India is in the midst of a slowdown that shows no signs of improving anytime soon. Management theory indicates that organisations tend to operate out of fear rather than enthusiasm during a slowdown. This lowers morale and creates an atmosphere of uncertainty, insecurity or even inactivity in companies. The result? Haphazard cost-cutting exercises, recruitment freeze, pay-cuts, lay-offs, a pause on expansion plans -in general, a sit-tight-till-the-storm-passes approach.
Is this the only way of dealing with slowdown? Is there a better way? To quote Tina Seelig, faculty, Hasso Plattner School of Design at Stanford, from her article in Rotman Management, "Companies need to continually re-frame their businesses in order to survive as markets and technology change." Her words were never truer. Through this article, we offer a three-pronged strategy to ride the slowdown wave, instead of fighting it.
A time to gather speed
In his book The Speed of Trust, author Stephen Covey says, "In a global economy, 'speed to market' is the ultimate competitive weapon." He further establishes how low trust causes friction, whether it is caused by unethical behaviour or by ethical yet incompetent behaviour. What he says is in fact, more relevant now than ever. During uncertain times, it is important for an organisation to understand how faster strategic thinking and slow operations will ensure survival. Allow us to explain.
Here's what happened with Ford in India soon after the launch of its SUV EcoSport recently. The Indian auto industry closed last fiscal with a sales dip of 6.7 per cent. Despite the ongoing slump, utility vehicles grew marginally by 4.08 per cent during April-May 2013 compared to the same period last year. The success of Mahindra & Mahindra's XUV500, Renault's Duster and Maruti Suzuki's MPV Ertiga proved that utility vehicles are here to stay. Auto experts were touting Ford's EcoSport as the launch that was going to shift the market paradigm. Unfortunately, within a few days after the vehicle's launch, around June-end, 972 units of the diesel version were recalled due to a problem in vehicle's glow plug module.
Even when the company claims to have wrapped up its product recall programme, its brand value has been eroded say experts. Unlike mature automobile markets like the US where car manufacturers and consumers take product recalls in their stride, in India this concept evokes fear and distrust. "If Ford had spent a little more time on vehicle testing, this incident could have been averted," says an auto analyst. A justification could be the pressure faced by the company to have enough units ready to meet booking numbers during the launch phase. Actually, this was the right time to stop and think how EcoSport could be a star product by fine-tuning its strategy further. "The aggressive pricing goal of EcoSport may have made engineers overlook some critical issues," says Keyoor Purani, associate professor, marketing, IIM Kozhikode. "In a hurry to grab the opportunity and/or fighting a competitor, the growing product complexity in a category like automobile and aggressive product-development goals may diffuse the commitment to safety."
Some companies have figured how to balance strategic thinking and operational speed. Recently, two integrated communication companies of the Interpublic Group, Lowe Lintas & Partners India and GolinHarris, entered into a 50:50 JV. While both the companies will benefit in terms of new clients, the main objective is to leverage each other's capabilities. Traditionally, advertising agencies are good with research. The PR industry could never get its act together in terms of offering measurability and insights to clients, especially whenever clients tighten their purse strings. The internet and big data has changed that. As clients re-evaluate their budgets, there is a steady shift happening from above-the-line media to digital and PR. And so, measurability has come into play.
"Advertising budgets are under pressure. Clients are looking at options across media and non-media touch points," says CVL Srinivas, CEO, GroupM South Asia.
Simply put, rather than freezing up, a slowdown is the right time to take stock and plan ahead.
A time to beef up
The most obvious thing to do during a slowdown is to cut cost and lay off people. Cost discipline is a good thing. Going on a firing spree is just plain reactive.
The general sentiment is that there may not be much of downsizing this time; if there is something that 2008 taught companies, it was to be conservative even in good times. Despite market fluctuations, firms are likely to retain existing people, keeping a medium and long-term view in mind.
Indeed, the current slowdown can be an excellent time to invest in talent or 'pick up' good people from the market cheap - good people who may have been rendered redundant because of cost-cuts in another firm. An example here will help elucidate the point we are making.
During the economic slowdown of 2001 in the US, Nokia explored a new approach for handling layoffs. Both handset makers and telecom operators like Alcatel, Sony and Motorola were laying off a large part of their existing workforce then to make ends meet. Nokia realised the significance of being ready once the economy bounces back. It decided to retain as many employees as it could through a floating relationship. The company began by letting go of a few employees and then went on to offer every incentive possible to minimise its salary cost. Full-time employees were allowed to take unpaid leave of absence for six to 12 months. This way, employees were encouraged to take sabbaticals to pursue their hobbies. Extended maternity or paternity leaves were approved so the company could pay these employees lesser salaries. Another cost cutting measure was to allow Friday offs.
As the economy recovered two years down the line, Nokia was able to capitalise on a revitalised workforce.
India, from the looks of it, is learning fast. While rationalising expenses, companies like KPMG, EY, Cognizant and TCS haven't slowed down on hiring. TCS is hiring for its IP assets aggressively during this season. Ramco Systems has advertised for around 40 positions that it plans to fill in the next quarter.
About 15-20 per cent of Ramco's revenues come from South Africa, and the company is looking to send homegrown talent there, which is obviously cheaper compared to hiring expats. EY is looking at filling 700-800 positions across levels over the next two financial quarters. Cloud computing company Shephertz.com plans to hire 35 senior executives by the end of 2013. Cognizant too is hiring aggressively: last year, it snapped up talent from Infosys and Wipro at a 30-40 per cent premium. This year, people have moved laterally, at times even at lower pay, say insiders.
Evergreen consumption sectors like fast-moving consumer goods, pharmaceuticals and healthcare or even service sectors including consulting firms will continue to hire as usual, point out experts.
Staying away from fresh recruitments, the slowdown can also be an excellent time for getting the maximum output from one's existing employees. Particularly in industries that are customer-facing, like service industries, job rotation can be a neat way of maximising productivity and saving HR costs. A company can experiment with its current employees by rotating them into positions that can help them identify, utilise and enhance skills they would not have otherwise bothered about. This can keep them motivated till the company is ready to offer financial benefits once again.
During a slowdown, internal communication also becomes a critical area. Firstly, to battle low morale and insecurity, internal huddling needs to take place. This may be a good time to get introvert employees to contribute ideas, for instance. According to John Trougakos, assistant professor of organisational behaviour at Rotman School of Management, there are extroverts (outgoing people) and there are neurotics (stressed, introvert employees) in every company, and productivity can be greatly increased if their traits are understood and honed. This may be even truer during a slowdown as employees are watching how a company treats them, very closely.
Second, instead of pay-cuts, part-time arrangements could be worked out where an employee works three to four days in the week and get remuneration for those days, like Nokia did in the US.
That a slowdown involves being future-ready is a given. How does a company actually achieve it? This needs to be done by creating new capabilities: a company will need to try doing projects it hasn't ventured in before. The slowdown, therefore, can be an propitious time to take stock of one's product portfolio, create new products, venture into new categories and markets, thus creating new avenues to engage the workforce. More on this in the next point.
A time to look outward
Keeping your company ready and prepped for the day when the economic cycle turns for the better involves a game plan. It really boils down to a choice between going offensive or defensive.
Should you use the slowdown to ramp up your activity and push boundaries or defend your turf and hold on to your current position?
The choice depends on a lot of factors. As per an Ivey Business Journal article on the subject, 'the decision is determined by a firm's competitive position and ability to counteract income-statement and balance-sheet stresses caused by the downturn'. Simply put, if a firm has the capital, it can go ahead with expansion plans.
Sample this: quick service restaurant (QSR) chain Subway added close to 6,000 restaurants from 2008-10 globally. As per franchising industry research data firm FranData, this recession-era expansion by Subway was the largest of any chain by a long shot. The company attributes this to cheaper real estate, more available prime locations and more agreeable landlords. In fact, it even used this as an opportunity to mark its presence in comparatively unconventional locations like inside a church or at car dealerships.
The fact that Subway offers eating options at an agreeable price would work for slowdown-hit consumers too and the expansion augured well under such circumstances. This logic should ideally then apply to other QSR chains as well that are offering 'family meals at pocket-friendly prices'. In fact, Costa Coffee took a similar approach when it opened 32 outlets in India in 2010 around the last slowdown, the largest expansion drive ever. It will be taking a similar approach this year as well. "Slowdown has taught us to be consistent in decision-making and continue our expansion drive," says Santhosh Unni, CEO, Costa Coffee.
While retail and QSR chains can use a slowdown for expansion in terms of stores and outlets, FMCG companies can look at bringing unexplored markets under their ambit. That's Dabur India's plan. The company has even made inroads into villages with a population of just 3,000. Without a formal retail chain, the company is trying non-traditional methods like setting up shop at the weekly haats (bazaars) and reaching out to consumers.
While Dabur looks at untapped markets in India, some companies like Godrej Consumer Products Limited are looking outwards. The company launched home insecticides under the GoodKnight brand in Nigeria earlier this year and its Renew occasion hair colour brand in South Africa. Opening up new frontiers, rather than focusing on saturated markets, it reasons, makes sense in slower times to get the requisite burst of growth.
For TÜV SÜD, a global certification, testing, auditing, inspection and training company, slowdown is a time to grow by exploring uncharted territory. During the slowdown of 2009, the company expanded its food services portfolio in India. Business from this category grew by 300 per cent in the next two years.
Now may also be a good time to set some terms for the way business is conducted. A good place to start would be the way a company runs its marketing campaigns. Is your company on a retainer with the agency? Does it make more sense to have a project-based relationship? Are you getting sufficient bang for your buck? Should you take a relook at measuring the effectiveness of your campaigns?
In an interview with UK's Marketing Week, Jerome Lemaire, marketing director (UK) at Reckitt Benckiser spoke about consumers being used to very high level of promotions like buy-one-get-one-free or products at half prices and the need to de-escalate promotions, at least in some categories. The argument may be that higher promotions would be needed to push sales in a slowdown. But remember that weaning the consumer off sales promotions when the markets turn for the better may not be easy.
In the end, should you even lose the hypothetical toss and be forced to play defensive, worry not. There are significant opportunities to improve one's competitive position. While companies that get aggressive can buy out weaker competitors, setting the tone to emerge stronger at the end of the slowdown is no small victory. The important part is to identify the right path and seize the opportunities when they present themselves.
To sum up, a downturn may not always be a bad thing. It can be a great time to prune a company's inefficiencies. But it is important to focus on risk management, look at the long-term goals and resist the temptation to chop off critical investments in a rush to save.
5 take-aways from the slowdown
* Adopt faster strategic thinking to be future ready. But go slow on existing operations
* Hire, don't fire: Pick talent up from the market at a cheaper cost instead of resorting to needless lay-offs
* Motivate existing employees through part-time arrangements, internal communication and job rotation
* Explore uncharted territory: Expand into new markets, use cheap real estate to your advantage to launch new outlets
* Take on projects never done before to create new revenue streams and opportunities for existing employees