Managing Ahead Of -- and Through -- a Recession

Author Adrian J. Slywotzky says savvy managers prepare for lean times by laying the groundwork to thrive in their aftermath

Like many these days, Adrian J. Slywotzky believes the economic sky is falling. But he's no Chicken Little. The co-author, with David J. Morrison, of a series of well-respected management books -- most recently How Digital Is Your Business? (Crown Business) -- Slywotzky believes it's not too late for most companies to plot a recession strategy that will allow them to emerge stronger, bigger, and more productive.

On Jan. 25, Slywotzky sat down with BusinessWeek Management Editor Louis Lavelle at the offices of Mercer Management Consulting, where Slywotsky is a vice-president, to talk about how companies should deal with customers, employees, and business models in a time of stagnating growth.

Q: You have said companies that ignore the possibility of a recession do so at great risk. Why?


Before a recession, if you plan for it, you have a lot of options for how to manage your way through the recession in terms of having cash, strengthening customer relationships, and having the right people. If you're unprepared, your options begin to narrow very quickly, and the powerful tendency to hunker down -- be defensive, cut costs, and fire people across the organization -- takes over at a time which should be a...significant strategic opportunity to improve your relative position in your competitive marketplace.

Q: Instead of "hunkering down," what should companies do?


There's no question companies have to be more frugal in a recession, and cuts have to happen. The question is how they happen, and to what end? I think the right point of departure before making the cuts is asking, 'Where do we as a company want to be in the year 2002? What is the kind of value we want to deliver to our customers?' Before we cut things, let's find out from our customers to make sure we cut the right things -- and use some of those cuts to invest in, and accelerate, some important programs.

Q: Explain what you mean by "digital business design" and why Dell Computer Corp. is an innovator in this regard?


One of the big changes we've seen is the ability of a company to move from conventional to digital business design, to move from conventional ways of collecting and handling information. The consequence is: In many businesses there's an opportunity to improve productivity by a factor of as much as 10. Dell improved annual inventory turnover from 6 times to 60 times. Cemex [Mexico's leading cement producer]...improved customer response times from 3 hours to 20 minutes. Charles Schwab Corp. cut its costs for many transactions by as much as 80% or 90%. Dell and other companies are innovators because they understand what technology can do to build a fundamentally different, and much stronger, relationship with their customers.

Q: In some ways, you suggest that a recession can actually be a good thing for a company. How so?


There are several important dimensions that include customers, talent, businesses, and investments. It is an opportunity to revisit the customer base and to make sure we don't allocate resources in the wrong place. Exactly the same thing is true with talent. This may be an opportunity to hire extraordinarily talented people. In those companies that are large and complex, it's an opportunity to stand back and say, "Which of the businesses are very weak and shouldn't be part of our portfolio any longer?"

Q: In some sectors, signals are mixed. In retail, for example, stock prices are up but the outlook calls for slow growth. What makes more sense: the proactive approach to recession planning you advocate or a wait-and-see strategy?


Many of the things we talked about -- whether it's a decision regarding a different business model for a certain customer segment or a decision relative to talent -- very often these are decisions a good manager should have made 10 months ago. It's important to recognize that. There's no perfect answer but making a special effort to identify who are the leading indicators -- buyers or customers or channels -- and developing a direct informational linkage there can give you a precious three- or four- or six-week advantage that can often make all the difference.

Q: Is your advice almost too late for many companies?


It is now later than you'd be comfortable with, but there is plenty that still can be done advantageously. It's not too late to act. You have to put your game plan together much more quickly than you might be comfortable with, and you have to start executing more quickly than you'd be comfortable with. But, yes, you can still do it.

Edited by Douglas Harbrecht

Before it's here, it's on the Bloomberg Terminal.