Most leaders are seeing “perfect storm” conditions that have set their companies back. Oren Harari offers a blueprint of extreme measures that can propel beleaguered companies toward success.Today, the economic seas are roiling under the perfect-storm collision of a sub-prime mortgage meltdown, the collapse of securities tied to those mortgages, a global credit freeze, a wildly gyrating equities market and, for good measure, a steep decline in industrial production, commodity prices, retail sales and jobs. Despite massive government interventions worldwide, the global economy is mired in a deep recession, the impact of which is expected to last for several years. In view of the fact that the entire economy of Iceland has flirted with total breakdown, it is fitting that the Icelandic word for “financial crisis” best describes today’s market realities: kreppa.
And yet, as Carlos Baradello, a retired Motorola executive, points out, “A crisis is a terrible thing to waste.” Today’s challenges represent a significant strategic opportunity for leaders of individual firms. They are an opportunity to reposition and renovate any company for success in the rough waters ahead and to prepare for domination when the seas begin to calm. Today – when all the rules seem to be in flux and markets are in disarray – is precisely the time to launch genuine transformations in your business.
Stephen Privett, President of the University of San Francisco, would agree. In an October 6, 2008, memo urging faculty and staff to help the university respond to the economic crisis, he wrote: “There is a Latin adage to the effect that in extremely challenging circumstances, one must take extreme measures to ensure the well-being of all concerned: in extremis, extrema tentantur.”
Of course, it’s easy to talk about extrema tentantur, extreme measures, than to actually take extreme measures. Leaders have long touted the need for change. But, often, their declarations have had more of an intellectual flavour than an aggressive “must do” imperative. Often, “change” has translated more into incremental thinking and cautious tinkering at the edges than into bold transformations. Now, however, things are different. A new sense of urgency is in the air. After all, when credit, debt and equity markets around the world are in dire straits, “change” is not an abstract concept. As a leader, if you don’t feel a sense of urgency about the need for big change now, when will you feel it? And if you’re waiting for a time in which it’ll be easier to “get people on board” for big change, when will you find an easier time than right now?
It’s time to consider a blueprint for capitalizing on today’s economic realities to reposition organizations for sustained cost reductions, liquidity and competitive advantage. This blueprint will revolve primarily around what I call the organization’s “underground”. To define terms, an organization’s “above ground” represents what the market sees and customers experience directly – such as products, services, promotions and sales efforts. In contrast, the hidden underground represents the root foundations that customers don’t see (for example, cost structures and operational systems) but nevertheless are vital for the organization’s financial health, and ultimately, the customer experience. Key segments of the underground include inventory management, administration, procurement, cost accounting, information systems, logistics, sales support, supply chain and distribution management, the “organization chart” and all operational processes.
Typically, innovation is applied to above-ground factors such as products and customer care. While that should always remain a business priority, I propose that the key to extrema tentantur in today’s unstable environment is to take innovation underground. From the outset, let me be clear that taking innovation underground is not simply about such clichéd concepts as reducing expenditures, improving current operations and reorganizing. Astute leaders have always been on the prowl for costcutting opportunities; and, in today’s environment, such efforts must be accelerated. Organizations I currently work with are doing whatever they can to lower costs and improve liquidity. They’re slicing departmental budgets, making people redundant, reducing capital expenditures, shrinking marketing initiatives, postponing new construction, shutting down facilities, tightening up on accounts receivables, seeking new tax deductions, renegotiating terms with creditors, cancelling overtime opportunities and urging employees to drastically decrease their usage of everything from photocopying to electricity. (Even Google is tightening its belt, literally, by eliminating free Tuesday afternoon tea, slimming down free food selections and shortening cafeteria hours.)
On the whole, these are justifiable steps. Fiscally and symbolically, it is important to show resolve when it comes to cost reduction in today’s environment. But be aware of three facts: one, many conventional cost-cutting initiatives are so scattered and marginal that they have minimal long-term impact on the company’s financial health. Two, many deeper cost-cutting initiatives are ultimately selfdefeating because they’re not strategic; they cut too little of the wrong things and too much of the right things. Three, a glaring problem with many conventional cost-cutting actions is that there’s not a drop of imagination in any of them.