industry's dominant player." In contrast, Post, its main rival, languished. Decades later, the story has repeated itself numerous times. Consider for example, a McKinsey study that looked at the 1990-91 recession that found "companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R&D, and ad budgets, while companies at the bottom of the pile had reduced them."

The challenge, of course, is balancing the perceived shareholder and executive need for thrift during a period of declining spending with the need to invest to pull ahead. This is easier said than done. Surowiecki says it best when he notes that "Today, most companies are far more worried about sinking the boat than about missing it. That's why the opportunity to do what Kellogg did exists. That's also why it's so nerve-racking to try it." But the one difference Surowiecki misses is that in 2009, we can make such investments while also stretching our dollars further than ever before thanks to the rise of Spend Management thinking inside companies. Whether it's focusing on delivering a 25% cost reduction when it comes to launching a new product through targeting R&D and marketing expenses or reducing fixed costs through engaging suppliers in new ways (e.g., engineering/design collaboration, manufacturing outsourcing, just-in-time programs, etc.), there's never been a less expensive time to fund growth in a downturn. Who says you need to bail out the ship with buckets when you can hoist a new sail, go faster, pull the transom plug and ride high in the water?

Jason Busch

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