The Gutsball Blog

Business Cycle Realities

Business Cycle Realities

This may spark a reaction in some circles (e.g. the Obama Administration?), but I do not believe we are in the midst of so much as a mild economic recovery.  U.S. unemployment is over 8%, Europe is a mess; even those juggernauts of growth, India and China are experiencing stalled economies.  In years past, it was said that “when the U.S. sneezes, the world catches a cold.”  That’s arguable today, but for whatever the reasons, most of the globe seems to have come down with the flu and it’s been spread around by a number of countries with symptoms.

What do business leaders do?  What are the tactics for weathering the storm?  Ensuring survival?  Maintaining morale?

Of course there are no easy answers.  But a place to start might be in recognizing, and spreading the word, that there is such a thing as a business cycle, both good times and bad times come and go.  During a downturn, a leader/leadership team must convey a sense of optimism and provide assurances to the rest of the organization that a thoughtful plan has been devised and is executable.  The “plan” will have an ever more higher probability of success with the buy in and commitment of the people that have to execute on it.

But before you lay out your brilliant scheme to all concerned, it may be best to step back and be honest with yourself.  Did you establish credibility by modeling the right behaviors during the up cycle?  Did you fully ascribe to Andy (Intel Co-founder) Grove’s words to live by that “only the paranoid survive?”  Did you demonstrate in word and deed that you value making good decisions even if they might temper aggressive growth?  Or did you pursue growth at any cost as was the case with so many financial institutions?  Warren Buffett’s long time business partner, Charlie Munger, is said to have observed “to call derivative accounting a sewer is in an insult to sewage.”  I am confident you get the point.

Well, if you did get a bit ahead of yourself during a boom, you’ve got some work to do, but all is not lost.  Here are a couple of ideas to demonstrate that your head is on your shoulders…as opposed to being in the clouds:

First, emphasize productivity improvement rather than workforce reduction.  There is no business that operates at absolute optimum efficiency levels.  Position such a move as one which generates freed up money for investment in the business in anticipation of the upturn, this is a powerful message that will be well received.  Not so much if the capital resulting from process improvement finds its way to the bottom line.  That said, attrition happens and some careful choices regarding replacement may have to be made.  This is still preferable over layoffs and will be received as such.

Spend the money generated on the right things.  When the upturn occurs, investments in training and development will pay substantial dividends when your workforce is better prepared for new opportunities.  The same can be said for your information technology infrastructure (no, not a shameless  plug for HP); in today’s world, your systems are a strategic asset…or they are not.

Develop the businesses that generate higher profit margins. Devalue or divest of business that produce low margin.  I realize that some of the low margin businesses may be what got the organization off the ground to begin with, but that was then and this is now.  Business is no place for sentiment.  Yes, I know the “light bill still has to be paid;” I am not advocating a flash cut, these moves take time to implement.

Make the effort to recognize exceptional team or individual performance.  Everyone’s spirits are lifted when you do.  Remember, even when things aren’t going well, someone is still doing a great job.

Find something for the organization to rally around, something that will appeal at an emotional level.  And, I am not referring to financial objectives.  “Let’s raise revenue X% this year” is probably not going to cut it.  Our company has aligned with a global children’s literacy foundation and the reaction among our people has been extremely positive, you can feel the enthusiasm feeding the day to day work environment.

Good luck to all of us!