Surviving the Recession

As the US Recession Looms..

Like a dark cloud over our business plans…. it would be well to pause and consider how to make it go away. Wherever I talk to Indian CEOs, I get the impression they are just crossing their fingers and hoping it goes away by itself. Which it won’t. Even if does this time, it will come and hover over us again, sooner or later..Of course, there is a silver lining even in this cloud - the recession will most likely reduce US consumption, close the current account deficit, and stabilize the dollar.. at a cost.

Will the $700 Billion bailout do the trick? Very unlikely..banks are using the money to make acquisitions, pay bonuses, not make loans. Which was completely predictable.

Cutting interest rates isn’t going to help, either. When financial institutions are afraid to lend and people are afraid to borrow, in what Paul Krugman calls a ‘Crisis of Faith’, fiddling with the Federal Funds rate will be about as effective as Nero’s fiddling was. The engine oil has gotten contaminated this time (for that is what the financial markets really are), and only a complete cleaning out of the engine will help. Which will take time.

Europe is not the answer

One common ploy, not even easy to adopt, really, is to shift focus to European markets rather than the US. Which provides zero diversification, since the European economy runs on pretty much the same engine as the US.

So let us dismiss these easy answers and bend our minds to what an Indian company, acting on its own, can do.

Tighten the Belt?

Always a good thing to do, any company can shed 10% of its cost without any real pain, anyway. This is as good an opportunity as any to remind IT’s so-called ‘knowledge workers’ that 20% raises year after year, for doing the exact same work they did last year, is not the natural order of things. But not everyone has been so lucky, especially in the manufacturing and agricultural sectors, so belt tightening can only go so far.

Risk-Sharing

When our US client is nervous and unwilling to invest, and so puts his own expansion plans on hold, the one thing we can do is propose something different than the tried and tested ‘time and materials’ or even ‘price for guaranteed volumes’ proposition. It may not be enough to point out that outsourcing will save him money – when he is contemplating 100% saving by not launching that expansion or change initiative at all!
We must realize that the client is really not sure, either, whether the recession is for real, and, even if it is, whether it will affect his business, or not. Hedging his bets is what he is contemplating. How can we help him move forward?

Can we offer him a business proposition where we share risk - share in the upside (and downside) rather than simply get a fixed revenue and manage costs (which is all most Indian companies do, even the best of them)?. For instance, IT services company need to start offering customers a fee per user (customer’s customer) or royalty models rather than ’60 man-months to build this system’. If the client does well, we do well. Needless to say, it also means we have to
- learn how to assess the client’s prospects in his market
- learn how to actually help him sell better in his markets
Which means we will have to think like venture capitalists and investors rather than suppliers! Quite a change, but well within our capabilities. We just need to use them.

Build Brands

One great business value of brands is that they are relatively immune to economy-wide downturns. The emotional hold they have on customers is such that they can make the customer forget their hard times when they buy them.

Indian companies have stayed away from building brands abroad because it is enormously expensive to do so. But increasingly, it is within the reach of Indian companies today. If Tata can buy Corus for several billion dollars, surely we can invest in some brand building too. Spending a couple of million dollars on a brand building effort was unthinkable ten years ago, today it is not. It does not take months of negotiation with the RBI to get the funds for such an effort, and access to advertising and marketing companies abroad is not even difficult any more. .So what excuse do we have now? Indeed, companies like Suzlon, Infosys and TVS already have good brands in their markets, without really investing millions in marketing efforts.

In a a way, both solutions really rest on the same principle – partners do better in a downturn than mere suppliers do. It is time to pay more than lip-service to the notion of being ‘preferred partner’.. move it from the corporate ppt to reality!

Developing Arjunas

When a largish IT company in Pune, India, asked me to put together a development program to create the next generation of leaders who would take the company into the next orbit of growth, we made a conscious decision NOT to call it a 'Management Program', for it is doubtful if conventional 'managers' are needed in today's time and age.. neither did we want to call it a 'leadership' program, for that is another over-used term - what use are leaders without followers? And is it not leaders who have brought the world to its current sorry state?

In the Mahabharata, the central figure of Arjuna inspired us. In this epic, Arjuna is portrayed as the confluence of three streams - Karmayoga (the yoga of action), Gnananyoga (the yoga of knowledge/understanding) and Bhaktiyoga (the yoga of devotion).. loosely translated, we thought Arjuna presented the epitome of what an organization needs today: someone who acts, with understanding, and yet knows why he is acting - that is, infused with the right values.

The single biggest problem with management education today (I speak from the experience of having taught for 10 years at IIM Ahmedabad, India's premier management school and in countless executive development programs across the world) is the inability of management education to instill a sense of purpose, ethics and purposeful vision in students.

We followed the following Guiding Principles:
1. select students who have already shown they are capable, in their current jobs
2. drip irrigation is the best irrigation
3. every student learns differently - the program is about helping them learn, not about us teaching
4. we learn best at the periphery of our current experience
5. concepts need to be provided when the student really needs them, not when it suits some logical structure the instructor has dreamed up
6. in every thing the student does, he/she needs to consider the value system he is explicitly or implicitly espousing.

The program ran over a year. Broadly, there were three modules:

1. Building Perspective: understanding self, and understanding the world. Participants read novels, watched movies, visited other organizations, and kept a daily diary. They went through a theatre workshop to learn how to create context and how to communicate in many dimensions, and also to feel comfortable with themselves.

2. Tools for Analysis and Synthesis - we bagan with the big picture and then drilled down - strategy, building business plans, first, then business processes, organization design, marketing, and so on - rather than the other way around.

3. Action projects - participants had to undertake a change project in the company. Inputs on dialogue, negotiation, selling skills, how to run meetings - were provided when the project's success demanded it, rather than in some logical order. Every participant also had to write a story, from his or her experience in the organization, that illustrated the organization's core value system. We believe culture is best built with stories, not a list of corporate values.

We will finally evaluate the program one year later - on a series of measures that test whether participants have really grown into the next big role, faster than they would otherwise have. The usual 'feedback' taken after the program is of no value, we felt, since this is not an entertainment program!

Patterns of growth: Learning from Nature

Patterns of Growth

We all want to grow, grow, grow. But is there only one way to grow? How does an oak tree grow? A honeycomb? Are they all the same? Clearly, Nature has found many different ways, different patterns, of growth.. But we think companies can grow only one way.

Let us look at some (for it is impossible to exhaust them all!) in turn.

The Oak Tree

The oak tree grows by accretion – every year, it adds a ring to its trunk and becomes thicker and thicker, until it becomes a giant.

This is actually the most common way a company grows.. become bigger but essentially along the same lines, always. We add markets, add products, the way an oak tree adds rings, over time, without changing anything in the basic architecture of the organism.

What are the special issues of managing such a growth pattern? What makes an oak tree strong?

• A strong trunk: i.e., a strong sense of ‘core’, great clarity on what is our business and what isn’t
• An equally strong sense of values
• And operating processes

As more and more businesses are added, the older businesses should not require attention.. their environment should be stable and unshakeable.

The Banyan Tree

The Banyan’s pattern of growth is totally different from that of the mighty oak. It creates replicas of itself, increasing its span, until, in the end, you cannot even tell the daughter from the mother tree. Each tree is self-sustaining, yet bound to its mother and its siblings, and ever ready to spread out again.

To follow this model, a company would keep creating self-sustaining businesses over time, and yet retain a strong sense of connectedness. Perhaps a company like Matsushita would answer to this description, with its penchant for spinning off new divisions, each held together only by finance, and a shared value system.

How does one manage such a growth?

• Creation of an infinite pool of entrepreneurs, each of whom can run a business independently
• Who are yet held together by shared values
• A commitment to support each spin-off with nourishment from the center until it stabilizes

When would such a model make sense? Clearly, where the environment creates new opportunities, each of whom are unrelated to each other, yet need to be part of a common ‘umbrella’ brand. Perhaps GE is another example of such a model.

The Beehive

More accurately, the Swarm of Bees. The beehive is created by hundreds of independent workers – no one of them has the knowledge and capability or even intelligence to build a hive, yet, together, they do it effortlessly. Where, in business, do we see this model in action? Perhaps the now-famous dabba wallas of Mumbai. Some religious organizations have this capability, perhaps Al Qaeda does, for all I know!

In a company, the closest I have seen to this model, is Polaris Software’s Lakshya process – a visioning exercise involving every last employee in the firm (all several thousand of them!), which tries to tap the collective consciousness of all of them. The result is not a business plan or even a written document, it is simply a collective consciousness.

Consulting companies like McKinsey may be another example – the collective knowledge and capability of ‘the firm’ is several orders of magnitude greater than that of any one set of consultant.

A ‘knowledge economy’ enterprise should probably look like this. Knowledge management is a very key management process in such companies. Like the Queen Bee of the beehive, whose role is really largely symbolic, the CEO or head of such a company should learn to be a good figurehead, symbol and role model, rather than attempt to direct and govern.

The Tornado (or Cyclone)

A tornado grows by gathering everything in its path, and somehow generating more and more energy as it roars along. A company that grows by furious acquisitions may be patterning itself after a tornado. It must be very uncomfortable to be swept up in a tornado, but it did transport Dorothy to the Land of Oz, remember! A tornado succeeds by its very fury, if it stops, it is lost. A company that grows like this cannot afford to pause and consolidate, it needs to keep moving, and roaring along.

A Virus

Perhaps the most successful creatures on earth are viruses. They grow by multiplying at a dizzying speed – once a single virus gets a host to grow in, it soon takes over the entire organism by producing millions of copies of itself – an illustration of the power of compounding if ever there was one.

What are the secrets to its success? Simplicity of structure is surely one – the simpler the structure, the easier it is to produce a full-blown copy, and faster. Can a business organization ever be simple enough to replicate like this? Perhaps communities of Indians who have settled down in far off shores like Kenya or Latin America have shown the ability to grow like this.