Will Your Investment Strategy Miss the Upturn? Prioritizing Investments When Stakes Are High and Uncertainties Large

The natural tendency is to minimize spend during a recession. In response to the current recession, many companies are being cautious by deferring strategic spending in order to maximize cash, curtailing acquisitions and cutting investments in research and development and information technology. However, as the economy appears to have reached an inflection point, some companies are starting to invest. Those who do so wisely will be positioned to lead the market in the next cycle.

An operational mindset can drive sub-optimum spending cuts during a recession. Conventional capital allocation methods may sacrifice longer term advantage in favor of recession risk management. Moreover, the optimal capital investment portfolio often evolves dramatically in the later stages of a recession as new opportunities emerge. At the end of a recessionary cycle, falling asset values reduce investment cost, while less cash is needed to mitigate risk. In addition, valuable assets may be available from troubled competitors and investments drive larger incremental benefits sooner.

What should companies do? Management needs to take a number of steps to remain competitive and to take advantage of investment and acquisition alternatives. Thinking creatively about the future is a critical first step in any strategic planning effort. Duff & Phelps can assist with an OpenFraming process that is designed to help management think broadly about the strategic alternatives and key uncertainties.

An OpenFraming Workshop is the first step in a strategic process that involves developing, evaluating, prioritizing and implementing strategies to seize upon growth opportunities in a recovering economy. The OpenFraming process helps firms to think broadly about the strategic alternatives while being mindful of the key uncertainties. The process works specifically to:

• Identify opportunities to create competitive advantages

  • Grab share from faltering competitors

  • Move into adjacent markets and/or enter new channels

  • Acquire assets or businesses at an attractive price

  • Adopt new business models and/or new pricing strategies

  • Build a platform to support and stimulate future growth

• Envision future scenarios and characterize the key uncertainties

  • Brainstorm strategies to exploit opportunities in upside scenarios and to mitigate risk in downside scenarios

  • Be creative about funding, partnering and business models

  • Explore phased approaches to investment

  • Identify expansion and exit options

An OpenFraming Workshop helps management achieve consensus on the investment opportunities worthy of formal evaluation. The OpenFraming process also provides insights into how to structure an investment in phases, to allow stakeholders to gain comfort with investing during a recession. Opportunities are explored while risks are mitigated.