Leading in tough times

THE BIG QUESTIONS doing the rounds now are: How does recession affect companies? Did organizations foresee the slowdown? Can they cope with the slump? What should the strategies of organizations be for them to come out successful?

We are currently seeing the world organizations strategizing, making alternative plans as nobody knows for sure how long the recession is going to last. There are speculations about the duration of the recession; hence organizations are faced with tough questions on how to go about this whole process of surviving the recession, coming out of it a winner and taking on the opportunities that would arise later.

I was happy to have recently attended a talk by a Harvard Business School Strategy unit Professor who said,"A crisis is a terrible thing to waste." The talk was of course very timely and relevant. This statement kept me wondering for some time.How many of us would actually look at the current global slowdown as an opportunity for ourselves? I see most of us including myself panicking at the prospects ahead and the longevity of this recession.

I was told that in reality, there are very few companies which were able to meet their revenue and profit goals in good times. Some of these statistics startled me:

• About 27% of the companies in the world meet the revenue criterion.
• About 16% of the companies in the world meet both the revenue and income criterion.
• And only 13% of the companies in the world meet all the value creation criterion.

The professor went on to say that, during tough times, companies compete hard for the existing customers and make themselves competitive due to change in consumer priorities. The company’s primary goal becomes surviving the tough times, with very little significance given towards being ready for the better times which would inevitably follow after the tough times.

The leaders of companies, should focus on the core dimensions of leadership, which are the three pillars of organizations:

Vision - which is to establish direction, provide common purpose, motivate and inspire the human capital of the organization;

Strategy - to grow and deliver customer value through innovation; and

Change - dealing with new realities

The professor emphasized that, a company’s vision is a clear and compelling theme about the organization and its units and is also the reflection of the values and direction of the organization.

It is important for organizations to align strategy and vision in tough times. According to him, the four key success factors of organizations are:

• Strategic Thinking,
• Managing Key Linkages,
• Performance Management and
• Innovation and Change

1) Strategy is defined as the "the choices (implicit or explicit) that an organization makes to achieve competitive advantage in a specific marketplace". It is to maximize the value of the capabilities of the organization that distinguishes it from its competitors. A strategy answers the question: "How are we going to win?" i.e., achieve above-average returns. Strategy is the use of tangible and intangible assets of a company. It deems necessary to have clarity about the dynamics in customer value, current and emerging, to create a sustainable strategic position in the marketplace. This can be achieved by a competitive advantage which offers value proposition that customers prefer and which competitors cannot easily match.

The professor spoke about the results of a research, which said that, leaders in organizations do not spend more time developing and building organizations for long term. More time typically is spent on looking outward and planning for short term (3-5 years into the future). On an average only about 3% of the leaders devote time building an enterprise view about the future.

2) An organization generates long term customer value through the performance of its human Capital, which is dependent on the availability of the right talent with key capabilities to perform their functions optimally. This leads to operating performance, which are the key activities of the organization and its ability to remain unaffected even during tough times. Effective operating performance leads to an outstanding market performance by the organization, which attracts and retains customers for today and tomorrow, thus ultimately generating financial results for the company. Financial Performance, which is about making money by providing value to the customers today and tomorrow.

It is important for leaders of organizations to understand and manage these key linkages and work forward and backwards to implement changes during tough times.

3) Performance Management is the process of ensuring that the organizations strategy or plan is first understood and is then embodied and reflected in its activities, behaviours, capabilities and allocation of resources. It is different from just measurement. For leaders, it is answering questions like, Have we clearly articulated the capabilities we need, to get the results expected? Is there agreement about which capabilities are crucial? Are these attributes regularly communicated and developed? Are we managing the entire performance cycle?

4) Tough times require "doing more with less". This requires Innovating externally with customers and internally with processes and employees. The professor said that innovations in organizations have to overcome the many obstacles which primarily revolve around the very need to change.

The professor ended his talk by saying that innovative organizations emphasize on process oriented innovation. Idea generation, setting the culture for innovation, alignment and implementation of the innovative idea are areas leaders of Innovative organizations focus on.

Innovative companies like GE, IDEO, Google, Apple and Nike are known for not only surviving the tough times but also coming out winners.

The reasons for the current crises is different and more complicated from that of the previous ones like Asian Financial crisis of 1997, or recessions faced by the world before. There would be restructuring in the financial industry and change in attitude towards investments.

Getting ready for the inevitable good times is what the organizations should focus on.

For more information on leadership and management, please contact Gi Sicat at gie.sicat@johnclements.com and Carol Dominguez at cvdominguez@johnclements.com.