When the Trend Line Stops
Planning Is Vital Even When Old Maps Fail
By Bill Wade
Obama strategist Rahm Emmanuel famously advised that to waste a good crisis is to waste opportunity.
Finally ... something that we and the new administration agree upon.
Nothing clarifies the mind like crisis. However, nothing potentially paralyses an organization like those same crises. Strangely, there is evidence that suddenly shifting, volatile and unforeseen market twists favor strategy over pure response.
We are not talking here about the "airport business book BS" most people call strategy today—sustainability statements, audacious goals, zero-base five-year budget plans. We mean a real strategy ... and more importantly, a real plan process.
There is ample evidence that the confluence of new EPA regulations, financial uncertainty for OEMs and a terrible economy have caused a ‘structural break’ with the past in both automotive and heavy duty market patterns and experience.
"Structural break" is a phrase from econometrics. It denotes that moment in time-series data when trends and the patterns, not just values, of associations among variables change "irrationally" ... or simply end.
In a fascinating examination of this phenomenon, The Black Swan author Nassim Nicholas Taleb cites the case of the turkey. Well fed and watered every day, happily strutting about and making little turkeys, until the last Thursday in November. The trend can’t be analyzed in any mathematical way to see his new reality.
However, a structural break is the very best time to create active strategy and new directions. At this moment of inflection, old foundations of competitive position weaken and new growth opportunities appear. Strategy is essential to take full advantage.
This is a perfect scenario for scale to recede in importance. The swift and agile can leap ahead of seemingly entrenched players ... obviously a point that should be ignored by neither.
By strategy, we refer to a cohesive response to market challenge. A real strategy revolves around neither a deck of PowerPoint slides nor a budget. We are referring to a creative approach based on a qualified, data supported viewpoint about specific challenges.
The most important element of a strategy is a coherent diagnosis of the forces at work and their many interactions ... not simply the plan itself. Few coaches call a play without analyzing the defense.
Recessions are efficient as a device of nature to prune and weed. Since we are diving into a period of spine-snapping change, we had better start the process of reformation before it simply happens to us.
The initial trick is to understand how a business has survived, competed and profited in the past. If the business is too complex to comprehend, break it into comprehensible parts. Often the complexity is self inflicted anyway.
Once you gain this critical understanding, you can start the work of reshaping. There is no magic formula. Reforming a business always takes insight, imagination and a certain bold resolve.
In ordinary slowdowns, the traditional moves are things like reducing fixed costs, headcount cuts, controlling variable expense and analyzing SKU coverage. But in uncertain markets accompanied by structural breaks, you must rethink the way you manage as well.
Companies that survive and go on to prosper look beyond costs to the detailed structure and effects of managerial work patterns.
Richard Rumelt, a professor of business and society at UCLA’s Anderson School of Management, recently summarized several new issues that recessions force to the forefront for both suppliers and distributors:
How much extra work results from the way incentive and evaluation systems relentlessly pressure managers to value activity and individually outperform one another ... even at the expense of the team’s desired overall outcome?
Which information flows can you omit? Information that doesn’t inform value-creating decisions is at best a wasteful distraction ... at worst a distorted vision of the battlefield.
Which decisions and judgments can you standardize as policy rather than make in costly meetings and muddled, often misunderstood communications?
How can the entire supply chain ... customers, distribution and suppliers ... work to simplify their processes?
The wrong way forward in a structural break is to try more of the same. The break and current results are sure indications that an old pattern has already been pushed to its limits and is now actually destroying value ... sometimes referred to as the "whale curve".
When the horse is dead ... get off! New efforts at nourishment, punishment and reward aren’t likely to prove productive.
The most unsettling aspect of structural breaks is that they render obsolete traditional understanding of many existing patterns of behavior. Yet properly recognized and utilized, these breaks can present an unexpected way forward for dynamic managers and even for whole distribution channels.