Managing a Downturn

One of the key takeaways I have from this month's Elliott Wave Theorist is the brief discussion by Robert Prechter of the ways in which a company can better manage a downturn.

Prechter calls our current economy a depression. He writes:

"During depressions, many businesses make a fatal mistake: they lay off employees. Some businesses have no choice; if the product or service is related more to quantity than quality, then perhaps there is no alternative. But many businesses are far better served by keeping their employees and simply reducing compensation. That way, they can continue to serve customers with full quality and stand ready to lead the competition when the next economic expansion arrives."

This is a brilliant point, in my opinion. How I wish more management teams would think this creatively.

Prechter goes on to cite General Electric as an example. In the 1930s, management polled its employees and asked them if they would accept lower salaries or selected layoffs. The employees chose lower salaries. GE did just that, and was able to weather the Great Depression at full strength. When the economy recovered with WWII, GE did not have to spend time and resources recruiting personnel. It shot out of the gate in full operating mode.

That's a lesson worth spreading in today's climate.