Human history has always been a cycle. A period of relative calmness will always be followed by a period of turmoil. That turmoil will then give way to calm and the cycle will repeat itself all over again. Similarly, organizations too go through the same cycle. Everyone knows how to make merry when the good times are rolling, but when the storm hits, it leaves everyone scratching their heads. This leads to suboptimal decision making. Therefore, before dealing with the bad times it is necessary to realize that the “storm” is normal. Why do companies face tough times? Typically it is because of the economy or the company itself. However, the tendency is to always blame it on the economy since it is easier. However, tough times may also befall a company due to irresponsible decision making during the good times. Companies typically respond to a downturn in two different ways: “Chop & Cripple” and “Trim and Fit”. The differences between the two approaches lie across four dimensions: Costs, Slack, Opportunity and Gearing Up.
In the Chop & Cripple approach, costs are cut vertically and resemble an “instant weight loss”. Slack is typically reduced by gunning for the headcount leaving the company crippled due to uneven cuts. The company goes into a shell, adopts a “wait-and-see” approach to new opportunities and does very little in terms of gearing up for the future.
The Trim and Fit approach involves cutting costs horizontally based on Value & Risk analysis. Slack is reduced based on Strategic fit. New opportunities are evaluated by taking a long term perspective (it is also the best time to acquire or build new products) and thus, gearing up to face the eventual upturn.
In conclusion, organizations must not shy away from downturns. Instead, they must embrace the downturn as a chance to emerge as a better and nimbler organization.