Dos and Don'ts of Managing a Crisis

delongThomas DeLong 
A crisis can destroy an organization if the organization does not respond appropriately. During a crisis or a low growth environment, organizations fall apart, unless they have a few leaders who have the courage to be transparent and set an example. The irony, though, is that I see over and over again that companies and leaders are not honest with their employees. We don’t talk. We don’t give feedback. And we simply don’t have the courage to have an honest conversation.
The typical behaviour during a crisis is to blame other people for all of our problems rather than looking for our contribution to the problems. I think this is true all over the world. This is because of the dilemma that we have. Leaders allow their insecurities to build. They don’t share the challenges they’re facing, nor do they sit down and sort out their disagreements. They go around blaming each other, which does nothing but create more dishonesty between them.
So what can companies and leaders do about this? Number one: Set clear goals and include your management in those conversations as opposed to being autocratic. The second thing is to execute the goals that you set and hold those people accountable for it. In too many organisations I see people being held accountable without ever being specifically told what they are responsible for. The third thing is to communicate more and become less secretive. Leaders need to have conversations when problems are small instead of waiting for them to become too large. They should have an open door policy for managers who report to them in an effort to prevent this type of build-up. It is very important to for leaders to take more feedback when times are tough, not less. It is about asking questions rather than having all the answers.
Take the case of Harsh Mariwala of Marico. He used to hold quarterly meetings with his leadership team in which they had conversations with each other around what each person could do to be better. It is important to conduct this sort of meeting as a group so that the group becomes more supportive and does not fall apart. Mariwala is a role model for the kind of transparency that we should have in organizations. These organizations are the ones that will leverage the crisis and not only learn from it, but get to a very different place in a positive way.
Phil Daniels, a psychology professor I had in graduate school, taught us about a feedback mechanism which he used to call the SKS form. It was a very simple process where we would ask others what we should start (S), keep (K), and stop (S) doing. The form is designed to be sharp and clear. People have to express themselves in three bullet points under each subhead. I have introduced this system of evaluation in universities as well as in appraisals on Wall Street. It helps leaders anchor themselves in reality and stop having any illusions and living in a fantasy world.
In times of low growth, leaders are not feeling the best about themselves and wouldn’t want to solicit feedback. Typically they would have enough excuses ready not to take feedback. This leads to a situation where leaders start believing that there is no real need to learn what views other people in the organization have at that point in time. Nor do they get around to asking for help when they need it. The SKS form breaks that kind of thinking. I believe even negative feedback can be satisfying. It is rarely as bad as we expect it to be and it tells us very clearly exactly where we are and what we need to work on. Once a leader is armed with clarity, he or she can work more effectively with a greater sense of purpose.
The final point is, do employees have faith in the management? If I look at my boss, do I say to myself that I have faith in this person? Is this person spending time and mentoring me? Am I growing and developing because of this person? Typically what happens in tough times is that leaders are too busy trying to achieve their numbers. So they think they don’t have the time to mentor, and instead try to outsource the activity to someone else. This is when the whole culture starts to break down.
Many leaders do not realize the importance of mentoring, especially in times of crisis. In such times, young professionals who work in an organization start to see themselves as free agents, and jump jobs as soon as the first good offer comes along. Still others leave to maintain a work-life balance. Employees regularly complain that leaders do not spend time mentoring them, and leaders don’t think they should spend time and energy mentoring people who are going to leave anyway.
In an economic downturn leaders and managers simply focus on the bottom-line and they forget about human capital issues because they don’t have the time to deal with them. They ignore their own culture. They become path driven, which is important, but they forget the human dimension. One of the first things that happens is that employees are laid off. This occurs because too many leaders are not aware of the culture of the organization or the implications of letting people go. They are myopic and short-sighted. More often than not it’s the lower and middle levels of the organization that have to bear the brunt of these firings. As individuals rise through an organization and become leaders, they intuitively, without knowing it, protect themselves.
But any transformation has to take place at all levels. It isn’t about letting go of the individuals at the lowest level on the rung. It is about making changes throughout. All that firing does is create cynicism and frustration throughout the organization. Leaders who remain protect their own security.
It doesn’t need to happen that way. I am writing a Harvard Business School case right now about the pharmaceutical company, Novartis. They wanted to do better in the US market. They knew that they had to re-envision their strategy. At the same time, they looked at their structure and how they were going to organise the business differently. They had to rethink what their capabilities were.
They did a very effective job in managing business, strategy and creating new systems, all simultaneously. One of the side effects was a reduction in force. However, because everything was done in a very systematic, thoughtful manner Novartis was able to engage those who stayed in a dramatic way. They built greater trust because of the way in which they went about the transformation. If the only variable that you change is the number of employees, there is going to be a problem.
For me, the head of human resources in an organization is the CEO. A CEO is responsible for human capital. But too many human resource departments are seen as law enforcement as opposed to being partners to the CEO. Too often HR departments are seen as spies for the leaders rather than as strategic partners. If HR is only used to police and help reduce the number of employees there will be no trust whatsoever with the HR department.
To conclude, here are a few tips about what employees should do in a low growth or recessionary environment. Number one: They need to have their own personal agenda or goals. Number two: They need to set up systematic communication with their managers, whether it is feedback or two way communication. Number three: They need to know what their capabilities are. Number four: They need to decide whether they are putting the company first or putting their own personal well-being first. I think the final point is that, at the end of the day, individuals are responsible for their own careers.  

The article originally appeared in the Business Today edition dated January 19, 2014
As told to Vivek Kaul 

(Thomas J. DeLong is the Philip J. Stomberg Professor of Management Practice in the Organizational Behavior area at the Harvard Business School. Before joining the Harvard Faculty, DeLong was Chief Development Officer and Managing Director of Morgan Stanley Group, Inc., where he was responsible for the firm’s human capital and focused on issues of organizational strategy and organizational change. He is also the author of Flying Without a Net: Turn Fear of Change into Fuel for Success (Harvard Business School Press, 2011), which centers on the challenges of helping talented professionals who are resistant to change.) 

Blend Offence and Defence

ranjay_gulatiRanjay Gulati  
In the middle of the 2008 recession I spoke to the leadership team of a large company and asked them how many of their units were facing budget cuts?
So they all laughed nervously and raised their hands. I then asked how many of them had seen their budgets increase? And they laughed again and this time no one raised their hands.
I then asked them if this situation was good or bad? They did not understand my question and responded with a puzzled look. I said, let me explain.
If you are not increasing your spending in any domain at this time then it means you are not sowing the seeds for future expansion. You are not going after anything. Instead, what you are doing is falling into the trap most businesses fall into when the going gets tough, which is to simply play defence and cut back across the board with the intention that we must live to fight another day. All this is in the face of evidence that perhaps the best time to leap frog competition is when markets are down and not up. And yet, we back away precisely at the time when we should not be doing so. The point I was trying to make was that the thought that they should be going after markets or attacking competition, just hadn’t crossed their minds.
Then I took a step further and asked them, who is in charge of budget cuts at this time? And everyone pointed to the finance function. I said if finance is responsible for the allocation of scarce resources, a question to ponder is what do they know about customers and markets and what customers want or don’t want? Furthermore, the preferred approach for budget cuts was the proverbial cheese slicer approach where each unit was impacted equally. In doing so, they were now allocating their limited resources with limited knowledge of customers or markets.
If we look at this example very objectively, there is something terribly wrong here. The company was not attacking their market in an environment where everyone else was not doing so either. And the person/division of the company that was cutting back had no idea what the customers wanted.
I think the realisation here is that in a low growth and turbulent environment most companies go into pure defence, where the entire focus is on how do we survive and wait to fight another day. The only thing the companies can think about is cutting back on costs. But does this really work?
I along with my Nitin Nohria (of the Harvard Business School) and Franz Wohlgezogen (of the Kellog School of Management) wrote a piece titled Roaring Out of Recession for the Harvard Business Review, which was published in 2010.
In this piece we looked at corporate performance during the past three global recessions: the 1980 crisis (which lasted from 1980 to 1982), the 1990 slowdown (1990 to 1991), and the 2000 bust (2000 to 2002). We looked at 4,700 public companies and studied their performance in three periods: the three years before a recession, the three years after, and the recession years themselves.
And the results were rather interesting, which went against conventional wisdom. Companies that focus on cutting costs and cut costs faster than competition don’t necessarily flourish when the recession gets over. In fact, we found that only 21% of such companies did better than competition when times got better.
An excellent example of this is Sony, which announced a cost reduction target of $2.6 billion in December 2008. The company planned to close several factories, fire employees and delay investments into newer technologies, as a part of the plan.
This strategy was similar to the one followed by the company during the 2000 downturn, when the company cut its workforce by 11%, its R&D expenditures by 12%, and its capital expenditures by 23%, over a two year period. This helped the company increase its profit margins briefly, but sales tumbled.
While Sony managed to boost its profits briefly, it has struggled to retain momentum since then. It has tried developing new products like electronic book readers, but these markets have been taken over by swifter rivals like Amazon.
The trouble with concentrating totally on cost cutting during a recessionary or a low growth environment is that managers approach every decision from a lens of minimising costs. The other thing that happens is that those responsible for resource allocation decisions frequently have no idea of either the customers or the various markets the company operates in, and prefer to make across the board cost cuts. This leads to the company paying no attention to initiatives which might lead to future growth.
Also, it is worth remembering that there is a collective paradox here: when everyone is playing defence, what should you be doing?
But pure offence does not work either. Being overly aggressive during a recession, and ignoring early warning signs like customers clamouring for lower prices, is not viable either. In fact, we found in our research that such firms stand only a 26% chance of becoming leaders after the downturn has ended.
An excellent example of a company that became a victim of being too aggressive in a recession is Hewlett-Packard. At the height of the recession that followed the dotcom bust in 2000, the company under the leadership of Carly Fiorina, drew up an ambitious change agenda. As Fiorina put it “In blackjack, you double down when you have an increasing probability of winning. We’re going to double down.”
Among other things, the company bought Compaq for $25 billion, spent $200 million on corporate branding and also went about spending $1 billion on expanding the availability of information technology in developing countries. These initiatives strained the organisation and spread its resources too thin. After the recession ended, and growth returned, the company couldn’t match the profitability levels of its competitors like IBM or Dell.
So pure offence does not work and neither does pure defence. What works is being able to selectively blend both. The key is how do you learn to play defence and offence at the same time. What you do is you say that I am going to cut back more than I need to do in some areas and I am going to expand in some areas. The trick is to learn how to spend more by spending less.
What I am proposing is a zero budget answer. In order to spend more you have to spend less. Before you can spend more you have to figure out what are the things that you are doing that do not add any value to the customer. And you will be amazed how many inefficiencies actually pop up. Taking a disciplined approach to resource allocation that is informed by a deep understanding of what customers value or not become the key to success. Cost cutting has to be done in a disciplined methodical way because its remarkable how many things organisations do that are not value adding to customers. So that is the starting point.
But politically it is very challenging to do this in an organisation. Are you going to tell three people that I am cutting back your budget and then tell one person that I am increasing your budget? Instead many organizations prefer an egalitarian way, where we want to share the pain equally. Everybody gets to cut back on their budgets equally.
A deeper issue that holds back organizations from leveraging such opportunities is their inability to truly engage with their customers and markets. Something that should be the foundation of every business of being customer centric doesn’t materialize very easily. And the problem isn’t usually the lack of market knowledge. Its usually embedded in the organization itself. The devil here is inside and not outside the organization! Most large organisations are built around production and distribution. You organise around product to make sure that you are intensely focused on developing and selling outstanding products. You organise around geography to be able to effectively distribute those products. And you add into this mix your functional organization that is created to be efficient and build deep expertise within key functions. But somewhere in this whole equation the customer gets lost. The bureaucratic morass here impedes are abilty to operate in concert to take on difficult markets.
Very few companies master the skill of playing offence and defence and doing so in a way that is centreed around their customers. In our research we found that only 9% of all companies came out of a recession stronger than before. These chosen few outperformed industry rivals by at least 10% in terms of sales and profits.
These select few companies re-examined almost every aspect of their business model. They looked at how they have configured supply chains and structured/reduced their operating costs on a permanent basis. This ensured that when demand came back again, their profits grew faster than their competitors. Also, money that was saved in one area was invested in another area.
A good example of this is Staples, an American office supply chain store , and how it withstood the 2000 recession. It closed down many underperforming facilities but at the same time increased its work force by 10%, in order to support the high product categories and services it introduced. The company also contained its operating costs and came out of the recession much stronger and more profitable.
The sales of the company more than doubled from $7.1 billion in 1997 to $14.6 billion in 2003. In comparison, the sales of Office Depot, another office supply company, went up by about 50% from $8.7 billion to $13.4 billion, during the same period. In fact, Staples was 30% more profitable than Office Depot in the period of three years that followed the recession.
To conclude, I would say you never want to waste a good recession. But the only way you don’t waste a good recession is if you realise that you need to use this to leapfrog everybody else. Getting ahead of competition during an up market is much harder. If you are wasting a recession you are wasting an opportunity.

 Ranjay Gulati is the Jaime and Josefina Chua Tiampo Professor, the Unit Head of the Organizational Behavior Unit, and the Chair of the Advanced Management Program at Harvard Business School. He is also the author of Reorganize for Resilience: Putting Customers at the Center of Your Organization (Harvard Business Press, 2009)
The column originally appeared in the Business Today edition dated January 19, 2014
(As told to Vivek Kaul) 

India: The Siege Within

satyajit dasSatyajit Das  

India seems never to be able to fulfil its economic potential. The nation seems to be trapped in an Alice in Wonderland world where “the rule is, jam tomorrow and jam yesterday-but never jam today”.
India Shining…
India’s GDP rose by 43% between 2007 and 2012, slightly less that China which increased by 56% but much faster than developed economies which grew only 2%.
Economists rushed to out do each other in spruiking the India story. Forecasts of growth rates of 8.5% per annum or even higher became commonplace. Morgan Stanley, the US investment bank, predicted that India’s growth would reach 9-10%, outpacing China’s “pedestrian” 8% within three to five years.
In a report titled India: Better Off Than Most Others, Macquarie Capital, argued that India’s traditional weaknesses -low exports, a predominantly state-owned financial system lightly integrated to foreign markets, sluggish export growth because of bureaucracy and the large domestic agricultural sector producing only for domestic consumption- were now strengths underpinning growth.
Indian leaders moved between international forums, basking in their new found status and power. Indian businessman made trophy purchases of business overseas, usually financed by debt. At the World Economic Forum at Davos, representatives of the Indian government and business announced that India could grow in its sleep.
India’s economic hubris was exemplified by a marketing slogan, first popularised by the then-ruling Bharatiya Janata Party (“BJP”) for the 2004 Indian general elections – “India Shining”. After years without a good news story, the Indian media focused on the nation’s “greatnesses”, relying on extraneous facts. The fact that the market capitalization of State Bank of India surpassed that of Citigroup was cheered. The press celebrated the first Indian edition of Harper’s Bazaar which featured a crystal-studded cover, the introduction by Rolls-Royce of its new Phantom Coupe in India and the opening of a new BMW showroom in Delhi. More recently, the nation has found solace in its venture to send an unmanned spacecraft to Mars!
But in recent times, the unsound economic basis of India’s growth has increasingly been revealed. In late 2011, the government’s 12th five-year plan forecast growth of 9% between 2012 and 2017. By late 2013, India’s economic growth had slowed below 5% , high by the standards of developed countries but well below the levels required to maintain economic momentum and improve the living standards of its citizens.
Elements of the India Shining story remain intact –the demographics of a youthful population, the large domestic demand base and the high savings rate. Increasingly, India’s problems – poor public finances, weak international position, structurally flawed businesses, poor infrastructure, corruption and political atrophy- threaten to overwhelm its future prospects.
Instead of membership of the prestigious BRICS (Brazil, Russia, India, China, South Africa), the nation has become attained membership of the BIITS (Brazil, India, Indonesia, Thailand, South Africa), the acronym for the most vulnerable emerging economies.
Public Troubles
In recent years, India has consistently run a public sector deficit of 9-10% of GDP, including the state governments and off-balance-sheet items.
Confronted with the global financial crisis and the additional complication of a poor monsoon, India implemented successive aggressive stimulus packages from 2008 onwards to restore growth. The predictable result was a huge increase in the central government’s fiscal deficit.In fact, between April and October 2013, the government has already touched 84.4% of the annual fiscal deficit target of Rs 5,42,499 crore or 4.8% of the GDP. Interestingly, the finance minister P Chidambaram has reiterated time and again that the target set at the beginning of the year is a “red line” which will not be crossed.
It is unlikely that the government will be able to meet its budget deficit target, other than by adopting some cosmetic measures such as postponing the recognition of expenditure. In effect, it may delay payment of a portion of subsidies to the various oil marketing companies for the under-recoveries they face while selling diesel, cooking gas and kerosene at a subsidised price. At the same time, the Food Corporation of India will also not be immediately compensated for selling food grains at a subsidised price.
Indian government’s debt is around 70% of GDP. As the debt is denominated in rupees and sold domestically, India faces no immediate financing difficulty. Instead, the government’s heavy borrowing requirements crowds out private business.
Indian banks are significant purchasers of government bonds. The banks, generally majority state owned, are also forced to lend to Indian state enterprises and also politically well connected promoters. This limits the supply of credit to Indian businesses that are sometimes forced to borrow overseas, exposing them to currency risk. Given India’s deteriorating external position, the foreign debt is becoming increasingly problematic.
Foreign Troubles
Swiss bank Credit Suisse in its August 2013 report House of Debt -Revisited analysts estimated that the gross debt of ten Indian corporate groups for 2012-2013 stood at Rs 6,31,024.7 crore, having risen by 15% year on year. In fact, the interest coverage ratio of these groups stands at a low 1.4. The report drew attention to the fact that a significant proportion of corporate loans, estimated at 40-70%, are denominated in foreign currency, meaning thatthe sharp depreciation in the rupee will have added to the debt burden.
In an environment of booming stock markets between 2005 and 2008, foreign currency convertible bonds (FCBs) provided companies with low cost debt. However, the toxic combination of falls in share prices and a fall in the value of the rupee (in which the shares are denominated) means that the FCBs will not convert and need to be repaid. The repayment in foreign currency will crystallise large currency losses. In addition, refinancing the FCBs will result in much higher borrowing costs, which will significantly affect the profitability of Indian corporations.
Bank Troubles
Slowing growth, tighter credit and other economic problems have increased corporate defaults to the highest level in 10 years resulting in bad loans. Non performing loans are now above 3.6% of bank assets, a sharp increase over the last year.
The real level of bad debts is probably higher, because of the significant number of “restructured” loans, which many suspect are merely non-performing loans which have been extended with more generous terms to avoid formal recognition as bad debts.
The problem is greatest for government owned banks, which constitute 75% of the banking system. The bad loans are concentrated in sectors such as power, aviation, infrastructure, real estate and telecommunications.
The common element is that these industries are characterised by government involvement and which have suffered from erratic government policy or wholesale interference. In electricity, state owned utilities have accumulated losses of $14 billion, in part because low government mandated rates dictated by political considerations do not cover the cost of generation.
While many Indian companies are financially sound, with strong earnings and healthy balance-sheets, there are significant levels of loans to politically sponsored “promoters”, who are over indebted and have limited access to new capital without a willingness to dilute down the backers stakes, which is often not acceptable except in extremis.
The pressures are likely to increase over time as the economic slowdown bites.
The Indian government has already moved to recapitalise state owned banks to ensure their capital position. In the process, the budget deficit and the government borrowing requirements have come under increasing pressure.
We have no Infrastructure Today
India is plagued by inadequate infrastructure. In critical sectors like power, transport and utilities, there are significant shortages. Poor investment and slow government decision making has hindered development.
Political pressure to keep utility costs low has impeded investment. In the electricity sector, state-owned utilities that purchase power from producers and sell to residential users have incurred large losses. State governments are unwilling to raise retail consumer rates despite increases in the price that power producers charge the utilities.
Electricity generators cannot obtain sufficient coal from the state-owned mining monopoly Coal India, which has been unable to increase production to match the demands of new power plants. Some electricity producers have been forced to invest overseas to assure access to coal.
Increasingly, the structural problems and poor history of projects has made foreign investors cautious, creating a shortage of foreign capital for investment in infrastructure.
While its workforce is young and growing, there is a shortage of skills. In a dysfunctional public education system 40% of students do not complete school. The workforce is 40% illiterate. India’s overall adult literacy rate is 66% compared to 93% for China.
Some universities, especially the 16 Indian Institutes of Technology, are world class. But their limited capacity means that are significant shortages. Some estimates forecast a shortage of 200,000 engineers, 400,000 other graduates and 150,000 vocationally trained workers, such as builders, electricians and plumbers, in the coming years. In contrast, there are 60-100 million underemployed or surplus low skilled workers in agriculture.
Political Atrophy
Political paralysis is a major impediment to economic development. Successive governments of every political persuasion have failed to undertake meaningful reforms, necessary to foster growth, employment and development.
Required changes in land and property laws have not been made. Problems in acquiring land are a factor in 70% of delayed infrastructure projects. Reform of tax laws, including introduction of a direct sales tax correcting cumbersome difference between individual states, have not been completed. Changes to mining and mineral development regulations to allow proper, environmentally controlled exploitation of India’s mineral wealth have not been made.
Other crucial areas remains unaddressed – rationalising unwieldy and economically distorted subsidies, implementing economic pricing of utilities, promoting foreign investment in key sectors or reforming agriculture, especially the wasteful and inefficient logistics system for transporting produce to market. Reform of labour markets and privatisation of key sectors has not been progressed.
The lack of progress on reforms remains a barrier to international investment.
Corruption remains a problem. As current RBI Governor Raghuram Rajan told a business audience a few years ago “too many people have gotten too rich based on their proximity to the government”.
The current governing Congress led coalition and the BJP led opposition are weak, both crippled by corruption scandals. All parties are dominated by political monarchies or by geriatric politicians who cannot or will not embrace change.
India’s fabled democracy is increasingly ossified, where a complete inability to make hard decisions or undertake reforms makes government futile if profitable for some.

Insecure India
In the title of his 1990 book A Million Mutinies, writer V.S. Naipaul pithily captured India’s internal political disputes. Today, about a third to a half of India is affected by the Naxalites, a violent Maoist insurgency which has been active for over the 50 years.
The threat of religious conflict between Hindus and Muslims is ever present. The Chief Minister of Gujarat, a likely candidate for future Prime Minister, remains under a cloud for his alleged involvement in sectarian violence.
Ongoing border disputes with Pakistan and China and the instability of AfPak (Afghanistan and Pakistan), which will be compounded by the US withdrawal, dictates large defence expenditure diverting resources away from other parts of the economy. This is compounded by regional competition with China for influence requiring the capability to project military power into the Indian Ocean and also South East Asia.
The Great Pretender
In the 1980s, Indian sociologist Ashis Nandy observed that “in India the choice could never be between chaos and stability, but between manageable and unmanageable chaos”. Today, a deteriorating global environment, deep-seated structural problems and lack of crucial reforms exacerbated by corruption, threatens to make condition unmanageable, more quickly than most assume.
Indian leaders have been urging businesses and investors to “trust them”. But the country and its elite seems unable to face the truth and undertake fundamental long term changes.

The column originally appeared in the Business Today, edition dated January 6, 2014

Satyajit Das is author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)

(As told to Vivek Kaul) 

Narrow your focus

al ries 2Al Ries
A rising tide lifts all boats. But a falling tide does the most damage to those boats that are poorly anchored.
In high-growth times, when things are going well, management ignores the marketing function. Why get involved when everything is upbeat?
When things are going bad, the first thing management does is to get involved in marketing activities. If sales are turning down, no CEO is going to ignore marketing.
This is the worst time for management to be involved in marketing. They don’t have the knowledge and experience to figure out what needs to be done.
In fact, their instincts are wrong. They know they need to increase sales in order to survive, so their first thought is to expand the brand.
That’s exactly the wrong approach. A downturn exposes the weakness of also-ran brands. In order to survive in a down economy, a company should narrow its focus in order to strengthen its brand, which ultimately can increase sales.
Great Wall Motor is a good example of this principle. In the year 2009, the company marketed trucks, passenger cars, minivans and SUVs, using nine different model names.
Then the company decided to focus their resources on a single model, Haval, using the strategy, “The most-economical SUV under 100,000 RMB.” (Roughly $13,000 at the time.)
Last year, Great Wall Motor sold more vehicles than any other Chinese automobile company. Furthermore, they made more net profits than the next four Chinese automobile companies combined.
The question is why does this happen? If you’re the CEO of a major corporation, chances are good you are a left brainer. Before you make a decision, you want to be supported by facts, figures, market data, consumer research. If you’ve a job in marketing, chances are good you are a right brainer. You often make decisions by “gut instinct” with little or no supporting evidence. It couldn’t be otherwise in a creative discipline like marketing.
A logical, analytical left-brainer generally won’t take a right-brainer seriously whether the economy is up or down. In China, for example, consumers saw passenger cars as “prestige” vehicles and trucks and SUVs as working vehicles for the lower class.
So if you are a logical thinker, you would want to focus on passenger cars. But a right-brainer is a holistic thinker. He or she sees the big picture. And the big picture in China back in 2009 was that every other automobile manufacturer was going to focus most of their resources on passenger cars. That’s why the better strategy for Great Wall was to do the opposite, focus on SUVs.
At the same time, low-growth times can actually benefit market leaders because it makes them relatively stronger than their weak competitors. Take the automobile industry in America. The recession of 2006 to 2008 bankrupted General Motors and severely damaged Ford. But it improved the position of imported brands like Toyota, Mercedes-Benz and BMW.
What should weaker competitors like General Motors have done? As a general principle, they should have narrowed the focus of their brands. General Motors’ leading brand, Chevrolet, has 18 different models. What’s a Chevrolet? It’s a large, small, cheap, expensive car or truck. That’s a weak position that can cause serious problems in low-growth times.
On the other hand, Toyota is the No.1 car brand in America. Mercedes-Benz is the “prestige” leader and BMW is the “driving” leader. They all did well in the downturn.
A weak brand may continue to exist in a rising economy. But not when the economy turns down. So marketing managers who manage a weak “also-ran” brand should “narrow the focus” of their brands in order to strengthen their positions.
As a starter, for example, Chevrolet should have divested itself of its truck business and concentrated on cars, preferably entry-level cars. General Motors has a truck brand called GMC that sells trucks only. That brand could be strengthened by the addition of the Chevrolet truck models as well as the Chevrolet model name for trucks, Silverado.
Look at the automobile market in Russia. Lada, the market leader, sells just six models yet has a market share of 17 percent. Chevrolet on the other hand markets 11 different models, but its market share is just 7 percent. Chevrolet’s leading model is Niva, an SUV made in Russia that has generated a lot of favorable interest. The model is often on back-order, with waits of two or three months.
If I were running Chevrolet in Russia, I would focus all my resources behind the Niva model, much like Volkswagen did with its Beetle model in the United States.
You are going to see the same things happen in smartphones. The rich will get richer (Samsung and Apple) and the poor will get poorer (BlackBerry, Motorola, Nokia and others) unless they do something dramatic like narrowing their focus to strengthen their brands.
Companies are like plants. Overtime, plants expand in every direction so a good gardener trims them back from time to time. Companies need to do the same. Keep cutting back on products and markets that are not performing well. Narrow the focus to both strengthen the core brands and increase their market share.
Look at the smartphone category. Apple basically markets one new model to replace an existing mode which is then discontinued. Yet the last time I checked, its competitor, BlackBerry, markets 15 different models. Which company is more successful?
But narrowing focus is easier said than done. Listen. Most CEOs we have dealt with take the position that they know what marketing strategies are best for their companies. They don’t want marketing managers to tell them what to do. They want marketing managers who will execute their strategies.
That’s why they seldom take the time to ask marketing managers for their advice and counsel. Most times, marketing managers have to force their way into boardrooms in order to present their ideas. I’ve been in those meetings. And it’s obvious that the chief executive and his or her staff has already made their minds up on what strategic directions to take. They just attend the meetings to placate marketing managers who often wind up frustrated.
Also, during low growth times, companies end up with metric madness. If you run a company by the numbers, you’ll eventually run the company into the ground. You might be successful in the short term, but never in the long term, as the financial crisis demonstrates.
The banking industry is a good example of an industry run by the numbers. And yet the banking industry was the one industry that did the worst in the recent recession. Left-brain managers are verbal, logical and analytical. Nothing wrong with that, as long as management also takes the remedy to counteract its overemphasis on mathematics.
Almost everything about marketing is the opposite of the typical manager’s approach to running a business. Marketing is illogical and definitely not analytical. Marketing is intuitive and holistic. We’re concerned, however, that this message is being ignored by the marketing community which seems to be drifting from right to left. From a right-brain approach to a left-brain approach. The hot topic among marketing managers today is ROI, return on investment.
Another mistake that some companies make during recessions or low-growth environment is that they introduce cheaper versions of their existing brands. Packard was the leading luxury car brand in America for many years. But during the depression in the 1930s, Packard started selling relatively inexpensive vehicles. Its major competitor, Cadillac, kept it prices relatively high, although selling far fewer vehicles than Packard. As a result, Packard is long gone and Cadillac is still alive.
I don’t know enough about Indian corporations to make specific suggestions, but as a general rule, if a company is losing market share or losing money, it needs to change its marketing strategy.
That runs counter to the normal thinking which is (1) The strategy is right, but (2) It’s the execution that is wrong. So chief executives tend to react to trouble by firing lower-level managers in charge of executing corporate strategy.
Then too, if a company changes its corporate strategy, it can reflect unfavourably on the chief executive. From an ego point of view, that’s a strong reason to focus on execution rather than strategy.
Also, there are few other things remembering. Does it make sense to launch new products in a low growth environment? Yes and no. Yes, it’s a good time to launch new markets for a market leader. Its competitors are weakened and are less likely to have a good response.
No. It’s a bad time to launch new products for a company that’s not a market leader. That drains resources from the company’s core business. Also, its worth remembering while launching new products that advertising today doesn’t have the credibility to launch new products. Only PR has that credibility. Regardless of the environment, companies should start with PR and then switch to advertising after the new product or brand has achieved some recognition among consumers. Our philosophy is: PR first, advertising second.
To conclude, the one message that marketers need to remember in times of low growth is to narrow your focus.

 (Al Ries is a marketing consultant who coined the term “positioning” and is the author of such marketing classics (along with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. He is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter Laura Ries. Along with Laura he has written bestsellers like War in the Boardroom and The Origin of Branding)
The article originally appeared in Business Today in the edition dated January 19, 2014
(As told to Vivek Kaul)