Article

Strategic thinking is key in bad times

Even before the Sept. 11 attacks in the United States, business executives were paddling furiously to get through the economic doldrums. Now it is almost certain that the crossing will be longer and harder.

By Chris Zook and Darrell Rigby

Published on November 19, 2001
min read


Even before the Sept. 11 attacks in the United States, business executives were paddling furiously to get through the economic doldrums. Now it is almost certain that the crossing will be longer and harder. Here's how your company can make it through the difficult times ahead: Build strategic contingency planning into your culture. Consider the following worst-case business scenarios: >What if your risk profile shifts dramatically? Act now to spread that potential risk or buy it down. U.S. insurers rethought risk-sharing in the wake of 1992's Hurricane Andrew, which caused a then-record $16.8 billion in losses. Primary insurers (think Allstate) began to share risk more broadly among themselves and sell off more to reinsurers (think Lloyds of London). >What if demand suddenly falls off? Could you quickly find allies who could help you consolidate the industry and save jobs? Arrow Electronics (Melville, N.Y.), a distributor of electronic components and computer products, faced just such a dilemma when computer sales flattened in 1985. Arrow, the industry's scrappy No. 2 player, was able to acquire the No. 3 player. >What if global events disrupt your supply chain? Compare General Motors' plight in the days after Sept. 11 to Dell's. GM had to close down factories in Ontario because of parts delays at the Canadian border. Dell, which has built one of the world's best supply chain networks, chartered an airliner to fly parts from Taiwan to its Texas factory, ran factories day and night, and converted three 18-wheel trucks into mobile technology and support facilities. Strengthen the bonds of loyalty. To help customers get back on their feet after the terrorist attacks, hundreds of companies offered price breaks, even though it meant taking a financial loss. Many firms set up counseling sessions and gave employees time off to support others. Pay special attention to your employees. Financial services powerhouse Morgan Stanley had 2,700 employees based on 22 floors of World Trade Center 2, almost all of whom made it out. Within an hour of the attacks, CEO Philip Purcell put in motion a plan to help survivors and all employees' families through the trauma. Be a good vendor. Dell lowered prices on many of the servers, laptops and desktop computers it sold in the first week following the attacks. You can bet its customers won't forget. >Protect your core assets. Downturns often make cuts to personnel unavoidable. But just as the human body diverts blood to vital organs during physical trauma, so should companies protect their core businesses. Reinforcing your core assets helps recession-proof your company. Weak businesses have proven much more volatile than strong ones. In a recession, employees need to know that their actions matter. Explain to them in detail how their efforts can help protect your core assets. And don't set up stakeholders for disappointment. Clear-eyed expectations and strategic contingency planning will reassure them that your company can be counted on in a recession. Chris Zook is director of Bain & Company's worldwide strategy practice. Darrell Rigby is a director at Bain. This article is condensed from one of three Harvard Business School Publishing newsletters.

Build strategic contingency planning into your culture.

Consider the following worst-case business scenarios:

>What if your risk profile shifts dramatically? Act now to spread that potential risk or buy it down. U.S. insurers rethought risk-sharing in the wake of 1992's Hurricane Andrew, which caused a then-record $16.8 billion in losses. Primary insurers (think Allstate) began to share risk more broadly among themselves and sell off more to reinsurers (think Lloyds of London).

>What if demand suddenly falls off? Could you quickly find allies who could help you consolidate the industry and save jobs? Arrow Electronics (Melville, N.Y.), a distributor of electronic components and computer products, faced just such a dilemma when computer sales flattened in 1985. Arrow, the industry's scrappy No. 2 player, was able to acquire the No. 3 player.

>What if global events disrupt your supply chain? Compare General Motors' plight in the days after Sept. 11 to Dell's. GM had to close down factories in Ontario because of parts delays at the Canadian border. Dell, which has built one of the world's best supply chain networks, chartered an airliner to fly parts from Taiwan to its Texas factory, ran factories day and night, and converted three 18-wheel trucks into mobile technology and support facilities.

Strengthen the bonds of loyalty.

To help customers get back on their feet after the terrorist attacks, hundreds of companies offered price breaks, even though it meant taking a financial loss. Many firms set up counseling sessions and gave employees time off to support others.

Pay special attention to your employees. Financial services powerhouse Morgan Stanley had 2,700 employees based on 22 floors of World Trade Center 2, almost all of whom made it out. Within an hour of the attacks, CEO Philip Purcell put in motion a plan to help survivors and all employees' families through the trauma.

Be a good vendor. Dell lowered prices on many of the servers, laptops and desktop computers it sold in the first week following the attacks. You can bet its customers won't forget.

>Protect your core assets.

Downturns often make cuts to personnel unavoidable. But just as the human body diverts blood to vital organs during physical trauma, so should companies protect their core businesses.

Reinforcing your core assets helps recession-proof your company. Weak businesses have proven much more volatile than strong ones.

In a recession, employees need to know that their actions matter. Explain to them in detail how their efforts can help protect your core assets.

And don't set up stakeholders for disappointment. Clear-eyed expectations and strategic contingency planning will reassure them that your company can be counted on in a recession.

Chris Zook is director of Bain & Company's worldwide strategy practice. Darrell Rigby is a director at Bain. This article is condensed from one of three Harvard Business School Publishing newsletters.