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 Tuesday, 21 October 2014
5 Unconventional Suggestions for the Economic Crisis   PDF  Print  E-mail
Written by Vincent Chia  
Wednesday, 18 March 2009

I am sure you have read enough articles and suggestions about what you can and should do during this current Economic Crisis. While a lot of these would probably have been written to generate ideas (and hopefully projects) for their consultancy clients, they are genuinely helpful. However, from a realistic and practical vein, a lot of these are good suggestions but not the practical priorities for Management who might be caught up in a survival fight (both for their company and themselves). Thus a lot of positive and constructive ideas go a begging. Just ask yourself, how many CEOs would take the massive risk of acquiring companies (albeit good ones) when they do not even see the light at the end of the tunnel.

 

So while we are reluctant to write such prescriptive articles which look like they jump out of a fashion magazine, I thought it would be challenging to come out with five unconventional and alternative suggestions for the current situation. The saving grace must be that there is genuine value in these suggestions and that they are practical to implement.

 

1) More Gloom is Good News

Befitting the term economic crisis, the slew of bad economic news just gets worse and worse. It ranges from massive writeoffs to massive job cuts to larger declines in GDP. Most people get sucked into this big black hole of gloom and start to develop the "chicken little" syndrome. Yes that means that the sky is going to collapse and everything that we know will become quite different tomorrow. It is almost like a college student getting really drunk, vomits and vows never to drink again. Or someone who has just been dumped, is hurting and swears never to fall in love again.

If there is anything we do know about economic cycles is that what goes down will come up. This is unless there are any severe structural deficiencies in the economy. Yes there are economists and wannabe economists who claim that banking and credit services will never be the same again. But the entire banking system is built on confidence and profit will eventually persuade banks to lend again. Of course they will not lend without regards at first. But like a baby who has just fallen from running too fast, such episodes can be quickly cast aside. The banking system is not broken or obsolete. It has merely suffered from overindulgence beyond reasonable constraints and safeguards, such as offering sub-prime loans among other "evils".

We could go on about this, but we want to get back to the suggestion. If you appreciate the economic cycle, things will have to be darkest before they get better. Take the concept of day and night. The night sky gets dark and reaches its darkest state at midnight. But from that point in time, it gets gradually brighter until it is morning again.

So really with each worse piece of bad economic news, we should get happier that we are nearer the bottom and turning the corner. And while we hear about how V-shaped recoveries become U-shaped and eventually L-shaped, it would be terrible for the soul to be caught up in the gloom. Instead with a sense of economic cycles, there should be quiet cheer within and trust in the market system. With every piece of worse economic news, we must be nearer the bottom. The thirst for profit will never be quenched. We just need to all psychologically turn the corner. And the macro summation of this will produce the inflexion point we call the bottom.

 

2) Retrench and Increase Pay

Of the three factors of production, labour is the most irrational. You would not expect your land or capital to be moody and glum as a result of you paying less rent or interest. So labour is an important factor of production that all companies need to extra carefully manage as they maneuver through this downturn.

In the name of cost cutting, there are two common measures, namely retrenchment or company wide pay cuts. Both measures have pros and cons. Retrenchments ensure that retained workers do not get pay cuts but there is a cut in the workforce which creates a mini vacuum in absolute manpower. Company wide pay cuts save jobs and create a sense of unity among the workforce but severely demotivate the good performers. The spectre of pay cuts should thus not be underestimated and require a lot of good management to work out. More on this in the next suggestion.

Both measures have their downsides and most companies cannot win here. But my suggestion here is about as close to breakeven as you can get. A company needs to know its bottom 10%. This is the portion of the labour force that you can remove and least affect the company. The last thing a company wants is to demotivate the good performers and remove the incentive or desire to perform. So I would go with retrenchment as the cost cutting measure. But as a counter to having the workforce work harder to cover the manpower vacuum, I would over retrench, say 15% and use the additional 5% in costs to increase pay for the rest of the staff in the company.

This is powerful psychologically when you are one of the rare few in these times to get a pay increase and a rather decent one too. And as workers do not spend time mopping about what they cannot buy or worrying about that housing loan they cannot service, they will have lots of time and motivation left to actually do the extra work. This extra spur will not only overcome the manpower vacuum but may also enable the company to outperform and retain the staff in the immediate future.

What about the retrenched workers? Surely we should not be so heartless. To that I would say that a company maximizes profits and not compassion. Perhaps the public sector with its more humanistic motivations might provide better refuge for underperformers.

 

3) Do More with Less

We always want to do more and achieve more. In good times, it is easy to stretch workers when you can reward them with obscene bonuses or much desired promotions. However in such times, the lack of monetary and ego-related perks remove the single essential motivation for all workers. Of course they should be grateful they still have a job and so on. But if you still expect that they will perform as during good times, you must either be working in Fairy Tale land or Heaven. Why Heaven, because there is no scarcity there, with being wealthy a close approximation.

To expect the same amount of output from your workers is naïve. But most bosses or managers will not accept this. In fact they will probably be in denial about this. To overcome all these negative vibes, the key is to do More with Less. And the simple enabler of that is Focus.

Say in good times, you have 10 objectives at the start of the year and you typically outperform on 6 objectives, just manage to perform on 2 objectives while the remaining 2 objectives are either postponed or faced with circumstances beyond you. We would love to achieve 10 objectives or at least match our success rate in good times. But that is not possible with your workforce in recession mood. Even if they are not, the downturn provides external hindrance to the achievement of these objectives.

So pick you most doable 5 objectives and focus all efforts on these 5. Proportionally, 3 will outperform, 1 just perform and 1 beyond you. But if you have wisely picked the 5, you should actually improve your odds. And by focusing on 5, you ensure that your downbeat workers achieve something and that something that you have clearly felt is more of a priority. Of course, I will be greedy here and admit, the key is getting 5 outperformed objectives. But this is dependent on management skill and ability and unless you have good managers, this would not be a bet you would take.

 

4) Do more Development Work

Of the things which you might want to focus on in the previous suggestion, one objective to focus on is developmental work. This is especially so for products which have long development cycles. There are many aspects of development work depending on your industry and business unit. But here are some quick examples.

Clearly the products you sell in an upturn have to be different in a downturn. For one, the pricing would have to come down, unless your product is almost perfectly price inelastic. But to just reduce the pricing would just hurt your profitability. So the most basic development work a company can do is to repackage its products to offer a recession line of products and services. The more a company can repackage its products or services without being a mere reduction in price, the less it hurts its profitability.

At the next level, the same strategies which have carried you prior to the recession are more often than not a little dated. Visions may be unchanged, but strategies have to be adapted to be more realistic and reflective of the times. While there is a case for being more risk-adverse or more pessimistic in outlook, such approaches do not help you achieve your objectives. The distinguishing factor here is to incorporate a sense of the times into your strategies to better enable you to achieve your objectives. You should not lose sight of the finishing line even as you are plotting a better route there.

There are also longer term projects which either improve your long term efficiency or give you new products or capabilities. There is no better time to tackle these especially when the economy is slowing down your other efforts. Improvement projects (like CRM or ERP implementations) now get more attention and focus and thus improve their chances of success. New products developed during recessions that are ready once recovery is in sight can claim first mover advantage. It is also a good time with experimenting with new technologies such as deploying web 2.0 applications for business use. Clearly a company with in-house developmental expertise will benefit from this more than companies who outsource. By tapping labour which is already a committed expenditure, it keeps morale up and resources occupied. There is also the small case of profitability when the economy recovers.

 

5) Peptalks have diminishing marginal utility

It is almost an instinctive response from Management to give peptalks in such times, especially so for their staff who are displaying supposedly negative vibes. These peptalks can range from inspirational and uplifting to downright miserable and making things worse.

Why do Managers give peptalks? Well, to some it is a genuinely humane response to put your hand around someone’s shoulder and guide him or her to seeing the light. This desire increases with one’s level of experience. But this is also the most immediate response without the need for other tangible action. To say "talk is cheap" is harsh, but that is only because of potential sincerity that goes with it.

Now I am not suggesting here to avoid giving these peptalks as that might make some Managers absolutely miserable. All I am saying here is that with every passing peptalk, the ability to inspire and motivate declines.

So what am I suggesting? Coupled with the other suggestions, Managers should focus on disseminating facts and knowledge without overly sharing experiences. Get that over as quickly as possible then do something uplifting or fun. Take an hour or two off work and do something different and fun. Have a beer or two, visit an arcade, indulge in a game of pool or punish the game console.

There is already enough talk and thoughts on the economic crisis in the heads of the staff. They are already in a negative mood and no amount of genuine persuasion or nagging will help. Even the most inspirational speakers have their task cut out for them. So as a Manager, why add on to this (even at the expense of your own utility) ? You should really be alleviating it instead.

 

 

Now before I round this up, I want to point out one glaring suggestion that I have omitted. A lot of consultants and experts advise companies to acquire other companies or assets while the prices are low. "Buy low and sell high" is good common wisdom. Market forces price assets in their own unique ways. Firesale assets are different from Good assets. The other piece of common wisdom is that "Good things do not come cheap and cheap things do not come good". The combination of market forces and scarcity ensure this happens. At best, it is a risk that companies take. More often than not, we only hear of the success stories.

With that, all the best, cheer up and let us all trust that the market will bottom out, sooner or later.

Any opinions or comments ?

 
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