The Hindu Business Line : Coping with distress

The real economy is a much larger entity; stock markets are merely a smaller subset of it. Basing all decisions and policy interventions on stock market gyrations is akin to the tail wagging the dog.

V. K. Madhav Mohan

No matter how bad the current bad news, opportunities abound for those who learn how to cope with the distress. If we keep a few general principles in mind we can ride out the crisis with élan like an expert surfer skims along the crest of the Big One with consummate finesse.

What goes up must come down….eventually, at least temporarily. But in any case everything is temporary so it’s vital to keep a sense of balance and serenity about us at all times.

Just as Krishna enjoined Arjuna to practise titiksha (to tolerate) during good times and bad, responding to heat and cold, joy and sorrow with the same equanimity. That’s because “what comes is bound to go” (agamapayino) since everything is ephemeral anyway.

If we think carefully we’ll realise that economic cycles are just that: a fluctuating saga of interchangeable ups and downs. It just so happens that some periods of ups are longer than others and some periods of downs are steeper than others.

Eventually the up-cycle must give way to the down-cycle and vice versa.

Now that the stock markets have fallen into the abyss people are bemoaning the losses; but didn’t the same people laugh all the way to the bank when the Sensex was soaring senselessly?

Ignore Stock Markets

Stock markets are vastly over-rated as definers of economic fundamentals. At best the stock markets reflect aggregated perceptions of value of companies. At worst, they are a forum to hammer down that value.

In both cases, the real value is rather different just as truth is different from perception. The real economy is a much larger entity; stock markets are merely a smaller subset of it. Basing all decisions and policy interventions on stock market gyrations is akin to the tail wagging the dog.

For CEOs and business owners the stock market is a huge distraction that diverts their focus from operations and organisation building. Especially in times of volatility its far better to get back to the basics of good business practices: quality, process orientation, accounting fidelity and people-centric policies.

The path ahead

Following is the path to coping with the ongoing distress in global markets:

Revisit strategy and leadership: This is the ideal time to ask, once again, the quintessential question Prof. Theodore Levitt postulated so many decades ago: What business are you in? Is the business centred on satisfying the needs and wants of customers or is it centred on selling what is produced If the answer is the latter, it’s time to change.

The entire organisation needs to be re-focused on the customer and his needs. That can throw up many new products and services that can insure against eroding prices and market share.

Furthermore, when was the last time you really interacted with or studied the customer? Since then, it’s almost certain that he has changed and so have his needs. Are you continuing to produce what he once needed and not what he needs now?

It’s also appropriate for CEOs and business owners to reassess their personal leadership styles, mindset vis-À-vis their people and their own attitudes. What got you here won’t get you there! What worked till now is already obsolete. Can you find a new way of working with people and empowering them? Can you push decision making down the line instead of vesting all power in yourself?

These are questions that need to be pondered over since no leader, however charismatic, is going to be able to cope alone with the grim scenario now unfolding.

Since uncertainty creates fear and misperceptions it is also important to re-clarify and reiterate corporate values.

Cut flab — costs, people and brands: Export markets are evaporating and so the focus will need to shift to servicing that vast Indian domestic market. Products and services will need re-design for positioning them in the domestic market. Margins and profitability are already under pressure; therefore it’s even more important to cut operational costs and overheads.

Productivity will have to be increased by fine-tuning processes. There simply is no more room for non-performers. Sub-optimal brands in the product mix will need to be jettisoned so that the performing brands can be served better. In other words, organisations have to metamorphose into wiry, trim and super-fit competitors.

Conserve cash: Credit sales, dangerous at the best of times, are tantamount to committing hara-kiri now. Organisations are unsuited to be bankers to customers! Credit sales in the current scenario are just bad debts with a respectable name.

Companies will therefore need to introduce cash discounts and other mechanisms to convert all their sales into cash immediately. Large cash payouts will also need to be renegotiated or cancelled to conserve cash within the business as a hedge against uncertainty.

Invest in learning and bandwidth: Leaders are habituated to cutting training budgets in uncertain times. This is a fatal mistake since training is hardly to be treated as an expense; instead it is a vital investment for corporate survival and to cash in on the next upturn.

However, training needs to be precisely targeted for results. CEOs will need to mandate their HR teams with re-assessing training needs and constructing a plan that builds new and more relevant skills and competencies.

Learning, especially e-learning, is now even more critical. So too is investment in Internet bandwidth (to improve efficiencies in video conferencing and communications).

Like statisticians fit a straight line through scattered data points on a graph, companies and CEOs must keep their wits about them and calmly reassess their work and life. That’s when the opportunities hiding in the downturn become visible. No matter how cloudy the external environment, differentiation and discrimination can reveal new possibilities.

TheLonelyCEO@gmail.com

http://TheLonelyCEO.blogspot.com

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