Corporate India learned tough lessons as the global financial markets melted down in 2008. With economic data in the country suggesting the recent recovery may be affected by headwinds from the global slowdown, now is a good time to remember the lessons from 2008
“Get ready for the sun”
M G Parameswaran
After almost a decade of double digit growth the Indian advertising market took a big hit in 2008-09. Reports indicate that total ad spends actually shrunk by as much as 5 per cent during that year. This is an interesting phenomenon, especially when you juxtapose this with the overall GDP growth of India, which was at about 6 per cent during that year. Many theories abound. Some of them say that the Indian ad market grows only when GDP growth hits a 7-plus number; other theories say that ad spends got cut because corporate India ‘over-corrected’, only to remedy the situation a year later. But one myth was broken: Indian trends are not divorced from what happens in the rest of the world. So a butterfly flapping its wings in Brazil can cause a thunderstorm on Dalal Street. Well, maybe not a thunderstorm, but definitely a strong gust of wind.
So as the world gets ready to face yet another challenging year or two, what should Indian advertising industry be doing? What did we learn in 2008-09? What can we implement now? Here are my top five thoughts, as the storm clouds approach:
- The biggest cost in advertising agency business is the people cost. So the solution to an oncoming slowdown is not slashing manpower and manpower costs, but to look at them a little more judiciously. For example, limiting expensive recruitments is a starting point. Do we really need that expensive creative director? Or can a younger insider be given that responsibility? Increments may be unavoidable in a year of 10 per cent inflation, but can we do them more judiciously? Can teams be redeployed to ensure better utilisation of talent? Can a better analysis of time sheets provide some solutions?
- The second biggest cost in the advertising agency business is the real estate cost. The last two years have once again seen rentals moving north. A slowdown is a great time to relook at rental costs. Are there opportunities to combine spaces? Isn’t this the right time to renegotiate rental costs?
- Do not fall victim to the ‘cut cost at all cost’ syndrome. This may be the best time to use talent to train other younger talent. So instead of cutting training costs ruthlessly, one should consider judicious training and HR moves. The storm clouds will pass away, and when the sun starts shining do you have a team that is all kitted out to take on the field?
- Every medium and large-sized agency has a portfolio of clients. During a downturn it may be a hidden gem that will out spend the regular big hitters. So a judicious analysis of portfolio is called for. Are there some clients who can actually benefit from the downturn?
- Finally, we need to remember that the agency’s success depends on its client’s success. As we say in Draftfcb Ulka, we are in the business of creating ‘BrandWealth’ for our clients. During a slowdown clients need special care. What can the agency do to become more involved, to become more sensitive, to become more responsive. Should the agency focus on short term results? Should the agency look at other tactical moves that do not damage brand equity?
The above five mantras are by no means magic remedies for a slowdown. Obviously these can only work if the agency to start with has a stable structure, a strong team and a steady set of clients. The obvious first things such as improving cash management /collection systems, avoiding expensive acquisitions, indiscriminate diversifications, improving internal efficiencies and becoming more focussed on primary task will take precedence over the five points above.
That said, we should not forget that India’s growth story is not going to come to a halt. We may see some hiccups, but the economy will start roaring back. And to help speed up economic growth, brands will need the vital input of advertising. For instance, the mobile growth miracle would not have happened without the outstanding advertising that has been happening in that sector. Ditto for automobiles.
So storm clouds will pass. The sun will shine soon. In the efforts to bunker down, do not throw away those running shoes.
The author is ED & CEO, DraftFCB Ulka Advertising, Mumbai
“Go lean, lean, lean”
The slowdown of 2008 and what we are witnessing today have two very different reasons. In fact, the current crisis could be deeper than the one in 2008 as it is more structural and related to economic fundamentals. The 2008 slowdown primarily arose from the US housing mortgage crisis but the current situation is a result of the European Union debt crisis and lower than expected recovery in the US.
In the year 2008, the government had the financial power which helped the economy to regain lost ground rather quickly without any significant impact on the overall economy. The current situation, specifically in India, is a result of high inflation, rapid correction in the interest rates, which failed to deliver the desired results of containing inflation, and rise in the overall cost of living.
The mood is ‘cautious’ with the fiscal deficit at about 4.7 per cent of GDP. The government’s ability to cut interest rates or go for higher spending is limited; therefore industry had to fend for itself.
The slowdown of 2008 taught us many lessons at Fiat, the most important being that India cannot be immune to the global crisis and industry has to be on its toes to keep its spending under tight control and keep exploring new growth avenues for de-risking the business.
Based on the learnings of 2008, at Fiat we have rolled out several initiatives:
- Plan for flexibility: Whether it was design of a plant or a manufacturing process, the flexibility to adopt to change became part of the planning process. Manufacturing lines were designed for rapid change from one product to another with minimal disruption. The manufacturing processes were modified to adopt to change in batch sizes and the design of the product without impacting efficiency.
- Plan for multitasking: The high growth rate in the manufacturing sector has taken its toll on retention of qualified and trained manpower. Poaching, rather than farming, has become the norm. To overcome the situation and to not get burdened with an inefficient work force, the principle of ‘training for flexibility’ was adopted to prepare the workforce for multitasking. The principle of ‘retaining the best and pruning the worst’ is the current mantra.
- Go lean, lean, lean: Executives were trained to identify and eliminate waste from all processes. Whether it is inventory sitting in the warehouse or on production lines as well as finished goods sitting on the trucks, lean applies to all. The supply chain model was tweaked for just in time and just in sequence to eliminate inventory. To facilitate this, suppliers were connected to the plants for better visibility of plans. Lean was not only applied to supply chain but also in human resource and upstream processes.
- Make the rupee last longer: All non-productive expenditure is identified and systematically eliminated. The philosophy today is that every rupee counts and must add to the profit. To that end, we are trying to reduce expenditure on travel with increased use of tele-presence or video conferencing. Printing of documents has become rare. Such actions not only supported the drive for efficiency but also released resources for productive use.
In my view the auto and auto component industry is far better prepared to face the uncertainty of the current times. The ability to control costs and still maintain the growth trajectory is more assured now than it was in 2008.
However, the DNA of the current slowdown is actually far more complex as it is an effect of external as well as internal financial issues. The government’s focus on infrastructure, resolving supply side bottlenecks, reducing interest rates and higher focus on growth would increase the speed of recovery.
The author is president and CEO, Fiat India
“Build A positive attitude”
Take a pause and put the last five years of consumption trend in retrospect. It’s a fact that we are better off now than we were as consuming classes just about half a decade back, despite a blip in 2008. The consumption graph is showing an upward trend.
Probably no salaried individual is earning less than what he/she did five years ago. Though inflation is up and consumer sentiment discussions have re-surfaced, we continue to register healthy GDP growth rates compared to the Western developed economies. The latest retail data shows no signs of downgrading till now versus 2008 which did witness some down trading, and many categories like food and FMCG are continuing to grow. It’s time to put in a lot of hard work, to creating great ideas and engage even more with the consumer.
We all believe that the India growth story is here to stay and the future looks bright 10 years down the line. What we are experiencing is a temporary blip and the long-term trajectory is upwards.
Do not let media plays on downturn/slowdown take your focus away. By nature, negative news makes bigger news. Worrying about the economy or participating in the doomsday scenario is not going to help. Be aware but don’t ‘participate’ in the slowdown. A positive attitude on the part of an organisation will work better in these times.
Also, in such times, while consumers temporarily hold or tread cautiously when it comes to high-value purchases like homes, cars etc, FMCGs and consumer products that offer the right value-price equations find preference with consumers. Here are some lessons we have learnt from the slowdown of 2008:
- Offer solutions and increase your focus on customer needs: The important thing you can do is listening to your consumers as they will always tell you what they need and how they want you to deliver it to them. It’s the retail theatre where imagination and buying experience can be fired up. Every usage occasion in the life of the consumer involves the interplay of many product categories. For example, tea time involves tea, biscuits, sugar, snacks and crockery. This multi-category consumption lens comes naturally to us as a retailer.
- Take a fresh look at your partner insights and strengths: It’s important that there’s a lot of communication flow among all stakeholders who are channel partners to consumer deliveries. It helps to increase responsiveness and bettering delivery of results.
- Don’t cut back on quality, focus on low unit packs: During these times, consumers look for re-assurance and brands that have succeeded during these times have stayed relevant to the consumers with increased levels of trust and loyalty. Cutting quality may hurt brand equity; focus on lower unit pack sizes instead.
- Communicate value: Cutting prices comes naturally during such times but it leads to erosion of margins. First try to communicate value to consumers, only then resort to price cuts.
- Engage with consumers outside traditional advertising channels: Social media could play an important role to connect with consumers. At this stage social media is an extremely-low or no-cost option for marketers. Brands like Airtel have done it effectively on the social media, attracting lot of young consumers.
- Share of mind is more important than share of voice: It is important to take some chances and come up with path breaking ideas.
The author is president, food & FMCG, Future Group
“Try and reduce cost”
During the 2008 economic downturn, the approach of the IT services sector favoured freezing the budgets and cutting down spending. In 2011, there are two very clear trends. First, there is a smarter select reduction of wasteful expenditure and second, businesses are likely to spend more on transformational services to stay competitive and consolidate during these times.
To assist clients with services that reduce wasteful expenses, we have to come up with solutions that help reduce the support cost and thereby the cost of running the business. For example, when a problem occurs in the software, smart tools and processes not only address the problem but eliminate its recurrence by addressing the root cause through a holistic diagnosis and assessment. Another way is by developing user-friendly self-service modules.
To give an example, if an organisation’s employees forget their password, they do not need to reach out to the support staff. Now it’s a self service, where the password can be retrieved on its own. These efficiency measures allow companies to reduce legacy support costs and at HCL, we are preparing to develop such competencies.
The other segment of opportunity during the 2011 period is transformation services. Today out of the total annual run rate of $4 billion, about $500 million worth of business is from transformational services and we are scaling that up. In recent years, new technologies have come into the play which can give a huge opportunity for our customers to leapfrog ahead of their competition. Now, customers can leverage new-age tools like mobility, social media and cloud computing. It is important for companies to not just cut their support spend but also spend in new opportunities. An example of transformational services could be to give a mobile device to the field force to deliver better customer experience and do the same work more efficiently, or use data analytics to process information for instantaneous decisions that will help identify additional revenue opportunities.
Also, during a recession there is vendor consolidation. So we have been addressing that market opportunity through our total IT outsourcing engagement. We were the first Indian company to offer that service, and it clocked a billion dollar order book at the time in 2008-09. This helped differentiate our services during the economic condition of 2008-09. Now, we are extending this concept across the different verticals of the business to create skills and capabilities required to solve end to end problems of the customer involving multiple services in an integrated manner. Total IT outsourcing as a service at that time would take over all internal IT functions including applications and infrastructure support as a managed services contract in an integrated manner and remotely where the customer would keep only IT governance functions in-house. Earlier these services were offered by Indian IT companies separately by companies.
The biggest asset for a service company is people. So putting the right people with the right skills at right job is important. In June, we created a workforce planning council as a central function, bringing synergy in roles and responsibilities across the organisation. This creates better efficiency. The lesson from 2008 was how to have the right mix of roles and responsibilities for transformation. If the employee is overqualified, he is dissatisfied and if he is under-qualified, the customer is dissatisfied. A synergy between these aspects of roles and skills allows us to configure teams for transformational services.
The other area we have worked on is shared services, where the same set of people work for similar customers simultaneously. This has allowed us to share the cost of people across clients. We forecast skills and people required for projects for each of the catalogue of services much in advance of the needs and are responsible for training, rotation and hiring of people. Such leveraging of roles, responsibilities and proficiency of specialists in the organisation increases efficiency and sets a clear roadmap for career growth as well.
During the 2008-11 period, HCL grew at 24 per cent (CAGR), twice the average industry growth rate. It also tripled its market capitalisation during the same period. This is because we viewed the slowdown as an opportunity to accelerate. We stood by our employees during the recession year and they rewarded the organisation by giving tremendous growth.
The author is senior corporate vice-president and chief customer officer (consumer services, manufacturing, public services, enterprise transformation and strategic sourcing), HCL Technologies