Book review: Managing in a Downturn, by FT Prentice Hall

JLR's Smith agrees that we need old experience and fresh thinking to lift our eyes above the gloom.

by David Smith
Last Updated: 25 Oct 2010

 

This compilation of short articles on the present recession, analyses of its causes, and pragmatic business recommendations, contains a wealth of old experience and a good dose of new tricks.

Global market volatility triggered by the near collapse of the banking system last year has had a shock impact across the globe - certainly in the automotive industry. Extreme shifts in demand, unusual competitor reactions, supply-chain vulnerability, and stresses on previously profitable businesses have required drastic revisions to our plans. Leading businesses has been a difficult experience. And this book provides some great insights into how to learn from the downturn.

The articles combine light-touch academic analysis with practical advice. We are constantly encouraged to lift our eyes above the gloom to think about opportunities to drive transformation. A telling statistic quoted is that 40% of senior managers doubt that their leadership has a credible plan for dealing with the present crisis, and a similar number doubt its ability to execute.

The good news is that long-term trends show that growth will return and that recessions tend to be shorter than later growth phases. The vicious circle of weak banks, withdrawal of lending and declines in real activity seems to have been broken by government interventions in the banking system, monetary easing and fiscal stimulation.

But the bad news is that the structural issues that brought about these unstable conditions - excessive borrowing in the West, the savings glut in China, inconsistent regulation, poor governance and oversight - are still with us. The massive overhang of public- and private-sector debt we now face will force up the cost of capital and weaken the recovery. How long and what shape the present recession will be is a critical planning question for us as leaders.

In a fascinating article, John Graham et al provide empirical evidence that poorly capitalised companies burn through their cash reserves faster and find it harder to attract new funding than their less financially constrained peers. As these weaker companies make more drastic cuts to investment plans, they destroy value and undermine their chances of survival. It has been a struggle at Jaguar Land Rover to prioritise future product investment when liquidity has been so difficult to manage.

Many businesses have responded to the recession with drastic cost actions, moving quickly from feast to famine. The more astute have pushed through painful decisions and reinforced lean disciplines. Smart pruning is likely to be far superior to a haircut approach.

Many of the articles describe how this and previous downturns have been the spur for transformation. Certainly, such initiatives have been undertaken in the automotive world, which is going through one of its periodic shake-ups - from the GM/Chrysler bankruptcies to major changes of ownership in Europe.

The essentials of securing transformation - focused key performance indicators, good communication and strong hands-on leadership - are well known. In fact, good communication is key in creating the right behaviours and levels of trust within our businesses, and in managing external stakeholders and avoiding adverse media and investor pressure. Web 2.0 technologies may have accelerated the pace of the downturn, but they provide new tools for savvy executives to manage its effect through good communication.

Understanding emerging trends through this noise is identified as a critical advantage. Consumers are reacting in unexpected ways to the recession and changes in fuel price, tax and availability of credit. Examples are given of how marketers should adjust their segment analysis and media targeting to take account of developments.

The recession may also accelerate a reappraisal of BRIC strategies - today's low-cost sources and offshoring opportunities are tomorrow's maturing consumer markets.

So how do we avoid the traps? The need to move from a 'hedging mitigation' view of business risk to a broader integration of risk management into corporate strategy is strongly argued by Russell Walker. The need for a 'triggered response' that goes beyond cash hoarding to the flexible managment of external risk will be a key challenge confronting us managers in the future.

Managing in a Downturn: Leading business thinkers on how to grow when markets don't
FT Prentice Hall
£14.99

David Smith is CEO of Jaguar Land Rover

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