What the Indian industry did to cope with the downturn, and the strategies CEOs need to adopt going forward.

1. The Economic Downturn:
Coping Strategies and the Way Forward
Achal Raghavan
I
ndian industry started experiencing the real im-
pact of the global financial meltdown from the
last quarter of 2008. The rapidity with which the
slowdown set in took many industry leaders by sur-
prise. Demand plummeted, markets became unstable,
Achal Raghavan takes an in-depth look at and credit dried up. The future looked murky and
unpredictable. CEOs – especially the younger ones --
the manner in which various business
found that their past experience had very little to of-
leaders in the Indian manufacturing and fer in terms of ideas on what to do.
IT sectors coped with the downturn that
As this unsettling scenario unfolded, companies in
hit the Indian economy from Q4 2008.
both manufacturing and services sectors scrambled
Faced with significant threats to sales, to take urgent defensive action. In this article, we take
profit, and enterprise value, CEOs initi- a look at some of the coping strategies adopted by
ated a slew of coping strategies – such as Indian industry leaders, and the challenges that they
faced. We also outline what they can do to take ad-
cost reduction, cash management, opera-
vantage of the emerging opportunities when the
tional excellence, people management, economy begins to turn the corner.
and customer portfolio optimization.
Implementing these strategies involved COPING STRATEGIES
facing up to many challenges, both inter- Dr. Samuel Johnson, the English author from the 18th
century, is credited with this insightful quotation:
nal and external. With the economy
“….when a man knows he is to be hanged in a fort-
showing signs of recovery, now is the night, it concentrates his mind wonderfully.” Faced
time for corporate leaders to retain the with a dramatically altered business landscape, a fu-
gains made in operational efficiencies, ture filled with uncertainty, and restive sharehold-
ers, Indian industry leaders have moved swiftly to
and focus on emerging growth opportu-
formulate and implement several coping strategies.
nities in the marketplace. Let us now examine a few of these strategies.
Cost Reduction and Focus on Cash
Virtually all organizations started with cost reduc-
tion as the single major initiative, in the face of drop-
ping sales and lack of bank credit. “Hacking
VIKALPA • VOLUME 34 • NO 3 • JULY - SEPTEMBER 2009 67

2. mercilessly at costs,” “Come down duction and quality management
hard on cost,” and “Getting rid of Virtually all organizations systems, thereby reducing waste
the old ways” were some of the ex- started with cost reduction due to defects. When a manufactur-
pressions used by MDs, CEOs, and as the single major ing plant is running at close to full
Presidents to describe what they capacity due to market pull, it is
were forced to do.
initiative, in the face of difficult to undertake detailed stud-
dropping sales and lack of ies of tooling and manufacturing
In many ways, these exercises went
bank credit. “Hacking abnormalities, and decide on cor-
much beyond the traditional moves
mercilessly at costs,” rective action. When orders are
to cut down on travel, communica-
down, the resulting slack time cre-
tion and discretionary expenses – “Come down hard on
ates openings for such improve-
though these options were exer- cost,” and “Getting rid of ment measures to be implemented.
cised immediately. In one case, a
the old ways” were some Operational excellence thus gets a
business consulting and IT services
of the expressions used by lasting boost. The downturn also
firm achieved a significant cost re-
provided opportunities to fine-tune
duction by renegotiating the rent MDs, CEOs, and Presidents
productivity, in terms of optimiz-
for its office with the local govern- to describe what they ing layouts and operator deploy-
ment which was the landlord –
were forced to do. ment.
while conventional wisdom would
have you believe that these things In virtually all companies, capital
are not possible with the government bureaucracy. expenditure of any kind was put on hold, or cancelled
– unless there were firm orders in hand which needed
In the context of cost reduction, one CEO made a spe-
the investment to be made immediately. The gung-
cial mention of what he saw as an inherent strength
ho optimism of the previous year was replaced very
that most Indians possess – of being “frugal to the
quickly with a “wait and watch” approach. The same
core”. In his view, this enabled his team to operate
principle applied to mergers and acquisitions
on the principle that no cost item is too trivial to take
(M&A’s) also.
up for reduction.
In the manufacturing industry, the focus – predict- People
ably — was on inventories and re- The downturn also saw, for the first
ceivables. As the MD of an time, several organizations resort-
In virtually all companies,
engineering company put it, “There ing to pay cuts across the board as
is always a lot of messy work pend- capital expenditure of any a preferred alternative to
ing in the area of old outstandings, kind was put on hold, or headcount reduction. These cuts
and this crisis forced us to go after cancelled – unless there were closely calibrated, with man-
collecting those dues.” Since he saw agement staff taking a larger reduc-
were firm orders in hand
this as a one-time “clean up” opera- tion.
tion, he outsourced the activity. In- which needed the
investment to be made In a larger perspective, the recent
ventories, which are the equivalent
period of turmoil has seen the tacit
of “fat” in the system, came under immediately. The gung-ho
acceptance of salary cuts,
significant focus for reduction.
optimism of the previous headcount reduction and redun-
Operational Excellence year was replaced very dancies in Indian companies as in-
quickly with a “wait and evitable fallouts of the global crisis.
The downturn also provided the
This is in dramatic contrast to the
time and the opportunity for manu- watch” approach.
scenario barely 18 months back,
facturing companies to refine pro-
68 THE ECONOMIC DOWNTURN: COPING STRATEGIES AND THE WAY FORWARD

3. when “attrition”, “retention” and reinforced, taking into account the
“salary hikes” were the key con- Many companies used the risks associated with geographies,
cerns in many sectors. Some com- downturn as an incentive markets, industry sectors, and cur-
panies have also taken the step of to “expand the pond” that rencies.
letting go of non-performers dur-
ing this period.
they operate in, by going LEADERSHIP CHALLENGES
after new customers The global meltdown has forced
At the same time, many leaders
aggressively. At the same CEOs in India to make an abrupt
have found it especially important
time, some of them also transition from “riding a growth
to recognize and reward the good
took a hard look at wave” to “managing a downturn”.
work being put in by some of the
As could be expected, this has
team members in these difficult product and account
thrown up several interesting chal-
times. One company has devised
profitability – resulting in lenges at the leadership level.
some special “rituals” for accord-
ing such recognition – on the prin- decisions to drop some
Finding a Balance
ciple that rituals, once put in place, customer accounts that
are difficult to discontinue. did not add any financial While coping strategies are mostly
about managing the short term, sea-
or strategic value.
Customer Portfolio soned CEOs are acutely aware that
they have to run a “parallel track”
Many companies used the down-
of strategies which will safeguard the long-term in-
turn as an incentive to “expand the pond” that they
terests of the company. This involves making finely-
operate in, by going after new customers aggressively.
calibrated decisions on:
At the same time, some of them also took a hard look
at product and account profitability – resulting in • people, where one has to balance the need to cut
decisions to drop some customer accounts that did costs with longer term issues of morale and talent
not add any financial or strategic value. This runs retention
contrary to the normal expectation that companies in • new product development and R&D, where starv-
a downturn would try and maximize sales to every ing these areas of funding will lead to the com-
customer that they have, just to shore up the top line. pany being under-prepared when the inevitable
This trend indicates the growing maturity of Indian upturn in the business kicks in, and
organizations in terms of developing a balanced out- • capital expenditure, which is often the starting
look towards their customer portfolio for the long point for making strategic moves for growth in the
term. long term.
The downturn also brought into
Communication
sharp focus the importance of the Operating in a crisis-
domestic market for Indian compa- Uncertain times impact people
nies, both in the short term and for
recovery mode also calls negatively. In the absence of clear,
the future. Companies with a for the CEO to “get his (or transparent, and frequent commu-
skewed weightage for overseas her) hands dirty” with the nication from the leadership team
markets (especially the US and Eu- on the state of the business, people
daily nitty-gritty of the
rope) have been forced to take a grow fearful and uncertain. This, in
business, far more than turn, tells on their performance and
hard look at their Indian market
shares and strategies. The common- what is warranted in customer service. The CEO has a
sense principle of “balanced normal times. major role to play in keeping the
growth” for the long term stands company focused and aligned to-
VIKALPA • VOLUME 34 • NO 3 • JULY - SEPTEMBER 2009 69

4. wards managing the downturn CEO’s playbook in the coming
in the most effective way pos- Having reduced costs months.
sible. internally and streamlined the
Retaining the Gains
In the current scenario, as one customer portfolio externally,
Having reduced costs internally
MD put it, he had to “keep talk- the biggest challenge ahead
and streamlined the customer
ing and talking” to his people – for companies is that of portfolio externally, the biggest
far more than he had ever done
“hanging on to the gains” challenge ahead for companies is
in his entire career. In another
once the business starts that of “hanging on to the gains”
case, the CEO had to make sure
picking up again. The normal once the business starts picking
that he personally communicated
up again. The normal tendency
the company’s game plan and tendency to revert to earlier
to revert to earlier behaviour has
progress to all investors and
behaviour has to be blocked, to be blocked, and the new lean
other stakeholders at frequent
and the new lean and frugal and frugal ways institutional-
intervals.
ways institutionalized. ized. The CEO has a large role to
Leadership Style play in ensuring that this hap-
pens, since people look to the
Operating in a crisis-recovery mode also calls for the
leader for cues. The best way is for the management
CEO to “get his (or her) hands dirty” with the daily
to hold frequent reviews of operating costs – possi-
nitty-gritty of the business, far more than what is
bly weekly – so that any drift can be spotted quickly
warranted in normal times. One MD saw that his HR
and corrected. One firm has taken this concept for-
and Finance functions were just not equipped to deal
ward to the extent of publishing weekly P&L state-
with the uncertain business scenario. Consequently,
ments.
he had to get involved in those
functions on a day-to-day basis, The Role of the Board
and make sure that their daily Organizations which have The Board of Directors has to
actions were in tune with the cop-
pulled through the recent play an increasingly aggressive
ing strategies. In spite of such
economic crisis with varying role in setting strategic direction
pressures, many leaders also
for the company, and reviewing
found the time to go across and degrees of difficulty are now
subsequent progress. Assuming
meet key customers frequently, entering a period of cautious that the Board is staffed with
to “show the flag” and keep the
optimism and opportunity. members who possess relevant
relationship energized in difficult
Balanced growth is very much and rich experience, the com-
circumstances.
bined wisdom that they bring to
on the cards – provided the
THE WAY FORWARD the table would be of great value
companies equip themselves in the days ahead. The Board will
Having got past possibly the with four essentials for the also have to push hard for con-
worst of the downturn, it is now
journey: a clear view of the tinuous improvement in the area
time to look at the way forward.
customer and his emerging of ethics and governance, given
How do companies make the
the hard knocks suffered by some
most of emerging opportunities, needs, a motivated team of famous corporate names in re-
and accelerate their own growth employees, a well-thought out cent times around the globe.
in a sustainable fashion? We now
strategy, and a steady hand at
take a look at a few key manage- Looking beyond the Numbers
ment initiatives and responsibili- the wheel.
Richard Rumelt, Professor of
ties that should be a part of the
70 THE ECONOMIC DOWNTURN: COPING STRATEGIES AND THE WAY FORWARD

5. Strategy at the Anderson School of ment (DFE), a tool for designing
Management, UCLA says, “Com- Companies looking to products that are easier to recover,
petent management always looks mitigate long-term risk, reuse or recycle, is assuming in-
beyond the numbers, deeper than while growing at a healthy creasing prominence in this space.
the current measures… you cannot
manage by just looking at the re-
pace, would be well M&A Opportunities
sults meter.” This view is based on advised to look for Mergers and acquisitions are still
the fact that the operating results opportunities in the space powerful avenues available to or-
of corporations around the world of “green” businesses – ganizations to fulfill their long-term
gave absolutely no prior warning strategic goals. If the target compa-
renewable energy,
of the impending meltdown. nies are located in economies which
recycling, lower carbon
are yet to bounce back, valuations
To follow Professor Rumelt’s ad-
emission, and clean are likely to be attractive. The key
vice, leaders have to develop the
technologies. question is still that of strategic fit
ability to keep track of key eco-
and synergy, assuming that the
nomic drivers and market forces
company on the lookout for acqui-
that are pertinent to their industry, and spot approach-
sitions has a reasonably healthy balance sheet.
ing turbulence ahead of time. Additionally, as one
CEO put it, “Business is all about risk”. Companies
CONCLUSION
have to incorporate risk mitigating approaches in their
strategic planning exercises. Scenario planning is an Organizations which have pulled through the recent
effective tool that can be deployed in this context. economic crisis with varying degrees of difficulty are
now entering a period of cautious optimism and op-
Green Businesses portunity. Balanced growth is very much on the cards
– provided the companies equip themselves with four
Companies looking to mitigate long-term risk, while
essentials for the journey: a clear view of the customer
growing at a healthy pace, would be well advised to
and his emerging needs, a motivated team of employ-
look for opportunities in the space of “green” busi-
ees, a well-thought out strategy, and a steady hand
nesses – renewable energy, recycling, lower carbon
at the wheel.
emission, and clean technologies. Design for Environ-
Achal Raghavan is a strategy and business excellence consult- Systems, India and Ingersoll-Rand (India) Limited. He teaches
ant based in Bangalore. A graduate of the Indian Institute of as guest faculty at IIM Ahmedabad and IIM Bangalore, and
Technology (IIT) Madras and the Indian Institute of Manage- also writes for management journals and business newspa-
ment (IIM) Ahmedabad, Raghavan brings with him over 34 pers.
years of work experience in the automotive and engineering
industries. During this period, he has held Board-level posi- e-mail: achalraghavan@yahoo.co.in
tions for 10 years in organizations such as Delphi Automotive
VIKALPA • VOLUME 34 • NO 3 • JULY - SEPTEMBER 2009 71