Short Term Actions, Long Term Results In Rough Economic Times

University of Michigan Business School Short Term Actions,Long Term ResultsIn Rough Economic Times 2001 Unicon Fall ConferenceDecember 6-8, 2001 Ron Bendersky

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

Balancing Costs and Growth Growth Innovation (new programs, services, markets) Costs Increase Revenue/Growth Productivity (raise output per unit of input) Geography (revenue per country) Customer (more customer share) Manage Costs Processes (reengineer work processes) Projects (focus capital investments)

Framework for Balancing Cost/Growth

Costs Productivity (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

Growth Innovation (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

Short Term Actions, Long Term Results In Rough Economic Times