Sunday, January 25, 2009

Seeing Through The Bad Times

Jim Collins is researching how companies respond to downturns, and he speaks his mind in the current issue of Fortune. He is obviously researching great companies and he is looking at this with the perspective of History.

Bad times? Jim Collins says this is going to stay, this is going to be the normal life. He points to Post-War period and wonders how the face-off between two nuclear empires actually gave us stability and a period of continuous prosperity. 'Danger, yes, but stability', to quote him. Surely it looks like that now - with the perspective of science - though it is funny to think what makes Cold War look like springtime.

However, the key point is what, in Collins' opinion, makes great companies tick in a downturn. He points to two things - values and having great people on board. He talked about the examples of P&G, which never thought about cutting corners and undermined quality and customer service even in a downturn, and H&P, which never let go the opportunity to hire a smart engineer even when in a downturn.

Thinking this through, I can see how relevant are these two observations. The most common reaction to economic downturn is cutting corners - cutting input costs to keep prices down [especially in services] and cutting people, which often, though not always, increases stress and burden of those left behind. The other thing, of course, is to abandon the entrepreneur's commitment to his staff, people who work to make him/her rich, and letting people's wages go unpaid or letting them go randomly.

As I watch a number of SMEs from close quarters, I know this is a cancerous disease. At the first sign of trouble, the SMEs launch defensive action, goaded possibly by the management consultants who cost them more than what it would cost them to keep the company running. The entrepreneur simply abdicates his role. I have seen people, who are relatively successful as entrepreneur, turning anti-entrepreneurial at times like this, blaming staff for the lack of money and even shrugging off the responsibility to pay regular wages.

The common argument will be that a SME will have to do this, because they don't have the luxury of long term. But this is completely wrong, as most big companies today came from rather humble roots and it is the ability to think long term and big picture made what they are today. And, actually, I would even count IBM in that - the notoriously selsy company with a great, hell-of-salesman leader at the helm. It is the ability to articulate a simple vision, keep going regardless of how the times are and never compromising on the basics defined the success stories amidst downturn.

The point about great people is particularly interesting. No plans or special understandings with banks are going to save anyone in the middle of all this. The only thing that can help now is innovation and smart thinking. And, are we going to get smart thinking if we don't have a smart team? Impossible. And, also, if we don't do our bit to show leadership and take the difficult times in our stride, and demoralize the team, can they innovate their way out of the woods? Very unlikely is the answer.

This brings us back to the question of leadership in the middle of downturns. In any other context, leadership is extremely important - but it is critical in the middle of a downturn. Jim Collins point out a critical leadership skill under duress - the ability to zoom out, to see things in perspective. He contrasts this with a fire fighter's tendency to Zoom In, focus on the square area right in front of him, under duress. This is going micro, which so many of us tend to do in a crisis. On the other hand, zooming out allows us to take a more balanced perspective and have a long term view. And, this allows us to act, more than just on the urgent, on the important things too.

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