Unconventional Wisdom in a Downturn

Unconventional Wisdom in a Downturn

by Robert S. Kaplan, David P. Norton, Stewart D. Friedman, BV Krishnamurthy, Tamara J. Erickson, Jeffrey M. Stibel, and Peter Delgrosso

“What best practice challenges the conventional wisdom about what to do in a downturn?” We put that question to our team of management bloggers at harvardbusiness.org. Following is an edited selection of their provocative responses.

Protect Strategic Expenditures

by Robert S. Kaplan and David P. Norton

Many executives react instinctively during economic slowdowns by cutting discretionary spending across the organization. But such an indiscriminate slash-and-burn response is a big mistake because it fails to distinguish between short-term operational and long-term strategic programs. Unless the downturn threatens a company’s existence, executives should focus on rooting out operational slack and inefficiency, not on modifying or sacrificing strategic initiatives, which build capabilities for long-term competitive advantage.

To help companies preserve and strengthen their strategic programs, we developed a new expenditure category, strategic expenditures (or StratEx), to supplement the traditional capital and operational expenditure categories. We have found that unless StratEx are segregated from the other categories and protected, managers will view them as discretionary. Faced with short-term economic hardship, managers often defer or transfer funds from their strategic initiatives to achieve near-term financial targets—a principal reason why most organizations have so much trouble sustaining their strategy execution processes.

Two companies we have worked with have effectively cordoned off StratEx. Nordea, a leading bank of northern Europe, created a separate process for planning and funding its strategic initiatives. After the annual meeting that updates the company’s strategy, strategy map, and balanced scorecard, the executive team identifies the strategic initiatives required to achieve the performance targets on its scorecard. It then assigns one of its members to sponsor each project and funds those initiatives under a separate budgetary authority. The initiatives’ sponsors follow up with monthly progress reports to executive committees.

Ricoh, a manufacturer of office automation equipment, creates a strategic investment fund for projects not included in its normal operational and capital budget. Working from the company’s three-year strategic plan, business and functional units prepare and submit detailed proposals for funding the initiatives identified in their own respective plans. A team comprising the CEO and members of the strategy and planning office analyzes each proposal in depth and allocates capital from the strategic investment fund to the projects they deem most important. The CEO and strategy and planning office meet quarterly to monitor the progress of the projects.

During a downturn, companies attempt to eliminate the slack and inefficiencies accumulated during the recent growth period. But their attempts to cut fat and waste often slice into newly growing muscle, bone, and tendon. Creating a StratEx funding category helps companies continue to build capabilities for the future while eliminating the excesses of the past.

Dial Down the Stress Level

by Stewart D. Friedman

The knee-jerk response in an economic downturn is to wring greater productivity out of your workforce by making employees work harder. But this can hurt more than help, by fueling resentment and burnout. A smarter approach: Be open with employees about the business problems you face, and invite them to be part of the solution while encouraging them to meet critical needs in other parts of their lives. Do this right and you’ll reduce stress, decrease wasted time, boost trust, build resilience, and improve productivity.

Contrast three approaches you might take as the manager of a solid performer when times are tough:

• “Hey, Sarah, we’re having a bad year, so if you want any kind of bonus at all, you’re going to have to suck it up and work harder than ever before. Sorry, I know it’s tough, but that’s just the reality.”

• “Hey, Sarah, I know that there’s a lot of pressure on you now, on all of us, really, and I want to make sure you’re getting it all done. Let me know how I can help.”

• “Hey, Sarah, I know that there’s a lot of pressure on you now, on all of us, really, and I want to make sure you’re taking care of all the things that are important to you—not only at work but in other areas of your life, too—so that you don’t burn out. What small changes could you try here that would make things easier, so you’d have more energy to focus on performing well for our business? We desperately need your best efforts!”

The first option helps Sarah face the harsh reality and ties economic incentives to her performance. But you’ve not dealt with whatever other stressors Sarah is facing or explored what’s really driving her. That means the burnout risk is high, and the energy she might bring from her most powerful sources of motivation remains unused. The second option shows your empathy and desire to be supportive, but it’s so passive and vague that she probably won’t even be convinced that you’re serious about providing real support—much less be inclined to change her actions.

The third option has the greatest chance of producing the results you want because, my research shows, the more attention you pay to employees’ lives beyond work, the more you’ll get out of them at work—especially during times of great stress. If you acknowledge the pressure Sarah is under and show that you think about her as a whole person, you will most likely be rewarded with loyalty and extraordinary effort.

Of course, although you are sending the message that you value her ideas and are willing to try them, you are not telling Sarah she can do whatever she wants. Her experiments should be made up of little changes, like shifting her schedule to avoid rush hour, which she might try for a month or so, and they must benefit your business as well as her life beyond work.

Smart experiments are designed to produce what I call four-way wins. They’re intended to benefit work, home, community, and self (mind, body, and spirit) all at once. (For details, see my book Total Leadership: Be a Better Leader, Have a Richer Life.) When people undertake those experiments, they shift some of the attention they have disproportionately allotted to work and dedicate it to the other domains. The result is surprising: Satisfaction and performance in all domains, including work, goes up.

Use Downtime to Enhance Skills

by BV Krishnamurthy

In even the best of times, organizations often pay lip service to professional development. Excellent frontline workers might receive better titles or become project managers without actually having learned how to deliver a group’s work on time, assure quality, and stay within budget. Even experienced managers may be so preoccupied with quarterly, monthly, weekly, and daily reports that they have no chance to learn something new—or to unlearn what’s become obsolete. A downturn presents the perfect downtime to enhance the skills your people really need to excel.

“Are you kidding?” you might ask. “When times are tough, professional development is a luxury.” Not so. Often that’s precisely when there is enough breathing room in the daily work flow to give your people the chance to better themselves. Employees at all levels can be sent for training to improve their team-building, collaboration, process ownership, and other skills—which pays off when economic normalcy returns.

For example, in response to the economic downturn of 2000–2002, Alliance Business Academy started conducting annual team-building exercises at a top Indian software company. Working with two of the company’s 200 teams a year, ABA focused the training on endeavors such as completing joint tasks, clarifying group values, and improving team processes. Since the program started, trained teams have been 50% more productive, on average, than untrained teams, according to aggregated measures of quality, time, and cost. This year, the company is putting five teams through the program. ABA has replicated the results at a major aerospace company and a large European engineering conglomerate.

Such professional development pays off most with employees whose team skills are poor but whose impressive individual performance precludes letting them go. A joint research project between ABA and two European business schools has borne that out. In a study of 36 companies in the manufacturing, financial services, and transport sectors in five countries, star performers with poor team skills became change agents within their firms after going through two cycles of team-building exercises lasting 10 days each. Teach solo high performers how to collaborate better, focus on the big picture, and consider the organizational implications of their work, and you’ll reap sizable rewards.

Of course, casting a downturn as an opportunity to fine-tune skills is not easy. Various stakeholders’ anxieties about the short term need to be assuaged and framed in a long-term context. That includes the people whose skills are being improved. They need to have a broad enough view of how their professional development fits into organizational goals to be sufficiently motivated to make the downtime investment pay off. And they must be confident that the organization’s culture will tolerate honest mistakes as they progress and grow.

Those caveats notwithstanding, actively seizing a downturn as an opportunity can reduce the pain of the current one and can soften the blow of the next. Those are luxuries you can’t afford not to indulge in.

“Give Me the Ball!” Is the Wrong Call

by Tamara J. Erickson

Almost all executives I know feel the weight of obligation deep in their bones. They feel a duty to the owners of the business and to customers, of course, but perhaps an even greater one to the employees and families who depend on the company for their livelihoods.

So it’s no surprise that, in troubled times, many leaders believe it’s their job not only to call the shots but also to personally execute the key plays. That’s the nature of leaders. Faced with a crisis, executives often shout, “Give me the ball!” Executive instinct drives greater control—they review costs, tighten approval criteria, redirect key decisions to higher levels, ensure everyone is as busy as possible, narrow the business scope, and so on. Small teams of executives attend secret retreats to review options even as meetings that would bring all the troops together are canceled. As a result, authority becomes centralized.

What leaders frequently forget in the heat of crisis is that the wisdom of crowds applies within their own companies. Instead of hogging the ball during a downturn, they ought to tap the ideas and the energy of the entire organization. When times are tough, leaders should:

Ask great questions. Challenge the organization to respond by setting intriguing and complex goals. Don’t narrow the focus of your questions to the mundane or overspecify how teams should approach challenges. Articulate a compelling mission that will get people to rally.

Build trust across the organization. Don’t cut out meetings, intensify internal competition, or reduce investments in learning. Increase your firm’s collaborative capacity by building relationships and encouraging the exchange of knowledge (see “Eight Ways to Build Collaborative Teams,” HBR November 2007).

Challenge the status quo. Ensure that your team is regularly exposed to diverse points of view and experiences. Don’t cut travel or fall back on tried-and-true players. Bring in new voices and new ideas—and take them seriously. Get outside your business sphere. Encourage brainstorming and scenario analysis. Don’t abandon training and experimentation. Invest in your people.

Jorma Ollila followed these principles during his tenure as CEO of Nokia. Consistent with the company’s deep traditions of teamwork and global collaboration, he encouraged newly hired leaders to travel to form personal relationships with the diverse array of individuals around the world who would affect their performance. And he never sacrificed his goal of achieving a wireless information society.

Leaders can strive toward ambitious goals during tough periods at their firms and still manage to share obligations broadly. Downturns are no time to tighten control. They’re opportunities to inspire your people to become more spontaneous and innovative. Pass the ball.

Discounts Can Be Dangerous

by Jeffrey M. Stibel and Peter Delgrosso

During tough economic times, companies often rush to reduce prices on their products and services. That seems like common sense: People can’t afford to spend as much, so charge less to keep them buying. But discounting has its perils.

To be sure, discounting is effective when done wisely and strategically. It can get consumers excited about a product, encourage them to buy more, and help your short-term bottom line. However, whether the purchase is a hot dog, a handbag, or a stay at a five-star hotel, customers want good value for their hard-earned money. The price of something is often an important determinant of its perceived value, as Dan Ariely points out in Predictably Irrational. Often, the more consumers pay, the more value they ascribe to a purchase. If you discount prices purely to boost sales, buyers may begin to question that value.

Consider Abercrombie & Fitch, which lowered prices by roughly 15% during the 2000–2002 downturn. When the dust cleared, the company realized that it had sacrificed much of its brand’s cachet and lost significant market share. A&F didn’t recover until 2004—and then only after returning to higher prices. In August 2008, having learned its lesson, the company announced that it was considering another price increase, despite a decline in second-quarter profits. The goal: to enhance what the CEO called the “iconic status” of the brand.

But discounting is so easy that some companies simply can’t resist. Starbucks, which posted its first-ever earnings loss in July, has begun to offer lower-priced options, such as a cup of coffee for $1, with free refills. This strategy may boost sales in the short term, but we suspect that, as with A&F, it will hurt the Starbucks brand in the long term.

Discounting is not always a bad idea, though—there are safe ways to lower prices. Earlier this year, Chrysler discounted something that does not affect its core brand: gasoline. It guaranteed to purchasers of new cars a price of no more than $2.99 per gallon of gas for three years. The idea was to subsidize the fuel that a new car uses, not the car itself. It’s similar to what GM did in 2001 by discounting its financing rather than its cars. Obviously, the auto industry has more problems than brand deterioration. Nonetheless, this is smart marketing during a downturn: It couples the appeal of a discount with an implicit message about the value of the core product.

So if you’re eyeing a simple, traditional discount strategy during the present slowdown, first consider the potential for damage to your brand and then evaluate the brand insurance that a more nuanced approach may offer. If you inadvertently shatter your brand’s mystique, reestablishing the value proposition to consumers may be tougher than you expect.

Goan with the Wind

Posted by Rajdeep Sardesai

Well this is from the blog of Rajdeep Sardesai and I agree to the thoughts he expressed in fact wanted to write similar, well he could express it in better words so posting it here too. You can visit his blog too at below link

http://www.ibnlive.com/blogs/rajdeepsardesai/1/50559/goan-in-the-wind.html

In the early 1990s, Air India printed a calendar showcasing people from different states in their traditional costumes. The Goa portrait had a couple at a church wedding in bridal finery: the lady in a flowing gown, her partner in a jacket and tie. The publication sparked off protests within the Goan community, who accused the national carrier of portraying a flawed image of the state.

In a state where over sixty per cent is Hindu, the calendar was seen to reinforce the stereotype of Goa as a "westernised" Portuguese enclave. Ironically, the protests were led, among others, by the redoubtable architect Charles Correa, a Goan Catholic proud of his Saraswat Brahmin heritage, someone who was perfectly comfortable in his kurta pajama and Kolhapuri chappals. The protestors were successful enough to force a change in the calendar.

When the Air India Maharajah gets it wrong, what chance does the average Indian have of getting Goa right?

For decades now, Goa has been the victim of a rather perverted caricature: the stereotypical image of the state has been of a lazy, fun-loving coastal community with a weak moral core. Bollywood, often the trailblazer in setting cultural trends, did Goa no favours: the majority of Hindi cinema showed the Goan as the drunk Anthony Gonsalves-like character, a woman on one arm, a whisky bottle bottle in his pocket. Even the otherwise well made Dil Chahta Hai created the idea of Goa as the ultimate fantasy of the young Indian: girls were easy, sexual freedom guaranteed with the puritanical streak of the rest of the country absent here.

Rewind to the original "Goan" film, Bobby in the 1970s: find me a Goan fisherman's daughter who dresses in skimpy bikinis and shorts like Dimple Kapadia and I will buy you a villa next to Vijay Mallya's seaside bungalow in Candolim.

Unfortunately, it hasn't been easy to shake off the "live the good times" image of Goa, especially when the mainstream media has lapped it up so easily. If a few years ago, it was fish, feni and football that was considered to be the limit of Goa's vision, its now sex, sin and sand, courtesy the Scarlett Keeling controversy. For an increasingly tabloidish media, the Scarlett controversy is manna from heaven.

A teenage white woman drugged, drowned, possibly raped, perhaps murdered, on a beach in Goa by mysterious shack owners: what more can a carnivorous media ask for? Especially when there are enough close up pictures of a semi-nude Scarlett with marks all over her body, suggesting foul play and a possible cover up? That the area where the incident took place is notorious for drug peddling, that Scarlett herself appears to have had an active sex life, that the girl's truant mother has a past history of crime, and is now embellishing her public remarks with unsubstantiated allegations against Goa's top politicians, that Goa's netas and local cops have a terrible record in fighting crime, can the media really then be blamed for seeing this as a sensational crime story which will catch restless eyeballs?

But Scarlett's story is not simply another whodunit, nor does it fit in within the "fight for justice" framework that in the aftermath of the Jessica Lal case seems to have become the new war cry for a section of the media. Instead, the Scarlett saga lies at the heart of a more abiding conflict between diverse cultural strands of Goa: between licentiousness and piety, between new world normlessness and old world certitudes.

There is the Goa of the beachcombers, of the hippies who discovered Baga in the early 70s, of the rave parties, of paedophilia, of decadent hedonism. But there is also the Goa of deep social conservatism, of folk religiosity in its village temples and churches, of simplicity of lifestyle within rural communities, of a premium on education and of immense pride in its plural, multi-cultural heritage. The Goa of a tiny strip of beach between Candolim and Anjuna is constantly in the media gaze and makes front page headlines. The vast majority of Goans who live outside this world are rarely documented because their lives seem much too unexciting to be explored. Historians and anthropologists have done much to unravel the "real' Goa, but for the national media, it is so much easier to reduce an entire people to a tourist brochure .

Indeed, Goa's tourism industry - earning the state approximately 10,000 crores in foreign exchange per annum -- has been at the heart of the modern-day mythification of the state as some form of a sexual paradise. It is estimated that around 25 lakh tourists come to Goa each year, a vast majority of them local tourists, eager to explore the "idea" of being in a "free" state, free from the restrictions of middle class attitudes. Only a fifth of the tourists who visit the state each year are foreigners, most of them looking for a cheap holiday. The Caribbean is too expensive, the Costa del Sol not exotic enough and Australia too far: so why not clamber onto a chartered plane to a land of the "carnival"?

Unfortunately, the postcard image of Goa often has little connection with the living reality of its people The result is a clash of cultures that has partly shaped the debate over the Scarlett issue.

For many Goans, the foreign tourist is a needless intrusion into their community life . Even now, the idea of any form of nudity on the beaches offends Goans, at times even the sight of a half clad gent on a bike troubles villagers. Which perhaps explains why very few Goans seem to have any sympathy for Scarlett's mother, shocked as they are by her decision to leave her teenage daughter behind and travel to neighbouring Karnataka on her own. The Keelings' behaviour offends Goan sensibilities, it reopens lingering fears of a traditional society being overrun by the "outsider". That a young girl might have been raped and murdered by locals doesn't seem to concern a majority of Goans as much as it should.

And yet, the real threat to Goa's cultural identity does not lie in the lifestyle of the tourist, confined as they are to a small stretch of the state. In fact, in a state with limited employment opportunities, Goa needs to attract more, not less tourists.

The critical threat to Goan society instead comes from within: from the brazen sale of priceless real estate to those who have little stake in the state's future . It isn't the influx of tourists which should trouble Goans as much as the growing influence of the builders and construction agents who appear determined to destroy the state's environmental treasure in violation of all existing laws. While Goa's politicians go into cataclysms over the Scarlett case, how many of them have bothered to raise their voice against the virtual auction of the state to land sharks? Is it any surprise that in a state which has seen as many as 19 chief ministers in 21 years of statehood, politicians have lost the moral authority to speak up on the issues of governance that really matter to the average Goan?

Frankly, the challenge before Goa today is not the one which is being posed by a Scarlett-afflicted media: a permissive drugs and drink culture might make for good television, its not central to Goa's impending identity crisis.

The real challenge for Goans is whether they can preserve the uniqueness of their land by ensuring that it doesn't become another concrete jungle. Environment may not make sensational headlines like a murder can, but in the long run, preventing environmental degradation can alone secure Goa's future.

Post-script: Let me also debunk another stereotype: the "desai" in my surname often leads people to presume I am Gujarati. The fact is that my father was a Goan, and I am proud to be one too.