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During the Economic Downturn, Break Rules Faster
Posted in Growth
Posted by Oren Harari in May 29 of 2001
While this article was published during the downturn of 2001, it appears to be equally applicable today.
I think we can agree that we are currently in a period of economic malaise. Most observers and analysts, like myself, believe that these difficult times are not a precursor to something gloomier, like a full-blown recession or even worse. The economy is basically sound, most established business organizations can boast reasonably solid fundamentals, and within the next 1-2 years (some say sooner), the market will be picking up again, full speed ahead.
In the interim, however, what can you do to punch through the painful times, maintain your organization's vigor and prepare it for success tomorrow when things really do start heating up? I submit that many companies are doing exactly the wrong things. Yes, specific cost-saving initiatives -- including selected layoffs, reductions in travel and entertainment budgets, and so forth -- may be necessary in the short run, but all too often that's pretty much the extent of the so-called strategic "vision". Many companies simply hunker down, circle the wagons, count the budget-pennies and act as conservatively as possible, hoping to ride out the storm. I submit that is a recipe for short-term weakness and long-term chronic illness.
It's precisely during the tough times that you the leader have the enormous potential to create a new space for competitive advantage. It's precisely during tough times that you have great opportunity, and credibility, for challenging sacred cows, for defying the established process, and for confronting corporate cultures and systems that haven't made business sense, or common sense, in a long time. Ideas that might have been considered heretical in the past ("hey, our numbers are good, why fix it if it ain't broke?") now become ripe possibilities for significant cost-reduction and revenue-line enhancement precisely because things are broke now. So while your competitors are playing it as safe as possible and doing the same-old-same-old, now is the time to aggressively initiate steps like outsourcing cost-center functions, digitalizing as many internal processes as possible, linking up databases and establishing e-commerce exchanges with suppliers and partners, creating performance-based merit-based compensation, reshaping everyone's jobs to include significant time "touching" customers, slashing mind-numbing pass-off interfaces and analysis paralysis, making cross-disciplinary project work the norm rather than the exception, and so on.
Now is also the time to accelerate the entire process of innovation. During the good times, risk is seen as "acceptable", whereas in tough times, the all-too-often assumption is that risk is bad and investments in new ventures are a no-no. That's potentially deadly thinking, for several reasons.
First of all, when all the financials are going up and things are rosy, people in organizations can comfort themselves by pretty much following the rules. For someone who wants to deviate from the rules, it even makes sense to follow the rules again, that is, seek and "obtain" permission to deviate. "Obtaining" this permission, of course, is often difficult and time-consuming, which is why people often go back to simply following the original rules.
During tough times, the above scenarios, arguably irrational to begin with, become somewhat ridiculous. If the boat's floundering in rough seas, the need for fast creative decisive action is more obvious, and more acceptable to everyone. "Resistance to change" is less of an issue when all hands are wondering if the ship will survive at all, much less thrive. Further, there is simply less time to go through channels and "obtain" permission, which means that the best organizations encourage leaders to simply grab it.
In short, breaking rules on behalf of organizational vitality, and fast, now becomes rational. Accordingly, now is the time to vigorously attack those entrenched systems, policies, cultures, and behaviors that have squashed innovation and its counterpart accountability. Now is the time, within the realm of prudent (not conservative) financial management, to accelerate the innovative push into new niches, new markets, and new ventures. Now is the time for a full-court press to initiate what can ultimately become a prime source of sustainable competitive advantage and shareholder value in a knowledge economy: to wit, a pipeline of constant innovation.
There's another related reason for innovation. In boom times, customers spend more freely. In tough times, they are more fickle, more skeptical, more demanding, and more insistent on seeing value for their dollars. While your competitors are playing it safe and offering "me-too" products and services (to which customers rationally respond by beating down prices further), you should be doing everything possible to de-commoditize your current offerings, develop new offerings (yes, rev up that R&D spending, like Intel is), join forces with new partners, and apply your competencies and resources to new markets. All that demands prudent but unambiguous risk and innovation. It's while your competitors are putting on the brakes that you should be doing whatever it takes to accelerate innovation, and thereby brand yourself as different, special, and exciting. That sort of momentum will not only boost your margins and customer loyalty in the short run, but will propel you into a market-leadership role in the boom times sure to come.
None of us like economic downturns. But if we're smart, and courageous, we can take full advantage of them.