Engaged employees are more productive.

Tough times are here, and it will take some effort to face the economic downturn over the next several years. But there are some clear strategies that can help manufacturers, distributors and retailers maintain optimism and survive the economic recession.

These strategies include traditional cost-cutting measures, which reduce excess and slim down operations; maintaining solid leadership through focused planning and communication, and counterintuitive spending that invests back in the business.

Traditional cost cutting

When things are as tough as they are today, businesses often become “slashers”—cutting spending in just about every area and penny pinching their way through the downturn. Random slashing, however, should be cautioned because it could lead to a paper-thin workforce with limited resources, organizational “depression” that lends itself to a culture of fear and irrationality, and loss of the company’s strategic focus as a necessary stabilizing force. It’s helpful, therefore, to more clearly define cost and examine ways of converting fixed to variable cost or eliminate areas of excess.

Fixed costs are expenses that cannot be changed easily, for example a lease or mortgage payment, property tax, equipment leases or interest expense on loans. Variable costs may include the cost of labor, supplies or other overhead. Fixed costs generally cannot be reduced in the immediate term.

Converting fixed costs to variable ones can be an advantageous cost-cutting measure. For example, a lease payment is usually paid over a five- or 10-year term, but if your lease term is almost up you could renegotiate or consider more cost-effective options. Consider also downsizing or sub-leasing the space to other providers, or adding additional services to reduce a high mortgage.

Outsourcing is another excellent way of converting fixed to variable cost. Instead of paying a full-time equivalent to perform in-house functions, it may be more cost- effective to outsource.

Staffing layoffs or salary reductions can definitely reduce overhead. But whose salary is the first to go? Strong-willed companies often realize high executive compensation just doesn’t make sense during an economic downturn. As one executive put it, “It’s the price you pay for being a founder.”

Maintaining solid leadership

The economy will cycle between positive growth, stagnant and negative cycles. Over the last 10 years, the U.S. economy has generally been very strong, experiencing very short-lived and mild economic slowing from 2000 to 2002. During slowdowns, solid leadership is paramount to survival.

How can we best prepare for the lean days ahead? First, maintain strict focus and avoid distractions. Revisit the organization’s strategic plan to determine future direction and the manner in which resources such as capital or people will be allocated. Take time to develop a plan for negative economic cycles, so the organization is well prepared to execute it should the need arise.

There are some common techniques that can be used for strategic analysis. These include a SWOT or PEST analysis. A SWOT analysis serves to detail the organization’s strengths (S), weaknesses (W), opportunities (O) and threats (T). The PEST analysis reviews the political (P), economic (E), social (S) and technological (T) environment within which the business operates. When leaders specifically address these areas and outline the organization’s short-term and long- term goals, some stability is achieved. Strategic planning, however, is just as inconsistent as the market. A key component, therefore, to the strategic planning process will be to allow a certain degree of tweaking, tinkering and testing.

Second, the organization needs to communicate the strategic plan. This communication must be clear and concise. If business leaders are stressed about the company’s future, every employee will feel it, too, and start looking for other job prospects. Ten CEOs from across the country were asked about communicating their company’s financial situation to employees and all agreed being a straight shooter was necessary for leading through hard times.

Counterintuitive spending

Increasing expenditure when everyone else is rationing may contradict the recommendation of traditional cost cutting. However, there are three specific areas where increased spending is actually investing in your business’ future. First, use technology to reduce overhead; second, invest in your employees, and last, increase your marketing expenditure.

Using the latest software programs can reduce a portion of overhead that would otherwise be spent on human labor. Admittedly, there is an uncomfortable period of transition if the practice has been in existence prior to the technology boom.

Internal marketing is highly valuable, and employees are a vital part of it. Employees not only are skilled workers, they are also your walking, talking advertising billboards. Engaged employees are generally happier at work and will project this satisfaction to customers. Set some easily attainable marketing goals for your employees, such as nominating an employee of the month based on sales or consumer satisfaction. Then reward your employees for achieving those goals and don’t be cheap. What you spend in the short term on employee engagement will come back to you 10-fold in repeat or new business.

While internal marketing is important, external marketing should not be ignored during negative economic cycles. Marketing expenses are sometimes viewed as a luxury and some organizations will cut their marketing budgets first in a poor economy. During these times, however, consumers are looking for the best quality for the most cost-effective price. It’s a good time to get your word out and let consumers know exactly why your services are better than your competitors.

Research performed by McGraw Hill during the 1981-82 recession showed companies that increased marketing and advertising increased their profit margins by more than 25% over those that cut back advertising. Reexamine your marketing plan and focus on a few targeted areas that can increase your market share despite the slowdown.

Acting irrationally through fear, as Warren Buffet puts it, will likely not protect your organization from the ravages of a recession. Maintain solid leadership and invest in areas that can maintain stability.