Not since l990 have we seen a downturn in the economy as we have in recent months. The vision of a turnaround has been pushed out until at least 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 third or fourth 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.
The warning signs were there:
- sales were steadily declining
- prices were plummeting
- consumers (business and individuals) said they couldn’t afford 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
- the global loss in faith in financial institutions only added fuel to the fire
It is easy to blame the global financial position on the greed of management. It is just as easy to lay the fault at Congress’ front door because of their self-paralysis.
The U.S. economy grew slightly more than a paltry one percent during the first two quarters. Car/truck sales even with zero and creative financing are finding few buyers. Bigger, more powerful PCs sit on store shelves despite fire sale prices.
While market sectors may be off there are pockets of light. For example:
- Dell’s expansion into storage solutions and expanded distribution have helped them steadily meets their numbers
- Almost belying the odds, the video game industry maintains steady growth with its core and growing female markets
- HP has reshaped its vision as a services leader and is seeing the results begin to emerge
- The economic downturn has been good for the home as people cocoon as Faith Popcorn dubbed it spending more time and money enhancing home entertainment including more TV sets, notebook systems for all types of entertainment and home networks for family content mashups
- IBM has expanded its services and cloud solutions offerings and sales penetration
- Virtualization and storage in the cloud has increased the demand for storage solutions – hardware and software – while margins remain thin
- IT management are under tremendous strain to expand performance with less budget and fewer people
As the dark clouds hang overhead and the drops of recession began to fall, some observers tried to convince us that business and governments had learned from the ‘90s. They point out that during the last downturn, the huge layoffs resulted in the loss of thousands of experienced employees damaging the firms and impeding their recoveries.
Motorola, eBay, HP and Cisco have already shed thousands of jobs and Christmas looks grim for thousands more. Airlines that have been operating in the red or on paper-thin margins have seen traffic dip sharply now have an excuse to dump staff. As several airlines around the globe teeter on collapse, operate under Chapter 11 protection or merge more than 150,000 airline employees have lost their jobs.
Are firms doomed to make the same mistakes…again?
When all of the market winds are blowing strong and at your back doesn’t take much to fly to new heights.
When thing turn sour it a real professional to soar high above the clouds!
As someone told us recently…”In a hurricane even a turkey can fly.”
Trying times will show which companies are eagles, which are turkeys.
Many of our chief executives have only been in their chairs for a few years. In some of the financial institutions, they hadn’t even found their way to the bathroom. Those with a year or two of CEO experience have only been through 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 produced the success.
Fortunately few CEOs in the content/PC/CE industries have that disconnect.
Firms that have lost this touch will have problems because their managers didn’t have to know much about what they were managing.
Their focus was on how 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 media has so eagerly reported recently, they manipulate the company to maximize profits in the near-term to enhance their image and position. They trolled for and demanded big and bigger pay packages where they were at or elsewhere.
This year where uncertainty was the rule rather than the exception, we’ve seen dysfunctional boards of directors and overly concerned/under equipped shareholders replace CEOs with someone who leads from the front and who acts on gut instinct.
Often these individuals tend not to draw from experience or listen to/work closely with their staff.
But take a look at the firms that are solid and maintaining their own and perhaps even growing. In some instances the founders are still in control. In others senior management has a solid track record inside the company. They don’t have a lot of flash but they know how to keep things moving forward in clear wind and turbulence.
As for the replacement CEOs, some will learn but 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.
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, gain advantages over their weaker competitors and use technology investments as a strategic tool.
Certainly firms must cut costs when they are under profit constraints. But reducing customer service, product development, product visibility 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. Certainly items like better inventory management; zero defects and business process reengineering not reduce losses. 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, cheap flight service was easily copied.
But a close-knight, highlight involved workforce couldn’t be duplicated by conventional airlines. Southwest sustains itself – even through this downturn – because everyone in the organization shares the pain equally without workforce redundancies or layoffs.
Pick A New Space
Until just a few years ago Southwest had only one president who was more of a cheerleader, windmill tipper and coordinator than a corner office CEO.
Having tapped his former assistant to step into his shoes there is no animosity when tough decisions are passed down. 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 have taken advantage of their nimble style to capture sales. At the same time, HP has become an increasingly strong and diverse organization has become a major player in storage solutions, services and SMB/enterprise systems.
In recessions such as todays, 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.
Invest and enhance customer service to the 20 percent.
Determine how to do more for and with them.
It costs almost nothing to expand that relationship. It is extremely expensive to replace that business.
When it is a struggle to simply keep the company going none of this is easy.
CEOS who look to their core staff and strategic partners for ideas and assistance weather the storm better than those led by someone who slashes and burns at the first sign of adversity. The scorched landscape players already have their departure package and plans in place.
The best firms in the industry have been battered and bruised by downturns before. They will plan and invest in strategies and tactics that will make them even stronger tomorrow.