ASIA PACIFIC, 14 November 2001 - Watson Wyatt research shows that the most common responses by companies to recessions - downsizing, hiring freeze and restructuring - do not lead to improved performance.
Recent surveys by Watson Wyatt have shown that three of the most common ways in which Asian companies react to recessions are by downsizing, implementing a hiring freeze and restructuring. The research reveals that 75% of companies in selected Asian countries have already undertaken at least one of these tactics. This is consistent with the findings taken during previous economic slowdowns in the US in the early 90's and in Asia during the 97/98 economic crisis.
However, Watson Wyatt's study shows that adopting one or all of
these actions does not work. The research illustrates that restructuring
in previous slowdowns resulted in poor goal achievement rates. Only
46% of U.S. companies and 30% of Asian companies increased their
profitability through the above restructuring measures. Furthermore,
only 32% of U.S. companies and a mere 24% of Asian companies believe
that they increased their competitive advantage as a result of these
restructuring measures. "Simply put, you cannot cut your way
to greatness," explains Grahame Stott, Asia Pacific Regional
Manager of Watson Wyatt Worldwide.
Is there a way out ?
"First of all, adopting a head-in-the-sand attitude to business is a recipe for disaster, no matter how deep or shallow the recession is," says Stott. "The world is changing fast, and keeping up with the pace of that change is key to success in today's increasingly competitive business environment." This is especially true in Asia as China's impending entry into the WTO promises more changes. Deregulation in many industries will enhance competition around the region and force the pace of change to increase, regardless of the recession.
Companies seeking to improve performance should not shy away from this transformation, but instead consider the short-term uncertainty when competitors inevitably slow down as an opportunity to gain competitive advantage. Even if the competition also decides to move ahead aggressively, it will ensure that a company will not be left behind with little chance of catching up, but will be in a position of distinct advantage when the recession ends.
"By all means make sure you are cost efficient, but also make sure you do go out there and look to acquire new assets that are key to your core strategy. Recessions are the perfect time to pick up bargains and gain competitive advantage," says Stott.
Factors found to breed success include: having clear business imperatives, clearly articulated objectives, effective employee communications and senior management visibility, increased automation, and humanised downsizing.
People is Key
"The question of downsizing is particularly interesting. There are obvious public relations and employee morale issues with letting employees go. But what many do not factor in is its long term impact on the business," states JP Orbeta, Watson Wyatt's Human Capital Group Global Practice Leader. "The way in which the employer conducts the redundancy programme conveys a lot to the workers who remain. If not handled well, the fear, insecurity and and lack of trust ultimately results in reduced workplace effectiveness." Hence the need to humanise downsizing and treat leavers equitably. Watson Wyatt research also shows that fully 57% of companies in the U.S. and Hong Kong in past recessions rehired at least some of their downsized employees. Not surprisingly, management credibility suffered in the eyes of the remaining employees, which reduced motivation significantly.
Typically, the absolute number of people who are downsized is small relative to the overall employee population. Given the potentially negative publicity and morale impact on an organisation's downsizing plus how some companies stumble themselves through the way they downsize, there is scope for more effective downsizing strategies in terms of:
"Without the support of your people, advancing is almost impossible," observes Orbeta.
The SMART Edge
So, what must companies do in tough times to gain an edge? Watson Wyatt suggests a SMART approach.
Strategy - make sure your long term strategy remains intact and focused, but be prepared to be opportunistic as conditions change, and test opportunities against achieving your strategy.
Message and Measure - it is vital that your key people understand the strategy and know where you are heading, particularly in tough times. You cannot make quick and decisive change without their support, so ensuring that the whole organisation receives a consistent message including the business rationale for actions being taken is key to getting buy in. And measure. Are you efficient today? Have you taken stock of how your organization is performing relative to key indicators, to your competitors, to other best practices? Now is the best time to take a closer look at these and determine how to manage performance issues and motivate key staff.
Accelerate - the world is changing quickly and you have to change even quicker. In slowdowns, many companies slow down their development activities as their sales fall. This is an excellent time to gain market share and competitive advantage to position yourself for strong profitable growth as the recovery begins. To do this, change must happen quickly - even faster than in good times.
Reinvest - most companies look to cut costs and improve poor cash flow. However, by looking for opportunities and possibly acquisitions, it is possible to make significant leaps in achieving strategic goals in ways which would be impossible in times of high economic growth.
Talent - is the key to making it happen. An aligned and committed team of key people within the organisation together with a dedicated and flexible workforce can be your key competitive advantage, one that cannot be easily copied by the competition. Ensure your key people's interests are aligned with yours, and that they are well treated in these times (not necessarily equating to being the best paid) can be a significant advantage in making your strategy successful.
Being SMART sounds straightforward but requires a lot of focus, drive and belief to succeed. However, while many business leaders understand the imperative nature of the actions they need to take, the real challenge lies in aligning the management team and the entire workforce to the right direction.
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Issued by Watson Wyatt Singapore. For more information, please
contact Chen Ee Fang at (tel) 65 6880 5656 or (fax) 65 6880 5699.
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