How to Boost Your Company’s Immunity to Economic Uncertainty in the credit crunch
Can you Fight to Survive
Like people, organizations are living entities that need a certain level of care to stay healthy. And just like the human body, an organization’s health (its culture) may coast along fine for a while. But if its health is abused (business corruption) or neglected, with attention focused on immediate gratification (quarterly profits) instead of long-term health (strategic planning, corporate governance, continuous improvement, etc.), then the health of the organization will begin to decay.
Consider how the human body deals with infection. When a foreign entity mounts an attack, it triggers an automatic response from the body’s immune system. White blood cells attempt to fight the intruder based on memories of foreign entities the body has encountered before. If it’s a familiar intruder, the cells know what to do. If they fail, however, the wise person seeks an expert opinion and follows the recommended steps (medication, life changes, surgery, etc.) to recover. Organizations are the same. If the health of a business is neglected, it’s likely that the business is also lacking an immune system to defend it against attacks (external variables such as financial rate fluctuations, supply chain damages, system and network failures, natural catastrophes, etc.). Without a defense system in place, attacks might even go unnoticed for a while. When a problem is discovered, the organization’s cells (its people) scramble to resolve the issue using the same thinking and tools that worked in the past. If they’re lucky, and if the damage isn’t too great, they succeed. If not, the organization limps along inefficiently, much more vulnerable to the next attack. So what’s the lesson here? Simply put, businesses will not survive the current economic upheaval unless they focus on long-term health, and put an effective immune system in place.
In the GCC especially, many businesses, with some exceptions in the oil and gas industry, are young and inexperienced when it comes to dealing with a crisis of this magnitude. Having never encountered depleted cash flow, tumbling energy prices, denied credit, a faltering real estate market and diminished tourism, GCC businesses have not yet built up an immune system that can respond quickly and effectively to such attacks.
The Secret to Survival In The Living Company (Harvard Press, 2002), researcher Arie De Geus writes that the longest-surviving companies have several qualities in common. First on his list? The organization’s ability to learn and adapt. De Geus calls on organizations, particularly Human Resources, to be strategic in their approach to long-term survival. What does strategic adaptation entail? It will differ for every organization, but here a couple excellent examples. In the mid-1900’s, Toyota was struggling to survive as consumers demanded more variation. Toyota’s production lines were not set up to accommodate short, varied runs, and redesigning the lines would constitute a major change for the company. Enter two innovative Toyota employees, Taiichi Ohno and Shigeo Shingo, who solved the problem by introducing the ability to quickly “changeover” sections of Toyota’s production line so that different models could be built on the same line. This change, and others they proposed, became the basis for the Toyota Production System (TPS). Since then, Toyota has remained one of the most consistently profitable automakers in history. The other example is DuPont’s swift and smart response to the recent economic meltdown. In October 2008, well before the extent of the crisis was apparent, DuPont CEO Chad Holliday called his top executives together and asked them to investigate what affect the problems on Wall Street might have on the company. Their predictions were dire enough that Holliday activated DuPont’s Corporate Crisis Management plan. The plan is, in essence, an immune system. It’s designed to help company executives assess the cause of a problem, put measures in place to insulate the company from damage, and inform employees of their role in combating the issue. In this case, strategic cash flow and savings plans were put in place very quickly to help the company weather the storm.
In these examples, both DuPont and Toyota displayed the ability to adapt and change – the keys to survival. More importantly, they did not do so in a panicked, “cold turkey” way, but in a strategic manner. Although change was accomplished rapidly, especially in DuPont’s case, both companies had systems in place that allowed them to adapt quickly without cannibalizing their company resources or abandoning long-term goals. Like Toyota and DuPont, businesses that are struggling today can learn to change and adapt strategically. How? By implementing healthy practices, such as Lean (which evolved from the Toyota Production System), the business will become more resilient and agile so it can adapt to different challenges. The organizational immune system can be restored using Lean Six Sigma, which alerts management to attacks before they get out of control. Managers and employees must learn Innovation techniques and creative problem solving to help the organization combat various attacks. And business leaders need to recognize when an expert opinion is needed, and seek help.
What’s Your Plan for Recovery?
If you think about it, for the past few decades, humanity has been growing smarter about how to stay healthy. The result is longer life expectancy for many people. In the business world, the challenging economy may ironically produce more millionaires than ever before because many people will choose to get smarter about how to recover and survive.
Consider these recent examples:
• Circuit City vs. Best Buy
• Office Depot vs. Staples
In both of these pairings, one company is dying while the other is surviving. These “twin” companies bring to mind Jim Collins’ ongoing research, which he documented in Good to Great: Why Some Companies Make the Leap…and Others Don’t. The key difference according to Collins? Failed corporations are often victims of systemic decay. “Cancer can make you sick on the inside and look great on the outside,” Collins observed. “That metaphor kept coming into our brains. One company was already sick. You don’t fall visibly until you are in the next to last stage of decline.” Collins also noted that corporate decline is largely self-inflicted. “Whether you endure or die, fall from iconic to irrelevant, depends more upon what you do to yourself than what the world does to you.” Thus, healthy companies require smart leaders who are committed to adapting and making strategic changes. These leaders will build a solid professional foundation that can withstand uncertainty. As a result, their organizations will not only survive, they’ll likely make the greatest gains during the economic recovery.
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