Moving Up in a Downturn

JoAnn T. Hackos, PhD
Director, The Center for Information-Development Management
http://www.infomanagementcenter.com

I’ve been calling information-development (ID) managers to find out how they are coping with the economic downturn. Many have had budgets frozen or slashed, which means they have difficulty supporting staff training needs or travel to visit staff members at outlying locations. Others have faced layoffs in their groups.

If you haven’t already done so, complete the latest CIDM survey, Coping with the Slowdown. We are trying to accumulate a picture of the current climate, and the survey will assist in data gathering.

The June 2001 issue of the Harvard Business Review includes an analysis of typical responses to a downturn and compares them to best practices employed by companies that have weathered downturns and come out on top. Darrell Rigby, Bain & Company summarizes the result of a two-decades long survey of 377 Fortune 500 companies and more than 200 senior executives. He first charts the Conventional Approach to a downturn. This approach will seem frighteningly familiar to many ID managers.

First Phase = Denial

Executives deny that the downturn will affect your company. Consequently, they make no early moves to strengthen the company’s position while revenues and profits are still respectable. In fact, many of them keep spending money wildly on acquisitions and mergers, many with companies having only peripheral connections to the core business. They feel that any contingency planning will only make the troops and the stockholders nervous. Unfortunately, after investing in marginal new businesses and spending on outlandish perks, they are primed to find the company with redundant staff pulling in multiple unrelated directions.

Second Phase = Panic

When the downturn finally hits, the reaction is total panic. Managers are told to cut everything in sight. Quick fixes result in slashed budgets everywhere but especially in anything that might resemble a perk. Employee morale is crushed when all opportunities for learning and growth are eliminated. No training, no travel, no professional development investments get approved.

The problem is not with cautious spending but rather with acting differently in a crisis than in good times. Profligate spending results in devastating cutbacks. And cuts that are dumbed down and implemented across the board mean that everyone suffers.

Rigby points out that layoffs rarely make sense. The average US company has 15% to 20% attrition each year. The typical downturn lasts about 11 months and results in sales lowered by less than 10%. The scramble to fire–and then rehire and retrain–Rigby notes, is not a sound business strategy.

Third Phase = High-spending frenzy

Downturns do not last forever, although it may seem so to the young high fliers of the dot.com economy. Some of us have already lived through half a dozen downturns in our careers. The Conventional Approach teaches that a company has to spend its way out of bad times. Because the panicked actions have destroyed employee morale and disgusted customers, the only response is to buy back loyalty.

I’m eagerly awaiting the frenzy. It will probably be good for the CIDM and the research and consulting environment.

Rigby goes on to explain that successful companies take a different path. Because they weren’t profligate spenders in the good times, they have the ability to weather the downturn without panic. They are careful to invest wisely during the downturn, using it as an opportunity to overcome competitors and gain market position. When the turnaround arrives, they’re stronger than ever before. But they don’t sink into a spending frenzy either.