Companies able to invest in a recession will gain market share and come out stronger
By
Susan Long, Enterprise Editor
Giving pointers on how businesses can harness the economic downturn to their advantage, Dr Black says that in two decades of research into 50 companies globally, he found that over 85 per cent enjoyed positive returns on their investments made in recessions. -- ST PHOTO: CAROLINE CHIA
THE public backlash that DBS Bank suffered when it slashed 900 jobs was a classic case of 'first mover disadvantage'.
When times are tough, the first to wield the axe gets all the bad press, says Dr Stewart Black, executive director of the Insead business school's Centre for Human Resources in Asia.
Stewart Black, HR expert
DR STEWART Black, 49, is the executive director of the Insead business school's Centre for Human Resources in Asia, which conducts research and serves as a learning hub for senior HR executives from about 30 large multinationals.
The American is the co-author of a bestseller on leading change, It Starts With One, and a leading textbook, Management: Meeting New Challenges, along with 10 other books on leadership, globalisation and strategy.
Bosses, if you must make cuts, here's what to do 1 AVOID DEATH BY A THOUSAND CUTS
It is better to do your calculations thoroughly and then retrench in one fell swoop, than make multiple cuts as things worsen, says Dr Stewart Black, executive director of the Insead business school's Centre for Human Resources in Asia.
MANY savvy companies have harnessed recessions to their benefit and taken to heart American civil war general William T. Sherman's famous saying 'March when the enemy is sleeping'.
Insead's Dr Stewart Black's favourite examples are:
Of course, the bombshell announcement, coupled by the fact that DBS is a national icon and still profitable - it declared a third-quarter net profit of $379 million, albeit 38 per cent less than last year - did not help.
But the 49-year-old says: 'It's almost impossible for outsiders to judge whether a company needed to make such a big cut. They likely considered the negative reception of going first but took the decision anyway.
'Often companies struggle with how much to reveal. The more you open the books, the more you satisfy workers. But it can make customers nervous and can give competitors an advantage.
'So did they reveal too much or too little? And was their response proportionate? Often, you can't tell until way after the fact.'
He says it is not always the case that companies should hang on to all their employees. Of late, there have been calls here to revert to the Eastern or Japanese way of viewing the company as an extended family, and sticking together through thick and thin.
But Dr Black, who spent five years working and living in Japan as a consultant and professor and has visited it extensively since 1978, says: 'Family loyalty served Japan well in the roaring 80s but they were very slow to restructure and get rid of uncompetitive assets and excessive employees after the bubble burst in 1991. It cost 17 years of stagnation.
'You have to ask if the cost of a more dramatic response would have been less costly than the response they took which spread the pain out over 17 years. Would a Western response have inflicted less pain?'
The right response, he says, is probably somewhere in between the American way of slash and burn and the familial orientation of Japan, which protects workers as long as possible.
Before companies reach for the axe, he says they should first do a cost-benefit analysis of how much it will cost to recruit, train, develop and get a replacement worker up to speed.
For a blue-collar worker, studies show that it costs roughly about 30 per cent of his annual salary to achieve this. For a white-collar worker, it costs between 50 to 70 per cent of his annual salary.
'Quite often, companies underestimate this when they reflexively cut people. They are penny-wise, pound-foolish, saving money at the moment only to spend more money in the future.'
Another common mistake firms make is failing to differentiate between high and low performers, and firing en masse. 'Research shows that top performers contribute 40 to 70 per cent more than average performers. It's important to put pressure on low performers but keep your top performers during a recession.'
One way to do that in lean times is through awards and recognition. 'It may be that sales are not as high in a downturn but the company is still doing better than others. In that case, are we celebrating, rewarding, recognising top performers?"
An inexpensive method, he suggests, is an Employee Of The Month competition. The winner gets dinner vouchers, and his picture in the newsletter.
Another way is to offer more flexibility in work hours. 'If you gave employees a choice of working flexible hours or slightly fewer hours, some may take it. They may have childcare or parent-care needs or other things they would be happy to trade 10 hours a week at work for on a temporary basis.
'They won't be able to sustain that in the long term, in terms of income, but it could be welcome flexibility for a while. This will save money, versus forcing everybody to take shorter hours or laying people off.'
Beefing up development opportunities also helps. This can be done through setting up a task force and offering 'temporary assignments', to look at, for example, process improvement, cycle time or customer service. 'This helps employees' development so that when the recovery comes, they have added capabilities and greater opportunities to advance.
'Sometimes taking a step back helps you leap forward. If we take on a new skill, there is a learning curve. A good time to put in that investment is during a recession, so that you're up that learning curve and can gain all the benefits at a time when the economy is recovering. That way, you get acceleration during the recovery, versus a company that waits till the recovery to put in that investment.'
In his past 20 years of researching 50 different companies worldwide, he says over 85 per cent enjoyed a positive return on their investments in marketing, operations and human resources made during recessions.
Now is not the time to cut back but spend more, he urges. 'If companies have strong balance sheets and the liquidity to make investments, there is no better time to gain market share, retool and emerge stronger.
'So far we haven't had a recession last forever. Every recession has been followed by a recovery. If you prepare well for the recovery, you can catch the front of the wave and surf out in front of your competitors.'
Unfortunately, most companies look only at how dire the here-and-now is, and forget that things will get better. So, a bad economy is the best time to hire good talent.
'You can get the best of both worlds by keeping your best people and going out to grab your competitors' best people. Now coming out of the recovery, you're in fantastic shape. You've kept your best people, you've got rid of your worst and you've hired your competitor's best.
'You've made investments so that your learning curve will match the recovery curve. With that, you're firing on all 12 cylinders.'
