Short Term Actions,Long Term Results

In Rough Economic Times

2001 Unicon Fall ConferenceDecember 6-8, 2001

Ron Bendersky

Universityof MichiganBusinessSchool

Introduction

Rough economic times• Goal

▪ Short term survival▪ Long term strength

• General Case▪ How to transform problem/crisis into opportunity▪ Given unwelcome circumstances how to maximize

gains/minimize damage

Introduction (continued)• Qualifications

▪ No easy answers▪ Tough as it gets▪ The “people-business performance paradox”--people as

an asset or a cost?▪ Observations and combination of personal experience

and research findings

Session Agenda• Orientation

▪ What are the cultural attitudes required in a downturn?• Framework

▪ What is a way to think about competing in downturn?• Actions

▪ What actions can/should be taken in downturn?

The Problems (A Sample)• Economic downturn and aftermath of 9/11• Travel restrictions• Corporate downsizing• Training budget cuts• Loss of perspective, rise of emotions• Difficult faculty and staff colleagues• Short term actions may cause long term damage• Unintended consequences

Vicious Cycle

Low Enrollmentsand Margins

• Less resources devotedto innovations inprograms and business processes

• Focus on cutting costs i.e., marketing and head count

Ineffective strategy

• Talented people leave

• Program development and innovation slow down

The Opportunities (A Sample)• To slim and streamline• To strengthen people portfolio• To strengthen and balance the program portfolio

▪ Feed the strong▪ Focus the weak▪ Build the new

• Form alliances with other schools and executive education providers

• To gain customer share• To change culture

Vision• Do you have a business-centered vision of your

post-recession organization?• As you take short-term actions to cope with the

current business situation, what do you hope to achieve in the way of long term results?

Strategy• What is your strategy to emerge from rough

times?▪ Strengthen organizational capabilities▪ Increase morale and self-confidence▪ Retain best people▪ Increase trust/minimize loss of trust▪ Transform culture to support revenue growth while

simultaneously controlling costs

Tactics• What is your operational plan to manage people,

processes and financial resources during the downturn?

Orientation• Required cultural norms• Bold

▪ Response times shorten▪ Must act more quickly▪ Time for creativity▪ Use downturn to “clean up” what needs to be done

• Focus▪ Not all things worth doing are worth doing well

• Customer▪ Keep focused on “outside/in”…not a time to look inside

Phases of Downturn Management• Phase I: Within the Business

▪ Focus on being more disciplined and rigorous within the existing business structure of the organization to both cut costs and grow the business

• Phase II: Within the Organization▪ Focus on finding ways to leverage across the organization by cutting

costs (shared services, technology investments, consolidation) and growing the business (leveraging ideas and programs)

• Phase III: Within the Industry▪ Focus on finding ways to consolidate and build alliances within the

industry

Productivity (raise output

per unit of input)

Manage Costs

Projects (focus capital investments)

Processes (reengineer work

processes)

GrowthInnovation

(new programs, services, markets)

Increase Revenue/Growth

Geography (revenue per

country)

Customer (more customer

share)

Costs

Balancing Costs and Growth

Framework for Balancing Cost/Growth

Cost (reduce operating costs/

bottom line)

Growth(increase revenue/

top line)

Phase I:Within The Existing Business

• Do a workout to ask employees how to cut costs

• Set cost cutting goals• Have each function develop cost-

cutting scenarios

• Set Aggressive growth goals• Promote innovation• Focus on targeted customers and

programs that have most potential for growth

Phase II:Within Your Organization

• Create service center for staff operations (finance, HR, IT)

• Set standards for managing processes• Automate• Consolidate to reduce redundancy• Reduce duplication• Reduce layers

• Leverage ideas and programs from customers

• Create customer share goals for the organization

• Build an enterprise wide brand that increases value

Phase III:Within the Industry

• Form alliance to reduce capacity and costs• Create new industry standards to reduce

flexibility

• Find innovative individuals from within the industry and bring them into your organization

• Form alliances to grow new programs and ideas

• Build concentrated relationships with lighthouse customers

Framework for Balancing Cost/Growth

Cost (reducing operating costs/bottom line)

Growth (increase revenue/

top line)

Phase I:Change Within the Business

Phase II:Change Within your Organization

Phase III:Change Within the Industry

CostsProductivity

(raise output per unit of input)

Manage Costs

Projects (focus capital investments)

Processes (reengineer work

processes)

Actions to Reduce Costs - Productivity

• Analyze how to do more with less ▪ Engage employees in ways to improve work and reduce

costs everywhere▪ Use workout type exercise to analyze work: eliminate,

do less, do less frequently, do through technology, etc.▪ Build shared service organization…

▫ Service center: use technology to centralize and standardize administrative work

▫ Outsource: build alliances to manage costs on transaction work

Actions to Reduce Costs - Process

• Analyze and reengineer work processes (process mapping, removing time)▪ PURCHASING: Consolidate suppliers, share costs, improve

processes▪ TECHNOLOGY: Use technology to standardize and gain

efficiency, but make sure that technology investments have pay-back

▪ REPORTING STRUCTURE: Consolidate units and how work is organized (remove redundancies)

▪ FACILITIES: Reduce burden by consolidating▪ WORK REDESIGN: Change how work is done (e.g., teams, layers)

Process (continued)▪ POLICIES: Modify approvals and policies to control costs

(e.g., travel, meetings)▪ CUSTOMER INTERFACE: Focus on key customers and

maintain contact with them▪ QUALITY: Bring discipline to all work processes—reduce

variance, eliminate waste (lean), and do more efficiently▪ CHANNELS: Prioritize channels for contact with customers

and delivery of programs and services▪ LEADERSHIP FOCUS: Communication and clear standards▪ MERGERS/ALLIANCES: Share services across

organizational boundaries

Actions to Reduce Costs – Projects

• Analyze and prioritize projects or investments▪ Delay some projects▪ Postpone▪ Cancel

GrowthInnovation (new programs,

services, markets)

Increase Revenue/Growth

Geography (revenue per

country)

Customer (more customer

share)

Actions for Growth (Increase Revenue) - Innovation

• Explore ways to innovate products, services, work processes

▪ Idea generation: seek and access ideas from competitors, thought leaders, seminars, customers, creative employees, etc.

▪ Incubation: Sift ideas into pilots by running pilots, doing experiments▪ Investment: assess market potential to prioritize projects,

select key programs and services to invest in▪ Implementation: Connecting with customers, build market launch strategy

(communication, early adopters); find pockets of early success

▪ Integration: connect old to new products, move customers from old to new program or service

▪ Improvement: Continually improve programs and services

Innovation (continued)• Innovate in many areas

▪ Distribution or channels (e.g., web-based)▪ Customer experience or relationships▪ Product: core offering▪ Service: follow-up▪ Business model: how paid

• Fold in customer requirements▪ Find lighthouse customers▪ Anticipate customer needs▪ See world through customer eyes

Innovation (continued)• Prioritize key innovations • Build innovation culture

▪ Think big, act small, fail fast, learn rapidly

Actions for Growth – Customer• Focus outside/in

▪ Think of customers as “unit of value” and define a value proposition for the targeted customers. See their needs, opportunities, and desires. The innovation partner is the customer.

• Create customer share▪ Target key customers for present and future▪ Forge strong relationships with key customers▪ Define right channel for serving customers

Customer (continued)• Leverage within the organization

▪ Establish customers * program grid▫ Move program to new customers▫ Involve customers with new programs

• Build and leverage brand identity in the minds of critical customers

Actions for Growth – Geography

• Create geography share▪ Target key markets for present and future▪ Build strong visibility and relationships within those

markets▪ Form alliances to move into those markets

Actions• Find balance of cost/growth

▪ Divide 100 points for strategic intent across “cost and growth.” 100 points on cost is easy but dangerous trap

• Work through all three phases• Approach people as assets [invest in their development] as well as

costs…because they are both• Move quickly ahead of competitors… it is still a competitive game

and it is better to lead than respond• Maintain attention on customers… don’t hurt customers by cutting

activities or you risk long term erosion of confidence• Exhibit leadership resolve: bold, focused decisions