A CEO's User Guide for Regaining Traction...
<<Frozen winters in Chicago have taught me that when your car starts to skid out of control, you must not slam on the brakes. Instead, you take your foot off the accelerator and steer into the slide, carefully making adjustments until regaining traction.
Today’s North American business environment requires just as steady a hand at the wheel. We may finally have our frictionless economy—just not the one the gurus had in mind when they talked about how efficiently the New Economy would operate. Rather, we find ourselves with an economy as treacherous as black ice.
But having been in skids before, experienced executives know how to steer. Here are some rules of the road for handling tough times, based both on my experiences and that of my colleagues and friends:
GO BACK TO BASICS. In other words, think about cash flow and assets. That may seem to be painfully obvious, but over the past couple of years a lot of people have lost focus.
Staying cash-flow positive—or at least neutral—is especially important in a slow economy. That doesn’t mean you push the panic button over one or two quarters. But watching cash both keeps you from digging yourself into a hole and alleviates any worries among investors and customers about your stability and strength.
A faltering economy also requires that you take a hard look at your assets. You need to make quick decisions about lines of business facing problems and decide whether to fix them or whether to close or sell the operation. More importantly, you must identify the essential fabric of your business and plan new ways to broaden it, to help your company recover from the economic slowdown.
"You don’t give up what got you to this point," says my friend Fred Wiersema, author of The New Market Leaders: Who’s Winning and How in the Battle for Customers. "The key is to continue to build on those strengths. If competitors become defensive, market leaders become offensive, trying to build a better position."
In Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras wrote that "highly visionary companies are not immune to setbacks and difficult times, yet they display resiliency, and have built remarkable long-term records."
CONTINUE TO INVEST IN INNOVATION AND THE FUTURE. Many companies have cut way back on investments as a way of improving cash flow, and, for some, that may be necessary. But you don’t save your way out of a recession. You innovate your way out.
Technology is the best way I know to innovate. Look at General Electric Co. (www.ge.com), which is investing heavily in using the Internet to reinvent its supply chain. Securities analysts have said they expect this investment will save GE $1.6 billion a year. As GE Chief Executive Jack Welch says succinctly: "Only the naive CEO cuts spending on information technology...in hard times."
TAKE CARE OF YOUR EMPLOYEES. A high-performance company requires high-performance people. They are hard to find and have long memories. So even if you are finding it hard to keep cash flow neutral to positive, you should try everything before laying people off. Layoffs can damage cultures, creating distrust that lasts for years. Layoffs also can cut into the capacity you will have when the economy starts picking up speed again—and it always does.
While many companies have slashed and burned their work forces, some smart companies have learned a lesson and have been less inclined to conduct massive layoffs than they were a decade ago. For instance, Sun Microsystems Inc. (www.sun.com), despite announcing an earnings disappointment, has thus far not laid anyone off. Instead, the workstation maker announced that it would shut down for a week this summer to cut costs and asked employees to take holidays or unpaid leave.
At DiamondCluster International Inc. (www.diamondcluster.com), we have told employees that the partners unanimously voted to take a 15% pay cut, in return for stock options, rather than lay off any consultants. When we asked nonpartners whether they wanted to chip in, more than 75% either volunteered to take a pay cut in return for options or volunteered to take one to three months off at 25% pay. I’ve warned people that, when it comes to layoffs, you can never say never. But we are hoping that cutting our pay will let us avoid laying people off and that it will turn out to be a defining moment in the history of the firm, bringing us all closer together.
COMMUNICATE, COMMUNICATE, COMMUNICATE. Lots of your people are scared, and they are looking to you for guidance. Many of them are young enough that they haven’t gone through a slowdown like this before, and they don’t know what it feels like. They don’t even know deep in their hearts, as you do, that the economy always comes back. Rumors will be rampant, so you have to give people a way to air them and you have to be completely honest when you tell them what part of the gossip is true and what is false. If you aren’t upfront about the true parts, they won’t believe you when you say something is false.
STAY FOCUSED ON KEY CUSTOMERS. Customers have more choices than ever, so you obviously can’t afford to slight them, even if you don’t feel like you have a lot of money to spend lavishing attention on them. Many of your business customers will actually ask more of you—they are likely under as much economic pressure as you are. If you can find creative ways to work with your customers during these tough times, you may build relationships that will benefit you for years to come. Southwest Airlines (www.southwest.com) honed its reputation with customers in the soft economy of the early ’90s and benefits to this day.
MANAGE THE BUSINESS, NOT THE STOCK PRICE. Believe me, I know how hard it is to ignore the stock price. But we all have to act as stewards for future generations and not try to satisfy Wall Street in the short term. If you do the right things today, investors will be taken care of tomorrow.
As I constantly tell my employees, we are in a marathon, not a sprint. If we can all keep that in mind, we will come out of this slowdown just fine.>>
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Mel Bergstein is chairman and chief executive of DiamondCluster International Inc., a business strategy and technology solutions firm. He can be reached at mel.e.bergstein@diamondcluster.com.
(from the August/September 2001 issue of Context Magazine)
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Best Regards,
Scott |
