It is easy for firms to become overwhelmed by recessionary doom and gloom at times like these.  The reality is that most firms survive; it’s just that some survive better than others and emerge much stronger.

This recession will almost certainly bite harder and deeper than the eighties or nineties recessions as a consequence of the dual effects of the financial (credit crunch) and economic crises.  It is true that interest rates and inflation are much lower than in the nineties, but the availability of credit is being reduced by the very institutions which led us into this mess. 

So what are the survival strategies?  I’ve been reading around to identify why some companies do better than others in a recession.  Here’s a summary of what I found:

• Ambition – drive, commitment and strong leadership
• Adaptability – the ability to recognise and respond to changes quickly
• Distinctiveness – forget “me too”, well-researched customer value propositions really matter
• Value for money – price is important and discounting is inevitable but don’t make the mistake of competing on price alone
• Optimal use of resources – a few extra pounds can be carried in boom times, but you need to be fighting fit now
• Finance – high gearing may be sustainable during better times but liquidity matters in a recession (of course, reducing debt is not easy at this stage of the economic cycle)

Just as banks are withdrawing established lines of credit, some organisations are allowing themselves to become over-whelmed by a siege mentality - becoming inward rather than outward looking - and not responding to evolving customer needs. 

Smaller firms have a real advantage in this regard; they tend to be more adaptable than larger organisations and have the ability to respond faster to changing circumstances.  This can make the difference between life and death, while the best organisations will seize the opportunities presented by the recession and emerge even stronger. 

If this blog has struck a chord, you might like to check out our strategy, change management and leadership development web pages. 

Best wishes for 2009. 

Mike West 

www.novaconnection.com

Thunderbirds are go!  The world seems to have stepped back from the brink, for now, with an international rescue package designed to unlock the world’s financial markets.  The cataclysmic meltdown did not happen as the IMF warned and the markets seem to be responding favourably.  But a week is a long time in the financial markets right now.

The hubris and greed of the financial services industry leadership worldwide is disappointing and bewildering.  To make matters worse, their failure in the UK was rewarded with £16.8 billion in bonuses according to the Office of National Statistics.   The failure of the government authorities to regulate is equally shameful, allowing obscure financial instruments to be traded and credit bubbles to be inflated out of all proportion, which would inevitably burst.

What on earth was going on and did they give no thought to the misery which will ensue?  We’re back to hubris and greed, placing responsibility firmly with the leadership for allowing such a culture to take hold.

The word “hubris” is taken from the Greek for insolence.  It is a defined as a tragic flaw; fatal arrogance towards the Gods; overreaching; over-confidence.  And it is inevitably punished.

So what is the answer?  It’s time to emphasise the importance of leadership and culture.

By leadership I am not just referring to the CEO, I mean the whole leadership infrastructure – that includes the Directors and Non-Execs who have onerous responsibilities in the area of corporate governance, senior managers and other influential individuals who may not be called leaders but are looked up to as such.

So far as culture is concerned, I am referring to the behaviours and values of the organisation.  A powerful way in which culture can be reinforced is through the reward system.  So if bonuses are based around short-term goals such as pumping up the credit bubble, then it’s inevitable that increasingly risky products will be sold and the bubble will ultimately burst.

It’s time for a more responsible leadership which is prepared to build for the future and values longer-term goals - a leadership which has a clear sense of direction and encourages an adaptive culture which balances the needs of employees, customers and shareholders.

Achieving these changes is expensive and the industry’s current addiction to short-termism needs to be overcome before there is a willingness to make this important investment.

Mike West

www.novaconnection.com

Perhaps a better title for this blog would be making the case for change management in uncertain times.  I cannot recall such uncertain times during the last 35 years.  Sure, we’ve had market crashes, major conflicts and tragedies such as 911.  But we’ve never experienced them on a daily basis before.  Yesterday we saw the biggest ever numeric drop of the DOW, the sub-prime rescue package voted out and three major banks being rescued – a contagion affecting the US, UK and mainland Europe.

It’s unsettling to say the least and it has an impact on most businesses and most individuals.  By this I mean that credit has all but dried up in the financial sector, mortgages are both hard to get and expensive while pension funds have fallen by about 30%.

We’re in uncharted territory and nobody is quite sure how to make a map.  So what do you do?  Well the natural reaction is to do nothing, find a cosy foxhole and pull over lots of cover.

Returning to the markets, that’s just what some people are doing but it was interesting that Warren Buffett is taking a contrarian view.  In the middle of this chaos and uncertainty he has written a cheque for $5 billion – buying into financial services (Goldman Sachs) of all areas.  Few would argue with his judgement given his spectacular track record over the last fifty years.

Uncertain times present opportunities.  But identifying and taking advantage of those opportunities requires a culture which is adaptive to change.  Having a smart CEO is not enough in this age of complexity; gone are the days when the boss made all of the decisions and everyone else implemented them.

Creating a culture which anticipates and embraces change is the real prize, but sometimes it can be hard to work out where to start.  Well, you could try examining the behaviours in your organisation to find out if they are really helping or hindering.  Our Introduction to Culture is a low-cost fast-track way of doing this.

Mike West

www.novaconnection.com

I remember the last recession in the early nineties; it kicked in shortly after I started Nova Connection.  Just like this one, it followed a period of excess.  It was not a pleasant time and the instinct was to batten down the hatches to weather it out.

Inevitably, cost cutting was rife and the usual targets went under the knife, with marketing and training almost invariably on the list.  But the difficulty with this type of surgery is differentiating fat from muscle.

Here are some reasons why customer surveys are muscle and not fat.  They enable you to:

• find out if your customers are likely to defect
• discover what you need to do to retain existing customers – after all it’s 4-6 times more expensive to win new customers than retain existing ones
• learn more about your competitors’ offerings and what they are up to
• uncover opportunities for winning a greater share of business from existing customers
• identify requirements for new products or services

It’s not an exhaustive list of reasons for doing a customer survey, but it doesn’t contain much fat.

Perhaps it’s time for some fresh thinking on marketing expenditure.  As Albert Einstein said, you cannot solve a problem using the same thinking that created it. 

Mike West

www.novaconnection.com

Rummaging through my in tray, I came across some interesting research by the Hay Group.  It claimed that poor working climates are costing the UK financial services industry a staggering £8.5bn every year in lost profits.

It went on to say that as much as a third of an organisation’s business performance is dependent on a positive working climate and concluded that only 20% of finance executives create a high performance climate, according to their employees.  Apparently, a lowly 17% manage to generate an energising environment.  It gets worse, 46% actually create a demotivating environment for staff.

If ever there was a sector under the cosh, it has to be financial services; one would have thought that there was some low hanging fruit for them to pick here.

The crazy thing is that it’s not that expensive, in the grand scheme of things, to address some of these issues.  Development programmes for leaders can make them more effective communicators, show them the impact they are having on culture and contrast this with the impact they would like to have.  A coaching programme can then be put in place to bridge the gaps.

What I find really interesting is that both effective and ineffective leaders tend to want a similarly constructive impact on those around them.  It’s an issue of leadership style and behaviours which, fortunately, can be learned.  And the outcomes are energising for all.

Now I am not claiming that leadership development will rebuild the balance sheets of financial services organisations, but the resulting performance gains will certainly improve effectiveness, efficiency and morale.

Mike West

www.novaconnection.com