Monday, 21 September 2009

Is Your Company Brave Enough to Survive?

As a professor of strategy, lately I've been getting asked quite a lot, "What can our company do to survive the downturn?" I'm sorry, but the real answer is, "Not a lot."

The market is Darwinian: the strongest ones survive. And an economic downturn is like winter in Alaska; many animals can live a happy life in Alaska all through spring, summer, and fall, but when winter comes, it's not a great place to be. It's a much tougher environment — and only the fittest survive.

If you're not very strong, if you haven't accumulated much body fat or haven't developed the ability to hibernate, I am afraid it is going to be tough for you, too. "But what can I do to become stronger? Get thicker skin? It's getting a bit cold here!" you might cry. Well, I am sorry (again), but winter in Alaska is not a great time to try and become stronger. It is a tiny little bit late for that...

But I do think there are a few survival techniques from looking at firms' downturn survival strategies, although they are not for the faint-hearted.

First, we see quite a lot of firms display what we in management academia call "threat-rigidity effects." When under threat, facing a shortfall in performance, firms are inclined to more narrowly and firmly focus on the one thing they do well (e.g. their core product or service), stop doing other things, and become more hierarchical and top-down in terms of management control.

Unfortunately, this often makes things worse, or at least prevents you from coming up with any solutions. What firms are better off doing, is opening up; exploring new sources of potential revenue and experimenting with bottom-up processes to generate such ideas and innovations. Let me give you an example.

I am in touch with a company, here in London, that provides custom-made software for all sorts of logistics systems, which they offer in combination with personnel training. Unfortunately, the vast majority of their customers are automotive companies, like General Motors and Ford... clearly not a great position to be in right now. This recession has definitely been winter in Alaska for them, and at first they went through the usual cost-cutting and rounds of lay-offs.

After a while, though, the CEO decided to try something a bit different. He initiated some processes for all employees to start generating ideas for potential new sources of revenue, which they enthusiastically participated in (it was not like they had anything better to do...). Most ideas were rubbish; some ideas were so-so, but a few ideas were really good! One of these ideas has now brought them a substantial new source of revenue.

One team had noticed that there was always one business unit doing rather well among their automotive customers; the unit providing spare parts. That's understandable; in a downturn, when people stop buying cars, more people need to have their cars repaired. And this greatly helps the spare parts units. So, this team decided to propose an inventory control product specifically aimed at the spare parts units of automotive companies. And it worked.

This is the opposite of the usual "threat-rigidity effects" — rather than focusing and becoming more narrow and top-down, this company opened up, organized bottom-up processes and tried something new.

This is a brave thing to do, when the winter blizzards are turning your ears frosty, because it feels like spending money rather than saving it. But finding the "spare parts division" among your customers might just see you through the downturn.


Smith said...

While people may have different views still good things should always be appreciated. Yours is a nice blog. Liked it!!!

jurgen said...

Thank you for your interesting post.
How I understand Darwin however, it's not the fittest but the "fattest" that survive Alaskan winters. It's the ones that are most adapted to a particular environment that thrive in such environment.
In times of changes in the environment, it's the companies that are best able to change accordingly that will do best.
This means that companies should look for the people who are best at "detecting" the direction their industry is taking. That's what worked for the software company you mention. A great example, thanks.