Rethinking the Recovery

October 11, 2010


The good news is the recession is just about over! The bad news is the recession is just about over…

It has been several months since I posted my last blog update and I apologize. I have received a few emails making this point and wondering what has been going on. Well here it goes. I have been busy consulting and had a good diversion entertaining a new business venture. The venture hasn’t worked out but the experience and hard work has been invaluable.

I promise to do a better job at updating my blog. It’s important to me and there is so much going on.

One benefit of the delay is that it has allowed me the time to dig a little deeper and wider into a few interesting leadership tendencies and challenges currently underway. Lots of lessons and for all that is changing some things just remain the same…

I have also had the opportunity to see a number of leadership agendas in action and test out a few theories on my own. I plan on developing some of these items further in future blogs and apply some litmus tests and more examples to flush them out. For some of you this will be nothing more than validation of what you are seeing, for others this will fly in the face of what you believe in, and yet for some this will be educational and a little eye-opening. I’ve structured the high level thoughts around current theories.

Theory One – Great companies have most effectively balanced cost cutting and investment.

Through the last several years of economic downturn great companies have demonstrated their strength by,in part, making great business decisions. There has been a lot written about the right balance between cost cutting and investing during severe downturns.There are some good arguments out there and data to back it up that the strongest companies in all key industries chose the road to balance cost cutting and strategic investments. Companies that either just cut cost or,instead, use the time as an opportunity to heavily invest to attempt to get out in front of their competitors lose out. History suggests these companies will come out of this recession either overly spent and not able to adjust to real-time business requirements basically with the backbone of their business gone. Conversely the companies who used the time to invest heavily will find themselves with higher cost and less operating income to make the timely investments to react to the subtleties of the market that they can only see real time. To me this makes perfect sense. There is a strong argument for being pragmatic and having the right balance.

To me it was more than just coming up with the right balance in the business. It was the why.

I wanted to look deeper and, in doing so, what I found was a single characteristic in these great companies. They all have visionary leadership and as important a management system that facilitated the most appropriate trade offs. In the end the well balanced companies demonstrated the“result” of the leadership and management approach in the decisions and ultimately the position they created for themselves. In a way “cause and effect” where as the leadership and management system is the cause and the effective balance and superior positioning the result. Said another way it wasn’t the decisions they made but the substance of the environment that facilitated those decisions. A very appropriate balance between risk and reward. A complete awareness for the impact of the economy and risk associated with it against the anxiety of sitting still and treading water. Now this is brilliant in the hand sand minds of the senior managers but as we all know the work is done by the employees. Great companies assured all were involved, aware, and participating. More about the cause than the effect.

Reminds me of a study I saw a number of years ago about auto safety. The study was conducted by Volvo and centered on the use of daytime running lights. Volvo studied approximately 2000 drivers of Volvo’s that used their headlights at all times.At the time there were no laws around the use of daytime lights, auto light  systems, and there were very few people who drove with their headlights on during the day. The study showed that these Volvo drivers had far fewer accidents and mishaps. The conclusion was that the use of headlights during the day was a direct factor of lower auto incidents (the effect). Now for the cause- I wonder if, during that time people who went out of their way to use their headlights during the day were inherently safer and more careful drivers. You had to make a conscience decision to turn on your headlights. Couple this with the fact that these drivers owned Volvos and during that time Volvo was known even more for their safety than today and typically attracted a more conservative driver.

So what does all this mean?

Cause and effect –sometimes you have to look at what the causes are not just the effect. While there are businesses that will emerge from this recession healthy and in some case stronger coming out of the downturn  truly understanding the drivers of this will provide a clearer picture of what works and what doesn’t. While I agree that there are a handful of very smart companies making great decisions of balance around investment and cost savings the drivers aren’t the decisions they are making but rather the results of a number of leadership characteristics that must be exploited:

1 – The ability to take short-term goals and equate them into required actions for every level in the organization. While it is nice to know that one the company’s short-term goals is to improve operating margins by 6% taking this and defining roles for marketing, HR, operations, and IT is key. For the accounts receivable associate what specifically must they do to assure they are contributing to that goal?

2 – Reward for results AND effort. While I know most managers subscribe to the theory that in the end it is only results that matter, through the tough times sometimes the results just aren’t that easy. The right efforts can affect results over a longer period of time and quite possibly results that are more sustainable. The important thing to remember is don’t reward mediocrity. You are better off not rewarding at all.  

3 – Identify behaviors that support the company values. While it’s one thing to get everyone to be able to recite the company values in their sleep companies that identify,acknowledge and reward actions that support these values is far more important.As an example if one of your company values is quality, when someone supports the action of quality let’s say through instituting an improvement in the billing process that improves billing accuracy, specifically identifying and rewarding this as an example of that value and demonstrating why this value is important to the company will go a long way to instilling this value in your people. Do this visibly and in front of everyone.

4 – Create an environment that facilitates more innovation. One easy way to do this is to organize more around process than around function. Process in this case is work flow so if a specific piece of work that your company does involves the functions of IT, marketing, and sales then assure there are strong dotted lines across these functions for this work. This can be handled in ways including cross-functional meetings/social intranet sites, recognition across all functions, and shared metrics. Putting the people physically closer together will help if this is an option.  This will force ideas to surface for innovation that would not normally occur if the functions remained separated or in a silo. One thing to keep in mind is that industries typically develop incremental improvements within their industry and extraordinary improvements come from outside the industry.   

Theory Two – Use the Economic Downturn as an opportunity to shave labor dollars.

One interesting yet unfortunate aspect of the current economy is a phenomenon around the cost of new hire labor. Jobs just don’t pay what they use to and in the world of “supply and demand” it’s easy to see why. It use to be cheaper to promote from within,provide a reasonable increase to the promoted individual and get away with filling the position at a lower cost of labor then if you went to the outside market. The opposite is now true. Companies can and are filling positions externally at bargain basement pricing. Most companies are willing to live with the exposure of paying less thinking they can make adjustments in the future when and if they have to. In the interim they want to live with the benefit of the lower cost of labor and improvements in financial performance.

There are a couple of things here that bother me. One is that above all the person considering the job at a low salary (or total comp plan) knows that he or she will have to accept the job at an artificially low salary. They know the company they are getting ready to join is “taking advantage” of the situation and they just happen to be in it. While it might not be personal it sure can feel that way. This is an issue of integrity. There are a lot of people who are both working and out of work that have little faith in Corporate America. A practice like this doesn’t help at all. The incremental cost of paying fairly from day 1 is a very small price to pay for the vote of commitment and fairness that will be demonstrated. By the way the same can be said for promoting from within. If you want to play a game and take advantage by providing a promotional increase below the grade because you can or the market supports it, you better be careful. This will come back and bite you plus it’s just the wrong thing to do –period.  

Theory 3 – Things will look the same once pre-recession economic levels are achieved.

Will things will look the same after this recession? Many business metrics post recession compared to pre-recession do look the same. We hear it all the time – companies should recover to pre-recession levels in 6, 12, or 18 months. Business growth,spending and margins will look close to the period of time prior to the recession soon. While I think at the macro level this can be true this time around the drivers of the results will be totally different. What amazes me is what some companies (I applaud most) have done or had to do to keep their business afloat. Outsourcing at new levels has occurred, the use of external non-employee consulting and project labor has sharply increased, leveraging technology, etc. etc. What we have now are a lot of companies that will drive their results far differently in the near future than before. They will rely more on partners to do what they use to do, rely more on technology to have automated what was done manually, and measure their business segments closer to pick the areas to attack. There will be smarter, lighter companies that have strategic partnerships enabling what they get done. What will be gone are the days of “suppliers” doing part of the work and, instead, the era of partners interlaced into the development, management, and delivery of core services and products.

The smart companies get this and instead of resisting it are embracing and leveraging it. If done right companies can develop, deploy, and sell new products and services faster,cheaper, and at a higher quality than before. They will need to. The line between product manufacturer, service provider, marketing and channel companies will continue to get blurred. Another aspect that will change is the way we segment companies. As an example a small company a few years ago had few employees, less revenue, a smaller footprint and typically less to offer than a larger company. It was pretty easy to measure a company’s size by looking at revenue/employee. The move away from this will continue to evolve over time.Outsourcing, partnerships, and the use of technology to automate and reach bigger markets will change the game. Smart companies will be the ones that get,embrace, and leverage it.   

Example – Motobecane is a renowned bicycle brand and a once great French manufacturer of world-class bicycles. Today Motebecane manufactures bicycles as a US company. They neither manufacturer nor sell bicycles and, in fact, most of the design and engineering is done in Taiwan through a company called Kinesis – develops the frames and for the majority of Motobecane’s high-end bicycles components (derailers, brakes, seats, rimes, etc) are sourced from other specialty manufacturers. In the end they are defining a product to sell based on marketing research, specific price point/value analysis, and leveraging a quality name – Motobecane. So what kind of company is Motobecane and how do you measure them? While a bit confusing using the old method of categorizing them they are very current and their products are of high value and quality. They can present to the worldwide marketplace a series of models at varying price points with specific purchases without a lot of the design, engineering, testing, and manufacturing ramp associated with the old business model.      

Theory 4 – As things improve we will sell the way we did.

A few years ago I did some consulting in the automobile dealership space. The focus was around growing sales through customer service. The premise was that people buy more than 1 car in their lives and treating sales as a process that includes sales, service and the overall experience was the way to win customers for life.  One thing I confirmed was that the way most dealerships sell cars is, by design, through pressure and being a bit pushy. Most of us have experienced this frustration. This mentality of selling cars came into being after WW2 as the soldiers came back to the US. They came back as heroes and they came back to a powerful post-war economy. Plenty of jobs for all and one immediate goal was to buy a car. It wasn’t a question of if you were going to buy a car but which one and how quickly. Selling cars quickly evolved from a less pressured sale into “asking or demanding” for the sale because if dealership A didn’t get it their competitor down the street would. This style of sales in the auto industry has continued since then. Old habits are hard to die.

The future of selling is changing and it’s changing quickly. Coming together are very informed consumers and businesses along with many viable options. Buying locally and uninformed is no longer the norm.  As with every economic recovery demand will increase and create an opportunity for sales growth.

What is different is that during the period of economic downturn people and businesses have learned, experienced, and got comfortable with buying differently. Buying didn’t stop it just slowed down and buyers became more critical.

A great consumer example and one to mimic in either the consumer or business space is Apple. You do not get “sold” products or services from an Apple store. What Apple has done is through a process of branding, marketing, and education is to create demand and interest prior to the sales event. You go to an Apple store to buy what you have already been sold. Great companies will get this, admire and emulate this in how they sell. Initially this will prove out more in the consumer space but over time it will move more and more to the business space. The ease of getting information, comparisons, and feedback from buyers will drive the sale prior. While this is not a singular, one dimensional process and, in fact, is pretty complicated, building your business development strategy with this in mind will force you to figure this out and implement it appropriately for what you do.                 

Another example. I need to get new tires for my car in the next 5,000 miles or so. Over the last week  I have done homework reading reviews and ratings from well over 30 organizations including sales statistics,user reports, customer feedback/ratings of local businesses, and some websites specifically for the brand of car I own (mavens). Now this might seem a bit over the top and time consuming but I never had to leave my home and it really didn’t take a long time. The tire sale is basically complete.  So when I step into Discount Tires for my new tires the “salesperson” won’t be selling me new Michelins. Instead he will be fulfilling a demand that was created prior by a combination of reputation, knowledge,pricing, as well as my knowledge of a current $70 rebate.   The point here is all of this for 4 new tires. A few years ago and I would have been at the mercy of the local tire shop, what they were pushing that week,their personal opinions, and what they had in stock. Times have changed.     

So what does all this mean?

Post recession Leadership will get tested. It will be a bit complex as some of the fundamentals of leadership will need to continue unchanged and other emerging aspects of leadership relative to innovation and the development and acceptance of new business models will be required.  A new level of strategic business guidance and getting employees comfortable with the new norm will need to occur. We can’t forget that in the trenches are employees that in some cases are resolved to staying below the radar and doing not what is needed but, rather what they think is expected and unfortunately what they think is necessary to keep their jobs. They witnessed peers leaving their company for unexplainable reasons. In the past it was downsizing because the work went away or loss of a job because of marginal performance. The last few years brought cuts well beyond this. Companies that were taking labor spending out with no plan to figure how to do the work was common. This didn’t sit well with employees who were left employed yet handling the work of 2 or 3 resources.

Think about it this way – I bet if we worked together and I told you I was going to take a month off and travel to Europe – a trip of a lifetime – and asked you if you could cover for me? The answer would be yes, with a smile as you are happy for me. During the time I am away you work late, weekends, and whatever it takes. What the heck I would do it for you and I am coming back…

Same story except I am leaving because my job was eliminated and, as a result, I am not coming back. There is immediacy to the impact and your attitude. My work on top of yours is overwhelming day 1.Your attitude shifts the wrong way and the glass is now half empty. What was a bearable situation isn’t anymore. You are critical of the company and focused on doing only what it takes.  

Businesses will need to overcome this, create stability around the new norm, and foster innovation and risk taking again. No easy task but surely impossible if a business is not planning and taking steps now. Companies must acknowledge the changes and include employees in working through the upcoming hurdles of business recovery. What will not change is the fundamental of the person. In the end companies don’t fail people do.

About Frank Picarello

Frank is a well-respected leader in providing technology services to small and medium-sized businesses. He is currently COO for TeamLogic IT, Chairperson for CompTIA's Small Business Owner's Group, and a member of CompTIA's Unified Communication Committee.

View all posts by Frank Picarello

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