After reading the article, please answer the following questions: Roaring Out of
ID: 424877 • Letter: A
Question
After reading the article, please answer the following questions:
Roaring Out of Recession
Here is the link to the article:
https://hbr.org/2010/03/roaring-out-of-recession
by Gulati, R. Nohria, N., and Wohlgenzogen, F.
Harvard Business Review, March 2010
What is the problem of being too defensive? Which company was cited as an example, and what’s wrong with it?
What is the problem of being too offensive? Which company was cited as an example, and what’s wrong with it?
Under the combination strategy, there are nine possible combinations. Which one has the best performance? Briefly explain why and make a contrast between Office Depot and Staple.
What can you learn from the case of “Target and TJX”? What does it mean for customers’ spending on “wants” vs. “needs”? What is the implication of this concept for your future business?
Explanation / Answer
The article is based on extensive research conducted on the way organisations and leaders handle crisis situations such as recession, and the manner in which they reacted to the challenge, alongwith the subsequent outcome of each type of strategy and leadership. One of the classification of Companies and approach applied to handling the recession is the prevention focused companies which exhibit excessively defensive behaviour and appear most concerned than others within the competition, with avoiding losses and minimising associated risk. The reaction is excessive and every action is based on preventing a company from getting hurt other than implementing policies and strategies to adapt to change the environment bye cost control and adoption of technology which will help to cut cost. The leaders exhibit reaction rather than action thereby losing perspective and control over the situation and every management plan is a reaction to internal and external stimuli, rather than planned action based on extensive analysis of the situation and all available options to optimise output and maximize profits within the limitations provided by the situation. Sony is the example cited for company which exhibited an extremely defensive approach to the recession. It announced a cost reduction target of dollar 2.6 Billion in December 2008, optimising the prevention focused approach. It went absolutely overboard in an effort to minimise cost by closing several factories and cutting 16000 jobs without considering the impact perfect actions in the long term and immediate losses caused to the organisation. Expansion plans for setting up an LCD television factory in Slovakia postponed. This approach and strategy was similar to the one adopted by the Japanese giant during the 2000 recession when it made massive cuts in cost over a 2 year period with workforce being cut by 11%, it's R&D expenditure by 12% and capital expenditure by 23%. This resulted in posting a 3% increase in profit in 2002 but this was at the cost of sacrificing growth of sales which tumbled from an average of 11% in the three years preceding recession to 1% in the aftermath. The impact of undermining a futuristic outlook and safeguarding the growth, as well as, adopting crisis management policy of moderation and control in every aspect had a massive impact on the overall performance of the organisation from which it is yet to recover and is struggling to regain the momentum in face of severe competition. Its inability to reserve the aptitude it had for growth and it inherent lead in the sector due to an excessively defensive approach is rain bring all its efforts in developing new products such as ebook readers, gaming consoles and innovative LED TV sets as futile in comparison to strong competitors. The leadership approach of cutting cost as the one and only priority to ensure minimising of loss resulted in attitude becoming prevalent within the entire organisation leading to an atmosphere of controlling cost even if there was immense loss in terms of innovation and updation of products to ensure quality and remain competitive. It's late to culture and belief of the advent of the new normal being to aim low, concentrate on cutting costs at any cost. Due to requirement for extensive control power become centralised and there is a feeling of fear among employees due to extensive cuts within the workforce, leading the focus of the organisation as a whole becoming one of survival, both personal and organisational.
To the other extreme other business leaders who are excessively dynamic and refuse to stop pursuing opportunity in every form, even when it is in the face of adversity. Review the recession as an opportunity to implement change and exploit the Fear Factor among competitors by adopting the less trodden path of expansion during recession. De undertake strategies and make investment to initiate and sustain the growth goals of the organisation bye investing in long term pay offs, and utilise the opportunity to acquire talent, assets, or other businesses at a price much lower than the intrinsic value, by utilising the downturn to their advantage and extracting benefits for the organization.
Hewlett Packard is the company which is cited as an example for the excessively aggressive approach to adversity and crisis situations. Hewlett Packard drew up a plan which was extremely ambitious, considering that sales and profits for both exhibiting a downtrend. Hewlett Packard embarked on a massive restructuring program, made a historical acquisition of compact Fedora 25 billion and increased are in the expenditures by 9%. It went overboard on advertisement expenditure by spending dollar 200 million on the corporate branding campaign and another Dollar 1 billion on expansion of availability of information technology in developing countries. These initiatives cast a serious strain on the finances of the organisation during a period when inflows were at an extreme low and the top management needed to focus on a strategy to handle the existing external crisis within the immediate facilities the expansion late to their attention being extensively divided leading to neglect and ignorance of the economic scenario and its impact. When the recession ended, the company could not keep up with its competitors and the profitability levels it exhibited were much below IBM and Dell. In spite of undertaking extensive growth during the depression, Hewlett-Packard could not utilise it as a momentum the spearhead the sales and market share post depression. The earnings in 2004 at 8.4% much below ibms at 16.8% and Dell's at 9.3 %. therefore it is very clear that being excessively aggressive and optimistic in the face of a crisis exhibits a denial of the problem rather than finding a solution. The lose out on the opportunity of damage control in the early stages of a crisis as they refused to acknowledge the very existence of the crisis. Crisis means to be acknowledged at the earliest and the strategy outlining a clear plan for optimal management of the crisis needs to be drawn to ensure that the organisation survive with minimal damage to present performance and future goals as well. A strategy similar to risk management can ensure excellent results. Identification of every risk that arises due to the crisis and all available options to manage and control it with minimization of damage caused. Not only 2 aggressive organisations overlooked the crisis but they also overlook the change the needs of the customer during a crisis situation with them one thing to spend the bare minimum on every product with a necessity or luxury, due to existence of a Fear Factor regarding the unpredictability of the future in the mind of every individual. The organisation tries to add value to the products through edition not features which are not essential and and only cosmetic value but significantly increase the cost and thereby, price for the customer. Also, such companies can lose the trust of even loyal customers by increasing prices during times of crisis leading the customer to think the company is not dependable during crisis and can exploit the situation. The image of the company suffers as it appears to lack empathy. This results in organisation turning a poor financial results even after the crisis has passed leading them to be stumped by the result. Due to the voice on the top being the voice of the organisation and the similar thought process permeating the organisation at every level and in every department, costs can expand extensively during crisis when every required cost cut can mean the survival of an organisation. Most organisations cut costs through elimination of wastages and extensive monitoring and control of all inputs, to make survival and sustenance more feasible by maintaining profitability, during great reduction in sales caused by the depression, to be able to effectively manage the crisis. Aggressive companies unable to reduce cost to sales ratio in comparison with competitors and increase expenditure on the basis of a false belief that it will help them search a head at the end of the crisis. In situations when the long term investments made fail to pay off with innovations not being received well the company can run into serious trouble. Research and Analysis has further revealed that despite focusing on growth and promotion in Crisis situation also these companies do not show extensive rise in earnings in the aftermath and exhibit average figures of 8% and 6% for rise in sales and earnings.
Under the combination strategy the greatest likelihood of producing whose procession menace is exhibited by the model pursued by progressive Enterprises. Listen to identify and implement the best features of all the different Strategies and approaches coming up with an effective combination crisis handling. These companies select the defensive moves of cutting course by improvement of operational efficiency rather than cutting down on number of workers. It is like implementation of the Lean Six Sigma. The combined switch essentially comprehensive offensive moves through investment 10 arandi and marketing processes and investment in asset such as plant and machinery which enhance output and minimise wastage. These companies tend to perform exceptionally well in the post recession scenario. The minimization of input passed through elimination of wastages and implementation of adequate control and monitoring measures as well as improving the existing Technology buy 50 off the latest plant and machinery, leads to optimisation of operational efficiency and maximization of output at minimum cost for the given level of production. Employees are retained as much as possible within every department unless it is mandatory to cut staff within a certain department. Employees appreciate the empathy of the top management and it serves as a great motivational tool driving them to achieve excellence through exemplary performance and exceptional output. Companies that respond to depression or crisis by extensive analysis of every aspect of the Business models and implementation of strategy focused on improving every process within the organisation two implementation of monitoring and control measures over supply chains improve performance of the organisation on a permanent basis through reduction of operating cost and maximization of profits. During the 2000 recession Office Depot and Staples adopted contrasting approaches to cost management within the organisation. Office Depot cut 6% of its workforce but it did not result in significant reduction in operating cost. Even though the company attempted to boost sales through introduction of an incentive plan it sales growth fell from 19 % before the recession to 8% post recession almost 5 percentage points below the growth rate exhibited by Staples post recession. By contrast, staples adopted a different strategy and shutdown facilities which were underperforming but I did 10% workforce during the recession to support several high end product categories and services introduced by it. It streamlined processes in the existing facilities through optimisation of output by implementing cost controls and reducing wastages. It's a more stronger after the recession having achieved growth and increased profitability. Its sales doubled from dollar 7.1 billion to dollar 14.6 billion In a span of 5 years while Office Depot posted a rise of 50%. The average profit of staples was 30% more than office depot in the 3 year period, after the recession.