Peter Hirsch, Director of Global Corporate Affairs, Porter Novelli, has seen periodic recessions and economic downturns over the last 20 years of his career in corporate communications. While guiding manufacturing companies through the economic hurdles of the early 80’s and 90’s, he found that many companies still tend to make the same mistakes when faced with an economic downturn.
Considering the current economy, manufacturers need to recognize how the economic and psychological effects of an economic downturn affect the way they communicate with employees, business partners, suppliers and customers.
To help manufacturers avoid making these same mistakes again, Hirsch presents the most common and costly mistakes companies can make during a recession and how to avoid them:
Mistake #1: Shutting down communications
According to Hirsch, companies that face lean times often cut costs by shutting down their communications department, thinking they don’t have a lot of good news to communicate to people anyway. However, this is exactly the moment in which employees and customers need to know the company’s strategic direction.
“Even when sales are down you have to continue to communicate with your employees and stakeholders. Employees understand that in an economic downturn the news is not going to be good, but they still need to know what’s going on in order to do their job well. Plus, they need to get the message that you’re still confident. The simplest way to communicate confidence is to have the courage to communicate even when the news isn’t good,” explains Hirsch.
Mistake #2: Over-communicating
In an economic downturn some companies go into panic mode, thinking their customers are going to be worried they won’t be able to supply them or that employees are worried they may be losing their jobs. As a result, some companies will communicate much more than usual.
Hirsch points out that over communicating can create the opposite effect than what is intended, as people may question the amount of communication and actually begin to think something is wrong.
“Communicate the way you’ve been communicating, and in a sense, not make any sudden moves. This will help send a message of confidence, and shows that your company has a long-term and short-term strategy, knows how to manage in a downturn, and will continue to communicate with their stakeholders as much as before. That in essence is what the best companies do when faced with a recession or economic downturn,” he says.
Mistake #3: Sending the wrong messages
When economic circumstances are less favorable, everybody is particularly sensitive to how money gets spent in an organization. If you’re laying people off while at the same time providing incentives to customers or hosting flashy marketing events, you can send a very negative impression to both employees and customers.
“More important than ever during an economic downturn, you need make sure that different parts of your organization are communicating well about what types of activities they’re engaged in,” says Hirsch.
He adds, “You don’t want to announce that you’re shutting down an operation on the same day there is a news article in the paper about a customer sales conference in Cancun. All it does is create ill will, bad feelings and a lot of negativity.”
Mistake #4: Cutting costs from long-term investments
There are many activities and long-term investments that superficially appear to be right for cutting back. But these investments take many years to build up and derive value from and short term cuts of these activities are not always a smart move.
For example, investments in building awareness and credibility at certain industry trade shows is one such item that a lot of companies cut back on when they look at their budgets.
“If you spent several years in getting known in a new market place by attending trade shows and conferences, and advertising in trade publications, cutting that off is essentially throwing away your investment. Anywhere you’ve built equity over time through these kinds of activities -- you’ll want to think very carefully about whether that’s a smart place to cut,” says Hirsch.
Sponsoring industry research is another example where Hirsch points out that if you cut well-known sponsorships from your budget not only are you throwing away an investment, you’re also potentially giving a competitor an opportunity to take up that sponsorship or investment.
Mistake #5: Cutting across the board
There are some cuts that will be inevitable, but are the right thing to do in order to preserve profitability.
Hirsch says in an off time, the natural instinct is to cut 10 percent across the board, but the worst place to do that is in marketing communications.
“If you have five initiatives in marketing communications, don’t just take ten or 20 percent off of everything. You’re much better off shutting down one area, and preserving the other investments. If you slice away at everything, you’ll diminish the effects of all those channels of communication and damage your total communications efforts,” he explains.
Mistake #6: Decreasing or stalling talent management
When companies look at where they can cut costs without impacting customer relationships or manufacturing operations, Hirsch says they look at what they perceive to be the ‘soft’ expenditures, such as training and development. Those are often the first places to cut because it typically doesn’t damage short-term operations.
However, Hirsch notes it is particularly important to communicate to your employees the message that they are perceived as most important element in contributing to your success over the long term.
“If you start reducing training and take your eye off developing your talent, that message gets lost very quickly,” he notes.
“The last thing you want is to have those employees that mean the most to you looking around because you’ve taken your eye off them and they are no longer as involved in development. In fact, your best employees are often the ones that will have the most opportunities in a recession,” he says.
Hirsch advises that making these cuts are all choices, but companies should be careful not to underestimate the potential impact of cutting from ‘softer’ areas.
Mistake #7: Disconnecting with customers and suppliers
A good business practice under any circumstances is to communicate early and often with customers regarding situations in any given line of business. It’s also important to realize that they can help you in other ways too.
Companies, customers and suppliers can collaborate and look at the economic curve together to help ride out a struggling economy. According to Hirsch, many of the best companies already deeply engage their business networks and it’s even more important in a downturn.
Mistake #8: Delaying information to employees
Be upfront and honest with employees about developments early on as they occur.
“Obviously, there are constraints as to what kind of information you can give, but giving your employees a good sense in real time of what’s happening can certainly help fend off rumors and speculations,” says Hirsch.
Be willing to invite questions, telling people what you do and don’t know as to what is going to happen next.
Mistake #9: Disengaging employees or not boosting morale
During a downturn, it is difficult to keep morale up, but it’s also the best time to focus on your employees and engage them in efforts of innovation and new product launches for future growth. By involving employees in the long-term visions of the company, the short term might look less bleak.
“This is usually the opposite of what most companies do, which is hunker down in the executive suite trying to figure out how to solve the problem, resulting in less time engaging employees on how to either resolve the situation or make other improvements,” Hirsch points out.
“Of course, all of this is easier said than done and it’s easier for me to say it’s something you shouldn’t do, but these are the things we’ve learned over the years,” says Hirsch. “It’s that disconnect between different messages, making crude cuts without looking at what the actual intents are, and changing the level of communication you’re engaged in -- whether not communicating enough or over communicating -- that can spread anxiety in an economic downturn,” he concludes.
Porter Novelli is a global public relations company. Peter Hirsch directs its Global Corporate Affairs practice responsible for programs in corporate reputation, professional services, investor relations, business-to-business marketing, internal communications and crisis management. For more information, visit www.porternovelli.com