Today, there are many business commentators talking about the economic turmoil faced by developed countries, emerging economies and the rest of the world. Bankruptcy and bail out plans for many multi-national and transnational businesses are a common order of the day. Lay-offs, cutting and slimming unwanted fat or ‘right sizing’ of many companies are common in many parts of the world. This pessimism has infected many companies, dynamic business executives and corporate lobbyists alike. They are already working towards facing up to these conditions of  doom and gloom. Under such portents of calamity and economic turmoil, can one possibly suggest to anyone to prepare for an economic “up turn”?

Breathing space for creativity and dynamism

There is no doubt that we are in the midst of the most challenging times of our economic history. But do not forget that challenges are something thrown at you. We have options for many choices. One can pretend that there is no challenge – which leads towards certain defeat or destruction. The path of ‘professional managers’ is quite different and distinct, as they consciously select to face the challenge. Those who are capable of reading the situation with an open mind see opportunities in times of threat. They will definitely find creative solutions and create sustainable value for not only for shareholders but for all stakeholders at large.

Luckily, the present problems faced by the world are common to everyone. They have given a breathing space for creativity and a chance to be more strategic and dynamic. This is the time to ask more basic, but profound,  questions about one’s business; what business are we in? why are we in this particular business? what value can we offer for our customers? who are our customers? how are we different from the competition? who are our competitors? Unfortunately, for most business managers, these basic questions seem to be too simplistic, too basic to ponder on.

Breaking the bunker mentality

One may learn a lot about strategy as it is imparted in business schools.  But in real life, most business managers are concerned only about “the bottom line” and forget to understand that there are several other ‘lines’ beneath the bottom line. They are so obsessed with the ‘tip’ of the iceberg that many tend to ignore the major part of it, which is not visible in the periphery. Simply looking at  budgetary targets and variances in profit and loss accounts lead to neglect of  the most important aspect of a business -  its strategic alignment and positioning.

Indeed, all unproductive costs must be eliminated at all times to be more competitive and productive and to face the present global competition. But in most cases, ‘cost cutting’ is a ‘grandmama’ approach to  challenges in the present unrelenting economic situation. Unfortunately, some businesses include staff benefits, training and employee development, research and development, branding and marketing overheads as the top un-wanted costs! Even though one would reap short-term positive impacts on the bottom line with such approaches, there would be more negative impacts in the longer term. This negative impact would not only be on the bottom-line but also the more important lines underneath – the employees and learning, customers, internal processes and productivity,  which can be called “sustainability lines”. Creative business managers reduce costs more strategically and sustainably in three ways:

n Focus on immediate cost reduction opportunities which are available in many areas where most managers had been more complacent during sunny times.

n Optimise the use of resources, (both human and  physical) and of infrastructure, and focus on reducing average transaction costs.

n Focus on creative ways to redesign not only business processes and delivery channels but even business models.

This will definitely shift the focus of businesses from the narrow cost reducing techniques to sustainable and strategic positioning of the business. The mindset would be elevated to creating new value propositions through innovation, rather than to be bogged down in the old grandmama approaches.

Retention of best talent 

imperative

There are several mistakes made in the HR functions of organisations during trying times. Among them, the commonest is the simple head count approach where redeploying employees from excess areas to more needed areas is done purely as a cost cutting strategy. Another example is the scrapping of the ‘chocolate donut’ given with evening tea to employees to save a few thousand rupees which may create a million dollar cost through dissatisfaction and unrest. The curtailing of training and development of employees would definitely have depreciation on the value of human talent stock in the company as well as spread pessimism among ambitious talented staff. Do not forget that this is the most important time to look after the talented employees. Encourage them to be more innovative and conscious about the present difficulties and future opportunities. Let them build strong social net working and be aware of the market.  There will be more opportunities popping up for winners in the next economic upturn and there is a danger that talented people could be lost to your immediate competitor. If you are narrowly focusing on staff cost reduction and operating with a skeleton staff, you are more in  danger of losing your best people during the upheaval.

When resources are constrained and the economy is not giving due support and customers, do not increase their share of pocket any more, the organisation needs creative talents to innovate. It has been  observed that during most hard times, unwise cost reduction curtails opportunities for innovation and sometimes endangers the culture of creativity. Most often business managers are too late to understand that turbulent times demand more innovation and creativity to emerge as winners.

Strategic marketing creates

sustainable value

Marketers may say that they are not responsible for the present recession and it is not possible to show tangible results for their marketing efforts. Of course this is a difficult time for any marketer but it’s no use saying that customer’s wallets are empty and hence it’s difficult to increase the spending on products. Most often marketers enter into preconceived segmentation without knowing how to implement it. Spending on communication is not justified in the appropriate business rationale and some times unfocused communication erodes the brand value of the product/company. Turbulent times demand marketers to be more creative and to be financially intelligent in all their activities more than ever before. It’s more important to have an integrated marketing communication approach through effective and efficient selection of channels. Marketers can’t operate in isolation and they should be aware of the many financial implications of the company itself.

Often marketers fail to convince the top business managers about the importance of segmentation, communication and brand building, especially in turbulent times, due to lack of integrated marketing strategy within the overall business strategy. It’s the marketer’s utmost duty to convince that focused spending on marketing is imperative to face economic upturns in the coming months to prepare for new opportunities ahead.

What you get is what you

measure

It is high time that Sri Lankan companies  look beyond traditional annual budgetary planning and see the entire ‘iceberg’. Future success of any company depends on how effectively they translate its strategy into more actionable components that cascade down to operational level. Business managers ought to understand that too much obsession with the bottom line provides only the mono-perspective of a company and it never provides the holistic view of the company, nor does it drive a business strategy.

Today, it’s easy to understand that business is a living system with multi perspectives in its functions. Business managers need to have a balanced approach to understand the business dynamics and implement their respective strategies. Harvard intellects Kaplan and Norton initiated, in the late 90s, the four perspective balanced approach for companies to measure their performance, which subsequently became widely popular as the “Balanced Scorecard”. The concept refers to three areas that should be balanced.

n Balance between backward looking financial indicators and futuristic non financial indicators

n Balance between internal and external stake holders of  an organisation

n Balance between past performance (lag indicators) and  lead indicators which drives  performance

Adapted from Robert S. Kaplan & David P. Norton

Author: Manoj Akmeemana