21/08/09

Running a successful business in a recession requires an appreciation of two distinct roles, managing the day-to-day operations and building for the future. Everyone needs to know the importance of both ‘hats’ — and when they’re wearing each one.

By Andrew Lester

Some companies do well, both in good times and bad. They not only withstand the onslaught of economic recession, but they emerge stronger and fitter. Unsurprisingly, they also make the right choices when economies are growing.

How do they do it?

Irrespective of the state of the economy, companies which regularly beat the competition have an ingrained ability to do two conflicting things at the same time: they run the day job effectively and efficiently, and they make the right choices on how to grow. These require different, conflicting management styles: relentless detailed operational control, as well as having an eye for the main chance. Being great at both things is essential to long-term managed success.

Without clear growth management, companies often end up doing the urgent, and forgetting the important. This is most true in a recession, when the extra focus on cash drives aggressive cost control and revenue chasing.
But while there is a major focus on running the day job, successful companies
also know how to build for the future. Retaining an eye for the opportunity in the good times is relatively easy. Keeping it when it gets rough is exponentially more difficult.

Successful companies operate, in effect, with two ‘hats’. The ‘bowler hat’ focuses on delivering immediate needs — driving revenues, costs and margins to meet cash and profit targets. The focus is on the known: we know what the market is, what customers want, what competitors offer and our paradigms are largely set. The ‘baseball cap’ focuses on growth, driving long-term sustainable business that predicts and responds to customer trends and opportunities. Here, the management style tends to openness and analysis of
opportunities, where paradigms are flexible and need refining.

Critically, running the day job and delivering sustainable growth requires that these different styles of capability, competence and management co-exist in
the same organisation. More importantly, not only must they co-exist — each one must be understood and mutually respected by everyone.

In essence the organisation must be able to wear two hats comfortably. Who wears which hat, when, in what circumstances and for what specific purposes are the responsibility of the senior management team. Some employees will need to focus over 90% of their time and thought on the day job, others the reverse. But every team player needs to understand their roles in delivering both the essentials and, separately, sustainable growth.

Drivers of change

There is a combination of factors driving a need for this kind of approach. These factors include the relative shift in power between the age groups as generation-X moves into the boardroom, the need for organisations to be more fluid, and the implications that has for Baby Boomers used to hierarchical structures, and changing attitudes to work—life balance.

These issues have to be managed proactively; companies must use the similarities and differences between the age groups in their organisations to deliver on both the urgent and the important. In addition, the speed of change is increasing in all walks of life. We expect more, faster, cheaper and with better service all the time, both in what we buy and in how we work. But while the speed of change is increasing and changing our expectations, it is not consistent or uniform in its impact on different types of people. This creates opportunities for differentiated offerings and requires a more fluid approach to organisations.

Many markets have seen choice overload for customers, as companies have pushed for increases in market share and volume. Minor changes made by companies to their products or services often don’t provide the added value customers are seeking. Rather than increasing brand loyalty and driving sustainable growth, a lot of business activity has actually made companies and their products more alike. As a result, customers become less brand-loyal as they want to have the latest thing — defeating the object of the exercise in the first place.

Additionally, in shifting between good times and economic recessions, customers quickly re-evaluate their expectation of value. As a recession approaches, value shifts to ‘no frills’, more basic propositions, as a focus on cost cutting to balance the books takes hold. By contrast, moving from tough times to economic growth generates increased focus on a broader range of differentiated benefits. Organisations that use a two hats approach are more likely to be able to predict and respond quickly to such changes in customer expectation. They are also more likely to be able to differentiate themselves from the competition.

Interpreting trends

Successful businesses rely on knowing more about the market and the industry than their competitors. This knowledge needs to be fresh and relevant. It also needs to be available when and where decisions are taken. Technology has massively increased the amount of data and information available to everyone: the company, its competitors, its suppliers and especially its customers. Managing this data into information and insight that sets your company apart, has become a critical success factor. But access to the same data, information and knowledge can still produce very different results for a company, depending on how it is interpreted.

Successful companies with one eye on the day-to-day and the other on growth, retain an open mind on how to interpret and apply knowledge, and can produce major growth in the face of stiff competition. Re-organisations often use downsizing to speed up decision taking and lower breakeven points. Downsizing works effectively when the new, leaner organisation knows what is important and develops new streamlined processes to make sure those who are left don’t carry on doing what the larger team did before. Downsizing often means that the older, experienced employees leave or retire.

Those that are left often try to retain the old methods, using informal processes to cover the gaps. This can work for a while — until the next downsizing, when the informal processes start to creak and fail. In such cases, subtle and critical links in thinking and communication can be lost, seriously damaging shareholder value.

Stripping out layers of management should make it easier to communicate. But if those people who are left just work harder rather than smarter, no amount of streamlined processes will stop communication breaking down. Reorganisations that simplistically lower the break-even point are doomed to failure. They must reflect how the business needs to operate on both the day job and delivering growth: in good economic times and bad.

Knowing what, when and how to reorganise flows on directly from this kind of thinking. It identifies what’s urgent and what’s important. It reveals what the organisation needs to do to support the differing styles of management required to run the business and separately grow the company. Business comes down to making better decisions faster than the competition, regularly over time. Winning organisations do it in good and bad economic times. They are more objective and well informed. They value data, translate it into information, analyse it and use it to good effect. But it is not as simple as that.

Winning organisations also know how to make decisions. They are clear about who is responsible for which decisions and the accountability that goes with it. They know how individual decisions impact on other areas of the business and their customers and suppliers. They make decisions at the right level in the organisation for the issue at hand. To do this they ensure that those making decisions are fully equipped to do so. They balance decision-taking responsibility with capability, information and timeliness. These reduce the chances of bad or slow decisions and make it easier for individuals to accept the accountability of their decisions.

Making better decisions

The crucible of company effectiveness and efficiency is the quality and speed of its decision taking. Showing an organisation how to make better decisions is not difficult. The hard part is in sustaining the discipline and focus, and adjusting the process to market needs over time.

A two hats approach helps companies understand who should make decisions and how they should be taken. It provides a clear understanding of the context in which decisions should be made and ensures that the best possible data and information are used, along with subjective experience. It also helps make clear who is responsible and accountable for what. We are all familiar with the concept of over-trading: growing so fast that cash is taken out far faster than it is put back in. But there is a subtler death from success that progressively makes companies blind and deaf until it’s too late.

Too many businesses rely too heavily on tried and tested methods, structures and marketing programmes. They stick with these historical successes, even though they are getting progressively less effective over time, because they don’t want to risk a new idea that might fail, they can’t think of a better idea, and the boss invented the original success and politics are stopping them from doing something new.

Old successes and old ways of thinking have a place, but they must be applied with knowledge of the current and future market. Having a long-term view engrained in the company avoids repeating old successes to the point of failure and keeps the company relevant to its market. Successes are becoming old faster than ever before. Market needs are changing faster than ever. The critical issue is how to adapt and redefine an old success to make it
a new success by continuously recognising the changed environment and context.

In good times and bad, companies that win manage the day job and growth side by side. They understand the need to manage each separately and have a culture that supports and develops ideas on improving today’s business as well as responding to new trends and opportunities. They get results by ensuring that the whole organisation respects both types of work. They use a planned and consistent approach that they manage throughout the economic cycle.

Companies that lose out often do not manage growth and the day job together. Growth is thought about in fits and starts or it comes down to serendipity and luck — neither of which are effective long term. Managing the two together encourages an organisation to work and think differently on the day job, compared to growth, at one and the same time. It is the recognition that running the day job requires a different management and operating style to that needed for delivering new growth. Specifically it recognises that individual people who deliver the day job should also be involved in developing growth and that to encourage them they need the flexibility to work in different ways on each as they move from one meeting or discussion to another during the working day. Without growth management processes, tools and techniques, there can be no two hats approach; and vice versa.

Andrew Lester is Managing Partner of Carr-Michael Consulting Ltd and author of the acclaimed book published by Macmillan “Growth Management Two Hats Are Better Than One”. Contact Andrew on andrewlester@carr-michael.com

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