At the risk of sounding like Doctor Doom, 2010 is going to be a very tough year, but I do believe that there will be opportunities for resilient organisations (see previous blog on resilience).

UK plc is in much worse economic state than the US and quite a bit worse than most major European nations.  The UK has yet to exit recession, faces rising unemployment and is running a budget deficit of 13.2% of GDP.  VAT takings are down 14.2%; we have spent £190.4 billion on quantitative easing and there are worrying signs that inflation might be starting to rear its head.

Interest rates can only go in one direction – upwards – and inflation could trigger that move sooner rather than later.  Higher interest rates will lead to more house repossessions and business failures which will further reduce tax receipts and increase the burden of benefit payments. 

By contrast unemployment seems to have bottomed out in the US and investment there is projected to increase by 2.1%  while UK investment will be reduced by -5.2% according to the OECD.  Canada will increase their investment by a whopping 4.4%.  So how can that be?  Oh yes, by regulating their banks effectively, they avoided the credit bubble.

On the subject of bubbles, we’ve had the dotcom bubble, the housing bubble and the credit bubble – so what’s next.  I suspect that it will be the sovereign debt bubble.  The PIGS (Portugal, Ireland, Greece, Spain) are weighing on the Euro and a number of other nations including Dubai aren’t in great shape either.

Yet in spite of all of this, life will carry on; some organisations will fail while others will do spectacularly well.  Whether the strategy is survival or growth, resilient organisations seem to do best.  These are some attributes of resilient organisations: 

·         Resilient organisations have resilient leaders  

·         They focus on the longer term; it’s the short term which got us into this mess  

·         Productivity is the key to growth – they don’t simply cut costs 

·         They build organisational capability  

·         Resilient organisations have a clear sense of purpose which is based on customers   

The keys to resilience are leadership and culture.  Winning over hearts and minds is never easy but right now the “touchy-feely” stuff is more important than ever. 

Mike West 

www.novaconnection.com

I have never played Dungeons and Dragons (an on-line fantasy game) but understand that it has a huge following. It’s a role-playing game where each participant is assigned a character which embarks upon imaginary adventures in a fantasy setting.   Together, the characters solve dilemmas, engage in battles and gather treasure and knowledge.

What’s really interesting is that the characters are assigned “alignment”, including lawful good, good, unaligned, evil and chaotic evil.  The purpose of this alignment is to describe and apply the moral and ethical perspectives of the players, societies and monsters in the game.  For game players this additional variable adds complexity, uncertainty and excitement.

As real-world organisations engage in battles to gather treasure and knowledge , they too need to consider the implications of alignment and the impact this has on performance .   After all, organisations are dynamic systems and like other systems they function best when their components are working together smoothly and efficiently.

There is much that organisations can do to improve their alignment and increase performance.  Achieving a constructive culture – one which places equal emphasis on customers, employees and shareholders is one example of alignment.    Leadership Development programmes which encourage constructive behaviours while valuing performance and teamworking are another example.

Achieving better alignment is always a challenge but there really is treasure to be gained from slaying the odd dragon here and there.

www.novaconnection.com

We have supposedly seen some more “green shoots” of recovery over the last few weeks.  It’s true that many companies have exceeded analysts’ expectations but their accounts reveal that, in most cases, this has been achieved by cutting costs rather than growing revenues.  Microsoft, for example, announced its first ever sales drop this week, but in their case cost cuts didn’t make up for revenue reductions.

Personally, I remain bearish on the economy.  Just because GDP numbers are less bad than last time does not mean that they are good, that we are into a new bull market or that the recovery has started.

But recessions do not have to be all doom and gloom.  Interestingly, they have given rise to some enduring brands and innovations - Edision’s incandescent light bulb (1873), Colour TV (1929), Rice Krispies (1931), Diet Coke (1982) and the IPod (2001).  All of these innovations went on to produce substantial revenue streams, jobs and shareholder value.

Here’s the interesting point about this list; at the time when most firms went into lock-down these organisations had the vision to identify opportunities for innovation and growth.  They actually invested in their future rather than simply cutting costs.

Clearly, some cost cutting is inevitable during a recession – even in the best run organisations.  However for the weaker, highly-geared and less resilient organisations times are harsh and Darwinian.

So, what can organisations do to ride out the recession and be stronger for the upturn?

• Develop a clear, well thought out strategy
• Regularly test assumptions made about customers
• Ensure that leaders are visionary
• Build a culture which values innovation and achievement
• Up-skill the workforce – and leaders – particularly - are not exempt from this process

I agree that this list may seem daunting, but as the Roman poet, Virgil, famously said – fortune favours the brave.

Mike West 

www.novaconnection.com

Heard of organisational resilience? No?  Neither had I before attending a conference last week, organised by Human Synergistics.

Gary Hamel first wrote about organisational resilience in 2003 saying: 

You can't predict what the world will look like in 10 years, so you try a variety of things.  Some will work. The crunch comes because in many organisations it's very hard to move resources from old things to new.  All the resources are devoted to perpetuating legacy programs.

He argues that most organisations defend the past rather than build their future.  That’s an interesting idea.  So would “building the future” have prevented the recession?  Unlikely because economies run to cycles of boom and bust.

So what exactly does building for the future imply?  And how do you move resources from old things to new?  The American automotive industry is a good example of defending the past and failing to build for the future.  Europe and Japan, by contrast, recognised the long term imperatives and continue to adapt. 

In the electronics sector, Apple certainly shows how it can be done - announcing their best ever Q2 results last month ($1.05 billion) achieved by selling innovative products at the right price.  Incidentally they are also sitting on a cash pile of $29 billion.  I guess that’s what resilience looks and feels like. 

Achieving organisational resilience can be a huge challenge, but here are some themes from the conference:

·         Resilient organisations need resilient leaders

·         Focus on the longer term; it’s the short term which got us into this mess

·         Don’t simply cut costs, productivity is the key to growth

·         Build organisational capability

·         Make sure that you have a clear sense of purpose which is based on your customers 

All of that sounds logical and sensible but in practice it’s not going to happen without effective leadership at all levels, a supportive culture and a robust strategy.  

Mike West 

www.novaconnection.com

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