In just one year, the difference in the cost to borrow between a typical investment-grade company and a noninvestment-grade company has tripled.
Getting to financial health will require sacrifice, from selling off assets at bargain prices to issuing stock in a down market. "If your stock was at $50, it may not feel good to issue stock when it is $20," says Marc Zenner, managing director at J.P. Morgan's (JPM) Capital Structure Advisory & Solutions group. "But if you don't do it, the situation could be a lot worse."
Washington (D.C.)-based power utility Pepco Holdings (POM) chose to raise the nearly $1.6 billion it needed for infrastructure spending this year by issuing shares and bonds three months ago when markets were in flux. Chief Financial Officer Paul Barry worried that raising money in 2009 could be even harder. "We just bit the bullet and went ahead and got it done," he says. Now Pepco is well positioned to improve its reliability by building transmission lines.
MAKE A MOVE FOR MARKET SHARE
The pie is getting smaller, and less nimble rivals are getting weaker. Don't wait for your competitors to fall to the ground. Hire away their best people while taking steps to make sure they don't grab yours. Or buy assets from cash-strapped rivals on the cheap. Take steps to solicit new customers at a time when others are cutting back on service.
Abandon strategies or products that don't fit the core business. Wal-Mart (WMT) last year jettisoned its policy of stuffing a wide variety of products into stores to broaden its appeal. Instead, the world's largest retailer focused on simplifying its mix and lowering prices of its most popular products, according to Chief Merchandising Officer John Fleming. The result: more share in hot-selling categories like flat-screen TVs.
RETHINK YOUR REWARD SYSTEM
It's tempting to cut compensation across the board. Now is the time to differentiate more than ever and focus on rewarding your best. If you have to cut costs, start at the top. When FedEx (FDX) CEO Frederick W. Smith announced broad salary cuts last month, he took the largest hit, with a 20% pay cut. As New York-based organizational psychologist Ben Dattner says: "The last thing you want is for people to perceive that you're in it for yourself."
If you can't give staff more money, look for ways to give them more power. Shell Refining (RDS), for one, singled out top supervisors at its Port Arthur (Tex.) refinery last year and asked their advice on how to improve the plant's performance. The result was higher morale, according to refinery general manager Todd Monette, and a 30% reduction in unplanned maintenance work.
DARE TO INNOVATE
Innovating now can leave you nicely situated for a turnaround. Pfizer broke apart both its research and business units last year to help spur new ideas. Corey Goodman, head of Pfizer's Biotherapeutics & Bioinnovation Center in San Francisco, says the move has made "Pfizer more efficient and more entrepreneurial."
For those who are willing to take some risks, 2009 can be a time of great possibilities. "A leader is someone who doesn't do what everyone else does," says Richard S. Tedlow, a professor of business administration at Harvard Business School. "If you have a product you believe in, now is the time to make a bigger investment—not a smaller one."
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Profits of Doom
There is plenty of literature on making the most of a crisis. Some standouts: Winning in Turbulence, by Bain consultant Darrell Rigby, and Boston Consulting Group's "Collateral Damage" essay series, which suggests ways to survive the year ahead. Meanwhile, Alexander J. Field, a professor at Santa Clara University, bucks conventional wisdom with a paper calling the Great Depression "the most technologically progressive decade of the century."
To check these out, go to http://bx.businessweek.com/management-ideas/reference/
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Thornton is a senior writer for BusinessWeek.
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