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SMART MANAGEMENT THRU THE DOWNTURN

Written by: Andy Marken

Article Overview: “In a hurricane even a turkey can fly.” Author Unknown

SMART MANAGEMENT THRU THE DOWNTURN

Not since l990 have we seen a downturn in the economy as we have for the past 12 months. The vision of a turnaround has been pushed out until next year and most indicators point to the bottom of our double-dip and mild improvements will begin. We won’t begin to “feel better” until possibly the second quarter or probably the third quarter of next year. While the downturn – okay recession – was tough in the early ‘90’s you have to go back to the early ‘80’s to see one that had the global scale as the one we’re experiencing today.

Even before the September 11 disaster we saw the warning signs:
 sales were steadily declining
 prices were plummeting
 consumers (business and individuals) said they couldn’t afford the products or services
 buyers became more cautious and searched for better values
 reports of layoffs, increased bankruptcies, wholesale corporate reorganization fill the business pages and business press

Marginal Growth
The U.S. economy grew slightly more than a paltry one percent during the past two quarters. Car sales even with zero financing are only now starting to pick up while bigger, more powerful PCs sit on store shelves despite almost fire sale prices.

While market sectors may be off it isn’t true of every company in the sector. For example:
 Compaq sales had bled red ink for two straight quarters while Dell steadily meets its numbers
 HP that had visions of becoming a service leader has watched sales tank for three quarters while IBM had worked aggressively and maintained its momentum
 The combination of HP and Compaq still appears to have a long way to go before anyone can say it was even mildly the right move
 CD-RW drives are in massive over supply and prices appear to barely cover parts/labor
 IT management are under tremendous strain to expand performance with less budget and fewer people

As the dark clouds hung overhead and the drops of recession began to fall, some observers predicted that businesses had learned from the ‘90s and wouldn’t resort to huge layoffs which resulted in the loss of thousands of experienced employees damaging the firms and impeding their recoveries.

Motorola, HP and Cisco have already shed thousands of jobs and Christmas looks grim for thousands more. Airlines that have been operating on paper-thin margins have seen traffic dip sharply now have an excuse to dump staff. As several airlines teeter on collapse and file for Chapter 11 protection more than 150,000 airline employees have lost their jobs.

Are firms doomed to make the same mistakes…again? Many will. Some won’t.

When everything is going right it takes a real fool to fail but when things turn sour? Or as our unknown author stated…”In a hurricane even a turkey can fly.” The trying times will show if they are eagles or turkeys.

Short-Timers
Many of our chief executives have only been in their chairs for a few years. They’ve only experienced the good times. Look around our industries – all of them -- and most of the CEOs have been in their corner offices for less than four years. They replaced seasoned professionals who the board of directors felt “wasn’t making it happen fast enough” or “weren’t achieving the growth we expect.”

In these boom years CEOs crowed about their successes as compared to their predecessors. They were quick to take credit and became disassociated from their company and its culture. They demanded – and got – extraordinary pay increases compared to the people who actually produced the success.

Fortunately few CEOs in the computer industry have achieved that disconnect. Firms that have lost this touch will have problems because in recent years managers didn’t really have to know much about what they were managing. Their focus was on they could leverage their company in the short term to enhance their salary compared to their competitor’s CEO’s salary.

Don’t believe that’s true?

Just look at the national turnover rate for CEOs. The average chef executive can expect to stay in the job for slightly more than four years. That’s not enough time to learn about the organization, its strengths/weaknesses and determine how it will earn future profits. As the press has so eagerly reported recently, they manipulate the company to maximize profits in the near-term to enhance their image and position while quietly trolling for a bigger package elsewhere – inside or outside the industry.

In recent months where uncertainty was the rule rather than the exception, we’ve seen boards of directors and shareholders act predictably by replacing senior management with someone who has vision, who leads from the front and who acts on gut instinct. These individuals tend not to draw from experience or listen to/work closely with their staff. As people have suddenly discovered these individuals have also drawn heavily from stakeholders pockets.

But take a hard look at the firms that are solid and maintaining their own and perhaps even growing. The founders are either still in control or senior management has a solid track record inside the company. They don’t have a lot of flash but they know how to steady the ship in a tough store.

Some will learn but even more won’t.

The organizations that rebound the most rapidly are those with managers who bounce ideas off each other and capture/use the best of these ideas.

Downturn Novices
The problem is that according to a recent study by the Center for Effective Organizations at the University of Southern California fewer than 40 percent of today’s senior executives have any experience in leading firms through a downturn. They react to the situation by slashing costs. They reduce headcount through a fancy phrase called redundancies; they cut travel budgets and slash marketing activities. At the same time they eliminate bonuses (for others in the organization), reduce IT investment and cut back on training.

In the USC survey, only 30 percent of the CEOs viewed the downturn as an opportunity to win market share or gain advantages over their weaker competitors.

Certainly firms must cut costs when they are under profit constraints. But reducing customer service, product development and training are false economies.

Companies that recover most rapidly lean heavily on their core strengths and focused strategy to ride out the recession and even gain ground. Too many CEOs focus on operational effectiveness and proudly proclaim that is their strategy. But items like better inventory management, zero defects and business process reengineering not only reduce losses or increase profits but they can also be easily copied.

Winning CEOs – especially in this industry – must seek out those sustainable advantages that others can only copy with great difficulty. For example, Southwest Airlines is certainly in the airline industry but it established an entirely new type of personal service business. No frills, food or service, no interconnecting flights but very low fares, brute force efficiency and team spirit have set a pattern that has been nearly impossible for conventional airlines to copy. They have sustained themselves – even through this downturn – by having a close-knit, highly involved workforce. Everyone in the organization shares the pain equally without workforce redundancies or layoffs.

Pick A New Space
Until just this past year Southwest had only one president who was more of a cheerleader, windmill tipper and coordinator than corner office CEO. Having tapped his former assistant to step into his shoes there is no animosity when tough decisions are passed down because employees know that the actions have been taken for the good of the team and the good of the airline.

Willing cooperation in the face of adversity will make Southwest an even stronger airline in the future.

Dell has leveraged its buying and manufacturing strength to continue its aggressive growth. At the same time it is moving into new areas – white box system sales to resellers, storage, printers, PDAs and similar products that surround their core business. They are taking advantage of their nimble style to capture sales from Compaq/HP – which has no clearly defined message today – and IBM, the firm that is moving quickly from hardware to service.

In recessions such as today’s, the best CEOs and the best companies focus on their best customers. We all know that 20 percent of your customer base produces 80 percent of your profits. Why dilute that profit by broadening your customer base or focusing on taking customers from your competitor? Let them waste money trying to win 20-40 percent of your customer base that actually cost you money. Instead, invest and enhance customer service to that 20 percent. Determine how to do more for and with them. It costs almost nothing to expand that relationship whereas it will cost dearly to replace that business.

When you’re struggling to simply keep the company going none of this is easy. But fortunately few CEOs in the major industries only have a year or two left before they make the jump to the next company and bigger pay package. So this short-term recession is the best time to focus the company on its core strengths, values and goals.

The best firms in the industry have been battered and bruised by downturns before and those that look inward for ideas and assistance usually weather the storm better than those that are headed by someone who slashes and burns at the first sign of adversity. For these CEOs its not a matter of if they will survive this recession but rather how much stronger will they be in the 4th quarter of next year when a healthy economy returns.

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