In his book The Real Life MBA, Jack Welch has a great chapter called “Overcoming a Whacking.” This is relevant to how businesses can start to recover from the economic pause created by the pandemic.

Here are my notes:

Overcoming a Whacking

…and getting better because of it

Business is like sports—fast, competitive, strategic, teamwork, nuance, surprise

Sometimes outright calamities, but sometimes whacked because not prepared. Didn’t see something coming.

Whack recovery:

• Own your whack: distracted, frightened, depressed workers can’t fix anything
• Hang on tight to your best
• Get maniacal about drivers of cost, performance, and growth. Using data as guide.
• Reinvent your strategy process
• Reality check your social architecture
• Worry more productivity

1. Own the whack

Know what happened and gain courage. Distracted, frightened, depressed workers can’t fix anything.

2. Hang on tight to your best

When a company gets in trouble, often knee-jerk reaction of firing people without consideration of performance. Often because no performance appraisal system, and want to show board how fast they are acting and deeply they are cutting. So take the easy way out—fire 10%, or cut salaries 10%, or buyout package to any worker willing, and highest paid and  most qualified tend to take

Epitome of weak, cowardly, demoralizing management. Why would you incentivize your best out the door and risk setting off a mass talent exodus?

You’ll never get out of a hole without your best people. So in hard times, must do the counterintuitive and even courageous—give your best people more in current pay and long-term performance based equity, and err on side of too many participants than too few.

This is the time, of all times, to unleash the generosity gene. The best stay, and then others stay.

“Your best people are your best hope for survival and success. Do what it takes not to lose them.”

3. Meticulously search for ways to improve every part of the business

Meticulous does not mean slow!

Determine the true drivers of costs and growth

4. Reinvent the strategy process

Not bi-annual session with elaborate presentations

5 slide approach

Draw the best people from every part of the organization to create

1. Competitive playing field; who they are, strengths and weaknesses. Get into detail.
2. All of competitor recent activity—products, tech, and people moves that have changed the landscape.
3. What you’ve been up to in same regard over same period
4. What’s around the corner
5. Your big, wow-worthy, winning move to change the landscape

Find a smart, realistic, and relatively fast way to gain competitive advantage 

5. Reality check your social architecture

= How the business has its people arranged

A good word from Jim Collins, written during the economic recession of 2001-2002 but always applicable (and to many arenas of life), on being one who creates rather than one who merely reacts:

Here’s the essential truth of our current situation: The real problem has stayed the same, regardless of the direction of the market. First we went through a spiraling-up phase, and people lost their bearings as they got caught up in the great melee of opportunity. Now we’re in a downward spiral, and people have lost their bearings in a scramble of uncertainty. It’s the exact same pattern in reverse: people merely reacting to circumstances, rather than doing anything fundamentally creative.

The distinction isn’t between a market that’s going up and a market that’s going down. It’s between people who are fundamentally creators and people who are only reactors, who take their cues from the outside world.

If you did a word search across my research materials on the greatest company builders of the past 100 years, you would find almost no mention of “competitive strategy.” Not that those builders had no strategy; they clearly did. But they did not craft their strategies principally in reaction to the competitive landscape or in response to external conditions and shocks. Without question, they kept a wary eye on the brutal facts.The fundamental drive to transform and build their companies was internal and creative. It didn’t matter whether they faced a crisis (as did Thomas J. Watson Sr. at IBM, who never resorted to layoffs in the Great Depression) or whether they faced calm (as did Walt Disney when he conceived of Disneyland). The leaders who built enduring great companies showed a creative inside-out approach rather than a reactive outside-in approach. In contrast, the mediocre company leaders displayed a pattern of lurching and thrashing, running about in frantic reaction to threats and opportunities.

If I could bring all of my students back into the classroom, I would remind them of David Packard’s admonition that in the long run, “more companies die of indigestion than starvation.” If a company focuses on making creative contributions that fall in the middle of three intersecting circles—what it is passionate about, what it can be the best in the world at, and what best drives a sustained profitable economic engine—then growth will likely follow.

This is a good article from Harvard Business Review on how the conventional approach to handling recessions is often wrong, and what to do instead. (I apologize that the link is to the pdf — the article doesn’t seem to be available in html.)

I have also blogged on this in my series Managing in a Downturn.

From Profitable Growth Is Everyone’s Business: 10 Tools You Can Use Monday Morning:

With growth, the organization expands and people can build a career and a future. Growth enables a business to get the best people and retain them. People who see personal growth opportunities have more energy, better morale, and enhanced self-confidence.

At a company that is not growing, there is little emotional energy. Your entire workday is spent feeling as if you are moving underwater. The best people spend a significant amount of time looking for a job.

If you are not in a growth situation, you are in a limiting situation.

Post 5 in the series: Managing in a Downturn

In a recession, it is easy to give excessive focus to cost-cutting. And you do you do need to conserve cash, so I’m not saying that cost-cutting has no place. But I am always skeptical of obsessive cost-cutting, especially when this becomes the norm.

There are two problems with a default tendency to excessive cost-cutting when things get tough.

First, it often amounts to retreating. There are few better ways to retreat than to cut organizational capacity through down-sizing, closings, and extensive budget cuts. Sometimes these things may be necessary for sure, but if they are necessary do them with the aim of pruning, not retreating. The difference is that pruning is done strategically to make the organization stronger and enable new growth. And have as light of a touch as possible.

Second, an obsession for cost-cutting often fails to get at the real issues. It is often a one-shot reduction that does not improve the capacity of the organization for renewed growth but rather simply masks the poor management practices that are the real problem.

Here’s what Ram Charan has to say in Profitable Growth Is Everyone’s Business: 10 Tools You Can Use Monday Morning:

In contrast [to improving productivity], sporadic, deep cost-cutting — downsizing, closing plants, across-the-board budget cuts — are one-shot reductions (often without attention to the consequences for revenue growth) that do not result in doing things a better way [emphasis added].

Cost-reduction campaigns are largely a result of the lack of discipline of productivity improvement on a long-term consistent basis. When employees experience these cost-reduction campaigns every year and sometimes two or three times a year and revenues are flat or declining, they know they are in a business going nowhere.

That is spot on and fantastically well said.

Third, an obsession for cost-cutting often reduces revenue growth down the road. Deep cuts are often made without regard to the consequences they may have for revenue generation. For example, a store might decrease staffing in order to cut costs. But as a result of the decreased staffing, customers can’t get their questions answered or find what they want as easily, so both sales growth and buzz about the store decline. Money was “saved,” but at an even greater cost.

Another variation of this is the sacrifice of the long-term for the short-term. Tom Peters had a good word on this a few months ago:

I see far too many of my clients, good people with good motives, obsessing on pleasing Wall Street analysts, and taking actions that may well reduce their stock’s value two to three years out. They have slashed budgets on many longer-term strategies, such as research and development, talent retention and development, even preventive maintenance on their equipment. All of it in the name of improving margins and a short-term increase in share value (or so the analysts say).

Fourth, an obsessive focus on cost-cutting can stifle your people, which ultimately undercuts your company right at its energy source. Do not pursue cost-cutting in a way that overlooks your people. Continue to focus on and build the strengths of your people. As a helpful Gallup article points out, a strengths-based approach to management is more important than ever during a recession.

In sum, when cutting costs is necessary, don’t get tunnel vision. Continue to keep productivity improvement and revenue growth on the radar, continue managing to the strengths of your people, and don’t prize operational efficiency over continuing to treat your employees like people who are the true engine that will propel your company through the recession and beyond.

For more on specific ways to achieve profitable growth which can be implemented immediately, I would recommend Ram Charan’s book Profitable Growth Is Everyone’s Business: 10 Tools You Can Use Monday Morning — whether you are in a recession or not.

Ram Charan also has a book specifically on managing in recessions, called Leadership in the Era of Economic Uncertainty: Managing in a Downturn. I haven’t read much of it yet, but everything that I have read by Charan has been very solid.

One of the major points Charan makes in the book is the importance of putting cash efficiency front and central during the most severe points of the recession. Since “you must have sufficient cash or credible access to it to weather the storm,” this means not taking actions during a severe recession that will “consume disproportionate amounts of cash in the form of more inventory, extended duration of accounts receivable, or increased complexity.”

So do not retreat, do not turn to one-shot cost reductions to mask the real issue of a lack of discipline, and do not sacrifice the future, but do give a higher place to cash efficiency during a recession than during non-recessionary times.

Posts in This Series

1. Managing in a Downturn: An Introduction
2. Managing in a Downturn: The Good News
3. Managing in a Downturn: Don’t Retreat
4. Managing in a Downturn: Don’t Overreact
5. Managing in a Downturn: Be Careful of Cost-Cutting Campaigns
6. Managing in a Downturn: Keep Making Meaning
7. Managing in a Downturn: It’s Time to Hire