Make the Bad Times Work for You

In October 2001 the UnitedStates was officially in recession.Companies were laying off employees by the thousands, and many high-paidmanufacturing and professional employees were having to take service jobs thatpaid much less.

And Apple chose this time to introduce something that mightbe considered a luxury — the iPod.

Today 84 percent of teenagers with an MP3 player own aniPod. Of those who purchase music online, 93 percent use the iTunes Store. Ofthose planning to buy an MP3 player 79 percent plan on getting an iPod.

At the time, Apple CEO Steve Jobs said:

"We’re not laying offboatloads of people. We’re taking those talented people and saying that ifwe’re going to get out of this, we’re going to get out of it by innovating ourway out of it."

He elaborated in a 2003 interview with BusinessWeek:

"What has happened in technology over the last few years hasbeen about the downturn, not the future of technology. A lot of companies havechosen to downsize, and maybe that was the right thing for them. We chose adifferent path. Our belief was that if we kept putting great products in frontof [customers], they would continue to open their wallets. And that’s whatwe’ve done."

Was this a fluke? Not likely. Apple itself was launched onApril Fools? Day 1976 during a worldwide recession. Today Apple has about32,000 employees worldwide and annual sales of $32.5 billion.

An isolated case? A bit of Steve Jobs magic? Consider:Frederick Smith launched FedEx in 1973 just as jet fuel prices were beginningto skyrocket. Bill Gates and Paul Allen started Microsoft in 1975. Time Inc.introduced People magazine in February 1974. Then again, it had launched Fortuneduring the Great Depression.

The audacity of launching a magazine named "Fortune" duringa major depression! Not only that, Luce priced it at an outrageous $1 perissue. But by 1937 Fortune had 460,000 subscribers and was earning a halfmillion dollars.

Perhaps it was something more than sheer nerve. Perhaps itwas the intuition of a brilliant publisher, Henry Luce.

Professor Andrew J. Razeghi of the Kellogg School ofManagement at Northwestern Universitysays this was no accident: "Fortune worked for the very same reason that allgreat new products work: it made a uniquely relevant contribution to itscustomers? lives (period)."

"In fact ? the stock market crash actually piqued interestin the culture of business. People were more attuned to what went on behindclosed doors, in boardrooms, and in the hallowed halls of corporate America.Fortune magazine worked not in spite of the Great Depression. It worked becauseof the Great Depression. Luce did what all great innovators do: he found anunmet need in the market and filled it."[i]

I have written before about what I call the "TransformationTriangle." This expresses the three things that all companies need to be doingsimultaneously, no matter the current economic climate: 1) eliminatingactivities that no longer work, 2) improving the way it performs activities itwants to keep, and 3) using the resulting savings for new activities.

A company conducting its business this way does not have tosuddenly slam on the brakes, fire a bunch of people, slash spending across theboard ? and generally set itself up in a much weaker position to ride out thestorm and be prepared for the upswing when it comes.

Two things are critical in this posture. The company?sbusiness management must be converged with its management of technology, onwhich business increasingly depends for execution. A divided company is nottransformed and can?t compete against those that have converged.

The other essential is that the customer must be in thecenter of the triangle. Nothing should be done that does not contribute topleasing the customer. The customer, after all, has the money.

Contrary to ingrained thinking, as Professor Razeghi pointsout, a downturn is an excellent time to really connect with the customer.

"A recession ? does not make market needs disappear into theether. Not only do they still exist, new needs emerge. During difficulteconomic times, market needs are more exposed than they are during an economicboom when the market is saturated with everyone?s ‘great idea’ — many of whichare chasing needs that have already been satisfied. When markets turn south,it?s easier to discern what the market needs precisely because the market isthinking more about what it needs and why it needs it. We are simply morethoughtful, more aware, and more focused during economic downturns."

The all too normal reaction is the easy way out ? slash andburn willy nilly. Everyone should sacrifice! This really doesn?t work. Whileeveryone else panics, some companies are quietly moving ahead despite thedifficulties. They have converged the once-competing fiefdoms of theirorganizations, are executing against a strategy that includes letting somethings go, becoming more efficient in what remains, and investing in the whollynew.

And they know that the customer is still there and more inneed than ever of what they can offer them. 

[i] AndrewJ. Razeghi, Innovating through Recession: When the Going Gets Tough, the Tough Innovate, TheAndrew Razeghi Companies, LLC, 2008. 

Faisal Hoque is chairman and CEO of BTM Corporation and author of a forthcoming book, The Convergence Scorecard, to be published by the Harvard Business Press.  BTM innovates business models and enhances financial performance by converging business and technology with its unique products and intellectual property. ? 2009 Faisal Hoque