Define strategic options and act on them to capitalize on market volatility

“You only find out who is swimming naked when the tide goes out.” – Warren Buffet

Increased signs of slowdown in the global economy – unsustainable business models are exposed if the global economy slows down

What Buffet meant is that, when the markets are up, most companies look good and companies with even flawed business models may temporarily show decent profits. However, when business conditions worsen, it becomes easy to distinguish the companies with truly sustainable businesses from those companies that have just benefited from the good times. In periods of increasing market volatility, companies should critically analyze their businesses and assess what strategic changes may be necessary to survive the tougher times ahead.

Through preparation, opportunities can be capitalized on

Although the next downturn – or at least the next slow decline – may be just around the corner, it may not be all bad. Opportunities typically emerge, and the companies that have adopted a long-term strategic approach will have a greater chance of capitalizing on these opportunities. Therefore, companies should start to plan with a long-term perspective, paying particular attention to assessing different kinds of strategic scenarios. These scenarios may include macro-economic shifts, technological breakthroughs, legislative changes, and major competitive actions. Based on the scenarios, companies should create strategic options defining how to act when different kinds of events occur. Each option should be exhaustively analyzed, but the final list should not be too long in order to avoid excessive complexity.

The work to define the strategic options should include the following:

  1. Assess opportunities beyond your typical playing field, such as acquisitions or investments that could be made, or new growth areas that could be entered.
  2. Assess the need for internal organizational changes and possible cost reductions.
  3. Create plans around the defined options. Ensure that the plans are supported by detailed analyses, key actions to take, possible organizational issues to tackle and possible competitive responses.
  4. Align and agree with the company board on the strategic options.
  5. Define external and internal economic indicators and threshold levels. If the defined levels are exceeded, the company management should start to implement the appropriate options.
  6. Discuss with key stakeholders on what the strategic options would mean for them personally and for the units they are responsible for. This will help to create strategic flexibility, which will come in handy when key actions need to be implemented – typically in a hurry.

After defining the strategic options, companies can continue implementing their normal strategy, but with the assurance that if needed, contingency plans are ready. If the defined threshold levels are exceeded, bold and shift actions are needed on the basis of the defined strategic options. Although companies are typically reluctant to take the first step, history has shown that first actions matter, as the courage to react fast and adjust quickly will often separate the winners from the losers.

In short, to avoid being exposed by the tide, start preparing today.