As per the World Economic Outlook published by IMF, the global growth is projected to slow down from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023 and the trend is expected to follow in the medium term. After more than two years of the pandemic, the war in Ukraine and its impact on inflation and the supply chain have contributed to a significant slowdown.
The monetary policy response of developed countries to the situation is impacting the economy of developing countries as well. Here are a few aspects to look at as one steers the organisation through rough waters.
Don’t Throw the Baby Out With the Bathwater
Although organisations recognize that cash is a precious resource and winning companies seek cost reduction on an ongoing basis, the scrutiny of expenses becomes more intense in these difficult times. While rationalising expenses, there is a general tendency to take an easier path that looks fair, that is to set a common haircut target across the organisation.
However, across-the-board cuts can hurt the organisation’s distinct capabilities. Paul Leinwand and Cesare Mainardi in their book titled “Strategy that works”, share a framework to bucket expenses under four categories.
In the first category are the expenses on a company’s distinct capabilities that provide sustained competitive advantage and should continue to be funded. The second category is the expenses on competitive necessities that are required to stay viable in a particular industry or market.
Here there are opportunities to optimise expenses and increase efficiency. The third category is the lights-on activities expenses required to simply operate. Here the expenses should be strictly scrutinised and constantly pruned. The fourth and last category is the expenses that do not contribute to the business in any tangible way.
There is an opportunity to reclaim these funds. The authors state that based on their extensive client experience, there is generally far more in this category than one expects. One must use the difficult times to shed unnecessary fat, become lean, and stay strong, ready to win when the tide turns.
Be Objective When Dealing With a Layoff
With the increased emphasis on cost reduction and tightening of purse strings, redundancies are at times necessary for the survival and strengthening of the organisation. Layoffs are the hardest aspect of a leader’s role and can be overwhelming. Taking an objective approach that aligns the decision with the business imperatives can earn the buy-in of all stakeholders. The choice of approach to identify the people that would be impacted is critical.
Reed Hastings, co-founder of Netflix shares such an experience in his book titled “No rules rules”. With the bust of the dot-com bubble in 2001, all venture capital funding had dried up. He had to lay off a third of his workforce. He didn’t have any poor performers. He divided the staff into two piles. The exceptionally creative, great workers who collaborated well with others were put in the “keepers” pile.
People who did adequate rather than great work, who showed uneven judgement, who needed a lot of hand-holding, or were complainers or pessimists were on the layoff list. This kind of detailed study of what an individual brings to the table can make the process more objective.
Reed further shares that the experience of the layoff was awful, full of tears, screams, and sorrow. However, surprisingly within a few weeks things settled down and the remaining two third workforce was getting everything done with a passion that seemed higher than ever. This he attributes to the increase in the talent density in the organisation as a result of the process followed.
Be Transparent
Transparency instils trust in the organisation and therefore leaders must be open and candid in their communication. During the downturn, it is important to share with teams the financial situation of the organisation and probable options being contemplated.
This may unsettle some employees, create a distraction for others and some may even start looking out for jobs. But if one waits till the decision is made, then the trust will be completely eroded. Open and timely communication enables a healthy dialog with new aspects brought to light. Transparency builds trust that pays dividends in building long-term success which far outweighs the short-term pain.
In the face of a slowing economy, it is critical to exhibit high standards of leadership skills. It requires a lot of hard work, patience, level-headedness and tenacity while steering the organisation through the rough tides to come out stronger.
