Chartered Management Institute: In my opinion

Ian Smith, a Companion of the Chartered Management Institute, warns that the recession will test the quality of UK management.

Last Updated: 09 Oct 2013

When writing a commentary on a recession, one of the worst things that can happen is that the recession turns out to be a short-term phenomenon. That doesn't seem to be the case this time round. No sooner do we think that all the bad news is out than another scandal hits the financial services market and new write-offs are announced.

However, unless this recession proves to be somehow unique, it is likely to follow similar paths to earlier downturns. Yes, the scale may be larger, with the FTSE-100 at half the value of 18 months ago, and the time needed to recover may be longer. But confidence will return, risks will be taken - and opportunities abound.

Having worked and lived through four recessions since the early '70s, I have learned to use recession as a diagnostic tool. Too often, in a thriving economy, companies avoid a forensic approach to their business, relying on market growth to mask their weaknesses. In a recession, they can't.

However, it's an ill wind that blows nobody any good. Some will batten down the hatches and hope to ride out the recession, but others will take the opportunity to show leadership and be bold in their response to the challenge.

Frankly, the overwhelming challenge for the UK is in leadership and management. We're not going into this recession in a strong position. As chair of the advisory panel on leadership and management, I reported back to Government with a number of recommendations for narrowing the productivity and competitiveness gap between the UK and its global competitors. Although some were acted on - for instance, increasing the grants available for leadership and management training for small and medium-sized enterprises, and reducing the number of employees that a company must have to qualify - there is much to be done.

The panel's research showed, for instance, that whereas the UK was spending EUR1,100 per manager on leadership and management training, our competitors in Germany were spending EUR4,400. Given this huge discrepancy, could anyone seriously consider reducing investment in our management training?

I can think of actions that companies could take to reduce the impact of the recession, but these assume a skilled and qualified management team, capable of implementing them. With this assumption in place, three areas stand out as opportunities that will give a speedy return on investment if radical action is taken.

First, to return to my comment that recession is a diagnostic tool, it's clear that, over the past 10 years, many businesses have benefited from unprecedented growth. Increasing market opportunities, however, have masked inefficiency, bureaucracy and lack of innovation. These businesses are now finding that, in a declining market, their cost structures are inappropriate.

Now is the time to take a forensic approach to your business and really understand what is core to its survival and what is 'nice to have'. By doing this, you avoid the salami-slice method of cost-reduction and, where necessary, you can even increase short-term investments in critical areas such as management training, while being bold in stopping non-core activities.

Second, my experience of recessions tells me there is a better return in focusing on my existing customers than there is on a costly effort to establish new business relationships. As president of the Institute of Customer Service for more than 10 years, I'm amazed that so few companies understand how they are perceived by their customers. Why not focus your energies on quick and easy changes to differentiate your company from its competitors? I'm reminded of the line from Robert Burns: 'O would some power the giftie gie us to see ourselves as others see us.'

Your customers have never had a greater choice of vendors. But when did you last look at your business through their eyes? How user-friendly are your channels to market? Are your website, billing and call-steering systems and customer service processes organised around your firm's internal structure rather than the customer's desired experience? It's not your responsibility to set brainteasers for your customers; they can go to Nintendo for that.

Third, your ability to innovate as a company is a true measure of the quality of your leadership and management. Let me remind you what innovation means. It isn't necessary for the leadership team to have the bright ideas about how to take costs out of your business or improve cutomer relations. Innovation is about their ability to turn ideas into business success.

Surely, this is the time to involve your customers, employees, partners and suppliers in the challenges you face? They all live in the real world and are expecting action of some sort. So bold, innovative decisions around working practices, consolidation, shared services etc - all difficult in good times - could well be given a sympathetic hearing, especially if these stakeholders are involved in the decision-making.

If necessity is the mother of invention, then recession is the mother of innovation. mt CV - IAN SMITH - Having retired as senior vice-president and managing director of Oracle in the UK, Smith recently started his own executive coaching consultancy, AndersonBick Consultants. He chaired the Leadership and Management Advisory Panel on behalf of the Government, sits on the board of BITC, and is chairman of Young Enterprise UK.

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