Knowledge Network: Faculty & Research

Business managers caught in a recession must choose selectively where they want to win. Thunderbird Professor Michael Moffett, Ph.D., said cash-strapped organizations struggling to set priorities should start by considering at least four things: Their customers, employees, cash flow and long-term vision.

“Managers today must do the same or more with less, and they know it,” said Moffett, who holds the Continental Grain Professorship in Finance at Thunderbird School of Global Management in Glendale, Arizona. “Budgets will be cut, staff will be trimmed and job duties will increase. The managers who survive must prioritize what they do.”

General Electric Chairman and CEO Jeffrey Immelt said a leadership team’s first priority as the economy spirals downward is to keep the company safe. But this does not mean an organization must hunker down and halt all investment.

“If you’re just playing defense right now in this environment, you’re ultimately going to lose,” Immelt told graduate students at Thunderbird and five other business schools in a question-and-answer session broadcast this fall from New York University. “The trick is to choose selectively where you want to win.”

Remember customers

Moffett said business leaders who participate in Corporate Learning programs at Thunderbird have made customers a top priority as the recession spreads.

“It’s all about continuing the sales or growing the sales,” said Moffett, academic director of Thunderbird’s various International Consortia programs that bring together high-potential leaders from a mix of industries. “They all understand that they need to be with their customers.”

General Electric has come to the same conclusion.

“Many companies are going to abandon customers right now,” Immelt said. “But now is the time to be in front of customers building great operations.”

Remember employees

Moffett said managers also need to remember their employees.

“The slashing and burning that some firms will do during the downturn will create lasting scar tissue on their people on the inside,” he said. “Some organizations don’t pay enough attention to this. When they slash expenditures and cut investing to please a market, they have to realize that the people on the inside of the organization see that as well. They remember what kind of commitment leadership had to its own people.”

When the markets heal and jobs become more plentiful, many of these employees will go elsewhere.

Remember cash flow

Sales drop faster than costs during a recession, which means profits often dip or turn negative.

Moffett said managers can’t ignore this. They must try to isolate indirect expenses that can be reduced, which means cutting optional programs or reducing staff.

But Moffett said managers need to consider more than just the bottom line, which can be window dressing for an organization.

“Some of the more critical choices are cash flow based,” he said. “A change in investment or core business activities doesn’t always make a big impact on the bottom line, but it represents a strategic change.”

For firms that have to slash costs to survive, Moffett said the recession will require horribly difficult decisions. “For others,” he said, “the recession might be a good time to grab new technologies, products, customers, global talent, corporate partners or acquisitions.”

Remember your vision

Many organizations throw out their long-term goals when things get tough, but Moffett said this is often a mistake.

“Your reinvestment in yourself — in your own competitiveness, in your products and services, your technology, your knowledge base — should be continuous and long-term in focus,” Moffett said. “Keep your eyes on the horizon.”

Staying the course might mean slashing a dividend, repurchasing fewer shares or taking on more debt, if credit is available. Moffett said some corporate goals can’t be achieved any other way.

Posted: 01|9|09 at 10:34 am.
Filed under: Global Strategy, Moffett, Michael.
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