Strategy : Managing a Downturn

Albert Humphrey, Chairman of Business Planning & Development Corp. is on the Board of 5 companies and has been consultant to over 100 companies in the UK, USA, Mexico, France, Switzerland, Germany, Norway and Denmark. He was responsible for the “International Executive Seminar in Business Planning” for Stanford Research Institute and is currently the Director European Operation for the National Bureau of Certified Consultants in the USA.

Albert graduated from the University of Illinois BS Chemical Engineering, took a Master’s degree at M.I.T in Chemical Engineering and at Harvard was awarded a Master’s Degree in Business Administration.

Contact Humphrey via e-mail

After the collapse of communism, a new era began, which for the first time, following the crash of 1929 the two awesome words have appeared “deflation and depression”. Not withstanding whether or not deflation and depression are looming ahead the current situation will test most every company to its extreme limits. Bad weather takes its toll and the business ship sinks. A failure costs the income to creditors and the salaries to the employees and the owners lose the assets. In short a failure costs all stakeholders, customers, suppliers, employees, community, financial institutions, and owners. Hence “Managing a Down Turn” is extremely important to everyone.

The few of us, who actually lived through the time of the great depression in the USA, can speak from actual experience of the difficulties put upon a company to survive. And families as well. Many failed. Like a great storm at sea, in a depression and in an deflationary cycle, there is no place for the armchair management team its all hands on deck knowing what to do and doing it.

The collapse of major corporations. Tightening of international financial markets. Taxes rising to meet social costs. Down graded credit ratings cutting out the small customer. Fear freezing development work. And the classic cut back approach only accelerates the down turn. In getting working funds, companies must prove to their banks that they can sustain a downturn before borrowing, assets may not be enough to support the loan.

This is not the time to cut and burn. This is a time for immediate strategic contemplation. A time to gather your team, set out the down turn strategy, which focuses on arresting and reversing the down turn, and to define the actions required and results to be achieved.

As it Was in The Beginning

Deflation and Depression down turns are not new. It’s a cyclic oscillating world, well described by Ibn Khaldun , the medieval philosopher. And so it was with the great depression of 1929 to 1939, which was followed by inflationary growth until 1990. And it has been that way since the beginning of time.

The name of the game is how to survive the down cycle. So why don’t we know how to manage in bad weather. That’s a tough question, but an easy answer – the answer is, in fair weather there is no stress nor any serious demand on talent. But stormy weather, that’s a different story. It is a distress situation when talent is on high demand.

Rough weather ie deflation and depression, takes the captain and the team to their skill breaking level. Stress exposes the weakest link. If the skill is low then the break down occurs early. With higher skills then the failure occurs later on and can even survive.

Regrettably in business, unlike sailing at sea, the skills required for managing a down turn ie a depression and deflation, are not taught in business schools. The basic assumption is made that good management is good management in both good and bad weather. Because schools teach good management that should be good enough for all weather.

Not so. Just as at sea. Bad weather takes its toll and the business ship sinks. During the 90’s, Britain was losing up to 7 companies an hour – 24 hours a day – 7 days a week. Today its about 2 per hour. That’s bad for everyone. A failure costs the income to creditors and the salaries to the employees and the owners lose the assets. In short a failure costs all stakeholders, customers, suppliers, employees, community, financial institutions, and owners. Hence “Managing a Down Turn” is extremely important to everyone

What Do We Do?

So what can be done about it. The answer lies in the productivity level and focus of all staff from the board of directors right to the shop floor.

But it starts with the Board of Director’s collective focus on improving productivity. This is achieved by having a “Down Turn Strategic Plan”. But this is no ordinary plan but a plan constructed by using the views and feelings of everyone involved in the business. It is an everybody’s plan and represents the operating platform for the business in the same way that an operating platform makes it possible for a computer system to function.

Managing a Down turn requires the senior managers to stop thinking that the company is composed of individuals with individual job descriptions and a layer on layer authority structure. In fact the company is an operating entity in and of itself, with a purpose, a vision, a sensory apparatus, a decision process, and a control mechanism. In fact a company is an individual, a body in and of itself.

Success Through Increased Productivity

Research at SRI in 1964-1970 confirmed the work done earlier at General Dynamics in 1962-1963 which in turn confirmed the work done at Harvard by William James in 1890 that the average employee performs at an energy input of about 30% to 35% . If properly motivated in an atmosphere of “fair play” the employee will input about 50% of his available energy. That’s the key to dealing with a down turn. Capture quickly the additional energy that exists, untapped, in the organisation and put it to work. An uplift in productivity of about 35% is possible and can immediately deal with any discomfort caused by the down turn.

Working Together - How is This Done?

Just like a computer system any business needs a formal “Operating Platform”. This is a new name for the old name a “Strategic Plan”. What’s new is the method for creating the Strategic Down Turn Plan (BOP). A formal business operating platform can be created clinically and documented to knit together the management persons across and up and down the organisation so as to be able to adapt rapidly to change and become more agile in implementing new strategies.

A business operating platform wires together all the people, management and IT systems within the company so that business initiatives and programmes can become actionable and results can be achieved effectively.

CASE: The Clothing Company Plc

This publicly quoted upmarket men’s wear British group was losing money. They where pressured from their bankers and the institutional share holder was uneasy due to a depressed share price which at the time was quoted at 32p per share.

The decision was made to establish a more formal “Business Operating Platform” which should focus the activities of the management team on key areas by fully utilising the views of all staff and operatives, to establish management commitment to more ambitious targets and to monitor progress. As a result they re-engineered their manufacturing operations which improved production and quality. They enhanced customer relations by establishing a more viable organisational structure, and streamlined their production planning and control systems. The high quality product designs and prompt delivery lead soon to increased customer and retailer confidence and sales started quickly to rise as a consequence of the increased goodwill.

Within two months, the turnover grew by 30%. The gross operating margin improved by 9%. Their earnings per share rose from 2.87p to 9.14p and the Clothing plc share closed at 120p. Within a year The “Group” was being presented as a “share to buy” by the Investors Chronicle.

Not Rocket Science

How was this possible ? Because they used a new method designed to satisfy both internal and external stakeholders. A method which makes possible practical participation and staff wide consultation . They used a process called TAM®. Not rocket science, and it does create what has often been suggested in theory but never with a practical process until now.

Traditional motivation theory as dealt with by Maslow and Hertzberg and Dave Ullrich of the University of Michigan gives examples of different types of instruments an organisation can use to increase commitment among its employees viz:

  • Give the employees a “vision” or strategic direction which they would like to commit themselves to work towards.
  • Let the employees make decisions concerning their own workplace.
  • Form teams to achieve results.

We found that the two important areas of concern are to increase “Participation” and create an atmosphere of “Fair Play”.

Regretfully these teachers of theory offered no practical approach which any ordinary management team could use. Now we have one and its call TAM® short for Team Action Management which does work.

CASE: Chemical Processing Company

A subsidiary of a Swiss pharmaceutical and chemical multinational operates a manufacturing site in Scotland.

The Scottish plant had had a long history of tense industrial relations with its English counterparts. The plant suffered from low morale, a serious lack of initiative and a tendency to pass on the blame resulting in a slow response to changing market needs and new technologic developments followed by especially low yields. The assistant general manager was actively looking for methods and techniques which would correct the low morale in Scotland and also to give the Scottish operation;

  • Greater stature and initiative in development of new product and new markets.
  • Improve company efficiency as related to present resources and commitment.

A formal Business Operating Platform was set up using the TAM process that could deal with these problems, quickly. It was decided that the CEO should give a personal presentation of the change efforts made to all employees and at the same time inviting them to actively participate in appraising the company situation through a frank evaluation of their own work related situation.

This exercise resulted in 1,400 issues equivalent to 7 issues per employee. To deal with these issues, 56 specific action programmes were agreed with each assigned to a responsible management team member. The results where communicated back to the employees through a special report by the CEO which also explained in detail the company’s business objectives and strategies based on the different issues raised as a result of the employee participation.

The immediate improvements made to the site’s operation, along with the continued display of commitment to continue improvements led to the announcement of a new Vitamin C plant investment, costing 140.000.000 pounds sterling which provided in an instant additional employment of over 400 people and provided a significant increase in profits for the parent company. Today the site is the biggest single Vitamin C production site in Europe. It is TAM that makes the difference

The TAM process make possible these three things ;

  1. To build on the views and ideas of all the people, both within and outside the organisation.
  2. To weld the responsible managers and professionals together to achieve the common and agreed end results.
  3. To produce the agreement and commitment to get the right things done.

TAM overcomes the main obstacle all organisations face which is how the many employees of a company (each with their own personality and attitude), can be welded together to create a single minded approach to dealing with the enormous problems of change and business development.

The TAM formula used by the team overcomes this obstacle and when applied gives the team sufficient dynamism and objectivity for the individual members to join together and collectively work out a common approach for their individual and collective success.

The Team Action Management® method will accelerate company’s development, in a controlled manner creating the synergies for achieving optimum results. It makes it possible for a team to think as quickly as an individual.

TAM® is a formula, a menu, an agenda, with which to plan the required development projects. It leads the management team through step by step until they actually create the documented BOP It has been shown to transform business results by getting agreement and commitment from those responsible and acceptance and co-operation from those involved. This in turn makes it possible for the people (management and staff) to translate information into reliable actions that produce success.

Using the Team Action Management® Agenda to Set up a Business Operating Platform.

An objective is set. A team is appointed. A date is agreed. Planning issues are called from everyone and the working party assembles to build the BOP. TAM is the facilitation device and consists of 17 steps that control the process which ends with the production of a BOB document. On approval and authorisation this document is used to police the implementation of each project.

The use of an Action Planning Team or Committee ensures that the speed of implementation is fast and dynamic and that communication between the parties is optimal.

The overall programme follows along these steps:

Step 1 A team is appointed to achieve the published results. The team will be those who are best suited to carrying out the work intended. Members can be co-opted persons or those directly reporting to the manager in charge. The TAM instructor is appointed who with an assistant will be responsible for the programme.

Step 2. The schedule of events along with the objective statement, ring binders and dividers are given to each team member.

Step 3 The team assembles and given a short explanation of the steps which will be followed and why. They are instructed on completing “planning issues”. Plans are laid for getting planning issues from both team members and all other staff who can make a meaningful contribution. If there is a financial character to the project, the team and staff support are trained in the organisation’s finance and management accounting system.

Step 4 Issues are collected from all employees. Then a working session is held which consists of a series of steps designed to make it possible to produce a comprehensive listing of actions which will be implemented; along with the cost benefits of each action. These actions are assigned to members of the team. Priorities, financial pro-formas, objectives and strategies are also produced during this step. A complete document is given to each team member at the time they leave the working session.

Step 5 The “plan of attack” is summarised and presented to any higher authority which is required for approval before the implementation and control phase is formalised. Once approved, a schedule of reviews is published showing when individual team members will meet with the Team Leader to discuss progress on individual actions. This includes monthly team reviews where progress is reported.

Through the strategic use of the collected ideas and with the transparency of the action plans trouble can be spotted and corrected quickly. An important feature is that everyone knows what everyone else is doing, what they are responsible for, and how far each phase of the plan has been implemented.

Monitoring continues until the results are obtained. The process is terminated when the recommended improvements have been achieved.

Make it Happen

So there it is. Managing a down turn simply requires creating an operating platform that produces a single corporate brain to which all staff can relate and act as one. TAM is the easy mechanism which makes it possible to produce this document quickly and produces results even when the weather is bad.

The design of the organisation’s psychology should be guided by four principles

Design Principle 1:

The organisation should provide for a clear cut line of authority headed up by a Chief Executive, whose job is basically “Corporate Planning” meaning forward looking as opposed to oriented to the current operations.

The CEO should be less preoccupied with the here and now, and more directed to development issues. As Don Smalter said “He should direct his attention to the “important” and leave the “urgent” to those responsible in each operational area”.

Design Principle 2:

Receptivity at the top. The Chief Executive should create levels of psychology from the top to the bottom of the company, starting at the top with being “receptive” himself of new methods, new ideas, and new products and services.

The “receptive” Chief Executive should be supported by directors who “appreciate” current state of the art applications (such as new management or IT system advances) and are capable of recognising their potential value to specific opportunity areas for the company.

At the bottom line there must be allowance for having trained skilled staff that have the ability to structure, solve and carry out changes related to their own workplace.

Design Principle 3:

Ultimate success derives from a culture provides for co-operation and participation among the organisational members. This means that organisationally the structure needs to assure “support” from the senior authority, “agreement” and “commitment” at the level of responsibility where the work must be supervised and the “willing acceptance” of any change on the part of those affected at the level of impact.

Design Principle 4:

Create a corporate brain by have the many think and act as one. The mental process for decision making and action is fast for the individual but slow for the group. This is because in a group/team the participants’ individual assumptions and expectations might contain differences which manage to block or disrupt the common decision making process. The team is immobilised by any individual expressing doubt about the likely success of the proposed action, which might lead to a problem of “apathy” among the team members.

© Copyright Albert Humphrey 2005

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