Imperatives for business leaders

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Exiting the downturn.

Now that the worst of the downturn appears to be over — at least in India — here are seven strategies business leaders should focus on.

Achal Raghavan

Dr Samuel Johnson, the 18 {+t} {+h} Century English author, is credited with this insightful quotation: “….when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully”. Faced with a dramatically altered business landscape in late 2008, Indian business leaders scrambled to take urgent defensive action — mostly in the form of cost reduction, operational improvements and business consolidation.

Now that the economy has exhibited unexpected resilience, and is showing signs of renewed growth, it is time to look at some strategic imperatives that business leaders should focus on for the future.

Retaining the gains

Having reduced costs internally and streamlined the customer portfolio externally, the biggest challenge ahead for companies is that of “hanging on to the gains” once business starts picking up again. The normal tendency to revert to earlier behaviour has to be blocked, and the new lean and frugal ways institutionalised.

The CEO has a large role to play in ensuring that this happens, since people look to the leader for cues. The best way is for the management to hold frequent reviews of operating costs — possibly weekly — so that any drift can be spotted quickly and corrected.

Beyond the numbers

Richard Rumelt, Professor of Strategy at the Anderson School of Management, UCLA says, “Competent management always looks beyond the numbers, deeper than the current measures… you cannot manage by just looking at the results meter”. This view is based on the fact that the operating results of corporations around the world gave absolutely no prior warning of the impending meltdown last year.

To follow Professor Rumelt's advice, leaders have to develop the ability to keep track of key economic drivers and market forces that are pertinent to their industry, and spot approaching turbulence ahead of time. However, this task is made more complex by the “cascade effect” — where events in one industry flow all the way through the supply chain, and end up impacting industries which look unconnected at first glance.

Stronger role of Board

The Board of Directors has to play an increasingly aggressive role in setting strategic direction for the company, and reviewing subsequent progress. Assuming that the Board is staffed with members who possess relevant and rich experience, the combined wisdom they bring to the table would be of great value in the days ahead. The Board will also have to push hard for continuous improvement in ethics and governance, given the hard knocks suffered by some famous corporate names in recent times around the globe.

The current environment also provides an opportunity for companies to examine and evaluate the composition and performance of their Boards, and make changes as needed to strengthen their effectiveness.

right leadership style

Operating in a crisis-management mode calls for the CEO to “get his (or her) hands dirty” with the daily nitty-gritty of the business, far more than is warranted in normal times. Many leaders resorted to this style in the last year, operating at a level or two below their normal role, in order to tide over the crisis. However, as things stabilise and business conditions start reverting to normalcy, leaders should also take a step back and allow their team members to perform their normal roles once again.

Inspirational and dynamic leadership is even more essential in the current circumstances. The recent resignation of Fritz Henderson from the CEO's post at General Motors, after just eight months on the job, is an example of key stakeholders' discomfort with a top manager's style. He was apparently seen by the Board as not making changes fast enough.

“green” opportunities

Companies wanting to mitigate long-term risk, while growing at a healthy pace, would be well advised to look for opportunities in “green” businesses — renewable energy, recycling, lower carbon emission, and clean technologies.

Design for Environment (DFE), a tool for designing products that are easier to recover, reuse or recycle, is assuming increasing prominence in this space. For example, the global automotive industry is hard at work trying to design and manufacture more “green” cars, and this opens up multiple business opportunities for the supplier industry.

Manufacturers of electronic and office equipment increasingly take back old equipment from customers at the time of a sale, and reuse/ recycle specific components in the manufacture of new products.

A word of caution is merited here. Business leaders should guard against being seen as resorting to “green washing” — doing things that are apparently environment-friendly and green, but which turn out (on closer examination) to be superficial and PR-oriented.

Balanced portfolio

The downturn brought into sharp focus the importance of the domestic market for many Indian companies, both in the short term and for the future. Companies with a skewed weightage towards overseas markets (especially in the US and Europe) have been forced to take a hard look at their Indian market shares and strategies. In another set of circumstances, the reverse could also turn out to be valid.

The common-sense principle of constantly working towards a balanced market portfolio stands reinforced, taking into account the risks associated with various geographies, markets, industry sectors, customers and currencies.

take risks (again)

Emerging cautiously from the slowdown, business leaders need to learn how to take risks once again — tempered with lessons learnt from the recent past. Risk management methods need to be given greater prominence. Scenario planning is an effective tool that can be deployed in this context.

Mergers and acquisitions (M&As) are still powerful avenues available to Indian organisations to fulfil their long-term growth goals. If the target companies are located in economies that are yet to bounce back, valuations are likely to be attractive. The key question is still that of strategic fit and synergy.

(This article was published in the Business Line print edition dated January 5, 2010)
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