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DON'T WASTE THE CRISIS

Opportunity knocks!

By Professor Seán Meehan and Dr Bernie Jaworski - September 2009

As we adjust to the mixed economic signals of 2009, we are on the cusp of the biggest opportunity to come along in a lifetime. Stock markets around the world greet the return of those investors strong and brave enough to ride what looks like a rollercoaster recovery. We’re advised, however, that on average the recovery will be slow and dependent on so many imponderables that we should be cautious in order not to put it in jeopardy. On average that’s as good a guess as any. But executives need to be wary. Investors don’t invest in the company offering average returns, customers don’t want to buy average products and the best employees don’t want to invest years of their lives working for an average employer. Forget the prevailing wisdom contaminated by the doomsayers; average is not for winners.

Wake up to the opportunity. Customers no longer tolerate substandard solutions. They demand value in all segments and require that their favorite brands evolve and respond to the new world. While your competitors bury their heads in the solace of the norm, you can steal the initiative.

Based on our research agendas, we offer straightforward advice to all executives: sort out the core, build around it and then – only then – change the game. Don’t waste this crisis. Don’t ignore the opportunity!

Sort out the core
During recessions, we hear many companies talking about ‘going back to basics’. This makes sense as long as it addresses what customers really want: superior performance topped off with an appealing, unique selling proposition. Toyota, Procter & Gamble and Hilti are among the exemplars in this regard and also happen to have been highly resilient through many recessions.[1]

Regrettably, ‘back to basics’ is all too often a mantra for unfocused cost-cutting by desperate management. Far from slash and burn survival being the modus operandi of exemplars, Monitor research spanning 7 recessions over 40 years reveals that the winning companies emerging from economic downturns adhere to 4 key areas in which they ‘sort out the core’ while simultaneously driving sustainable competitive advantage: [2]

1. Focus on core products and core markets and the underlying capability systems.

2. Invest more heavily than competition in market communications in core markets.

3. Bias cost reduction efforts toward non-customer value-adding expenses; invest in a fantastic customer experience.

4. Selectively align talent development with the reset strategic agenda.

It is absolutely critical that companies wishing to grasp the opportunity nail their value proposition performance and build the customer franchise.

Build around the core
Toyota, one of most admired companies of all time, slowly emerged as a leader by offering superior performance on the basics. With the auto sector undergoing fundamental re-organization, many of the players are paralyzed. Toyota is not immune to the effects of the current crisis. Like everyone else, it is coping with severely depressed demand, unprecedented losses and massive management re-organization. But the story of the day at Toyota is its relentless march into the hybrid space. It does so around its core – quality, reliability and durability.

Recession beaters start with two core enhancement strategies:

1. Partner or acquire to access new resources that shore up the core.

Time Warner’s decision to merge with AOL in order to get into the internet boom was an ill-thought-through deviation from its core businesses: magazine publishing and cable television. In contrast, News Corporation invested heavily in newspapers, magazines and television, all part of the company’s core businesses.

2. Enhance value chain flexibility and agility.

In the early 1990s, Anheuser-Busch benefited enormously from its earlier decision to prioritize distribution flexibility and chose not to centralize brewing capacity to the same extreme extent as its competitor Coors.

While most companies struggle in a recession, a few manage to stay focused and build for the longer term by following the two aforementioned strategies and the four steps described in the previous section. Fewer still push the boundary further. Recession beaters don’t just build on their strengths, they change the game.

Change the game
Our observation is that recessionary times provide incumbents an opportunity to re-invent themselves. This is not easy for incumbents precisely because their success strategies and ‘plays’ are well rehearsed. All too often it is relative outsiders who take advantage of a down-cycle to re-think an industry’s possibilities. The challenges involved in changing the game can be daunting and many executives prefer to look the other way. What a shame! We’d encourage executives to be less fearful of reinvention. Incumbents don’t need to bet the shop to explore the new ground.

What to do now
First decide not to be average. See your business as your customer does – the solution to a problem. Realize that now is the moment of opportunity. Address the three imperatives described above – don’t pick and choose. Collectively the component principles – when implemented aggressively – have enabled firms to significantly outperform their rivals during periods immediately following recessionary times.

We believe that this type of bold change requires not simply a short-term focus on customers, but rather an industry leading point of view on the evolving customer to truly shape the markets in order to gain lasting competitive advantage.

 

Seán Meehan is The Martin Hilti Professor of Marketing and Change Management at IMD. He teaches on the Orchestrating Winning Performance (OWP), Strategic Marketing in Action (SMA) and Leading the Global Enterprise (LGE) program. He also teaches on IMD’s Partnership Programs.

Bernie Jaworski is President of Monitor Executive Development.



[1] Patrick Barwise and Seán Meehan. Simply Better: Winning and Keeping Customers by Delivering What Matters Most. Boston: Harvard Business School Press, 2004.

[2] “Winning During and Post Recessionary Times,” March 2009, Monitor Research. The study draws lessons from learning from the likes of Intel, Best Buy, News Group, Nucor, Kimberly-Clarke, Weyth, Anheuser-Busch, Air Liquid and Teradyne.



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