There were quite a few of you that wrote to me and ask me to translate my debate article in Dagens Nyheter (Daily News) one of Swedens largest daily newspapers. Obviously, the article is written of a Swedish public but I am afraid the problems I highlight are equally challenging in many other countries. The article came out today and has already generated quite a bit of attention. If you would like to view the original Swedish article go to: http://www.dn.se/opinion/debatt/manga-som-leder-foretag-haller-inte-mattet-i-krisen-1.917974
Following is my own fast and more or less direct translation of the article:
”Many corporate leaders just aren’t good enough in the crisis”
Experienced businessman criticizes corporate leaders: The crises cannot be solved by reducing head-count. Desperate cost-cutting does not improve a company’s long-term profitability. Head-count reductions almost always lead to reduced customer benefit and therefore to weaker competitive advantage. Far too many companies spend money on firing employees and then in a couple years they spend even more money recruiting new ones. Those companies that invest in developing their employee’s competence now will be much stronger when the current economic cycle turns up again, writes Kelly Odell who recently resigned as sales director for Volvo Cars.
I can keep quite any longer. After many years in leading positions in Swedish companies, I can only come to the conclusion that many of the leaders of our important companies just aren’t good enough. I recently read in ”Dagens Industri” (Sweden’s leading daily business newspaper) that ”Swedish companies are the most pessimistic in Europe” and ”Over half of Swedish managers expect more head-count reductions in their own organizations this year”. In my opinion many corporate leaders lack vision and in often even backbone.
The answer to weaker profitability is not necessarily head-count reductions. The answer may not even be saving money. These actions are typically only necessary if you have to maximize your results in the nearest quarter. If, on the other hand, you goal is to maximize profitability over a longer time frame the best thing to do may be to spend more money and invest in developing the competence of those employees who may not be needed in the operations at the moment.
No matter how dark things look at the moment, the long-term trend is that there will be a shortage of employees (not jobs). Many companies spend money on firing employees and then in a couple years they spend even more money recruiting new ones.
Those of us that have been around for a while know that at the end of each economic down-turn there are companies that emerge stronger and better prepared for the future because they invested themselves out of the crises. The same thing will happen after this economic crisis.
Some companies will disappear, some will survive and a few will bloom. The ones that manage best will be those that have a clear vision of what they want to achieve that will create real value for their customers. They are companies who stand by their core values even in times of crisis.
Some companies seem willing to do whatever it takes to survive, but the best companies and the best leaders would rather let their businesses go bankrupt than be forced to give up their core values. Take a look at many companies’ homepages and you will read high-flying visions and value statements declaring that our employees are our most important resource and expressions of customer centricity. But what happens when things get tough? The most important resource (the employees) at many companies is divested at the lowest possible cost and the ones who remain get no training or education. This leads, almost without exception to reduced value for the customer. For example, there are few large Swedish companies that don’t have longer waiting times for phone calls to their customer service as a result of the current economic crisis.
Some will think my views are naïve. Some will say that companies are bleeding and radical actions must be taken for the best of the company and for society. This may be true for some of our companies, but maybe we should ask ourselves how these companies ended up in a crisis in the first place. Where are their reserves? Were corporate leaders not aware that strong economic cycles are followed by weak cycles?
Even if I don’t expect anyone to know exactly when an economic cycle will change or how deep they will be, everyone knows these cycles exist. Some of our companies were in difficult situations even before the current financial crisis arose. For these companies the events of last fall were just an additional burden to carry. Many other companies on the other hand have made a great deal of money during many years for their owners during a long and strong economic high. Where is that money now? Didn’t anyone put away something for the winter?
Firemen, the polis and the military all know that you should plan and train for crisis when there isn’t a crisis. Have our companies done their scenario planning? What will we do if/when the economy declines? Do we have the resources to get buy? How will we manage our employees? I know from my own experience that many have not prepared at all.
Now more than ever we should focus on becoming more effective in our businesses not just on lowering costs. Reduced profitability is a normal symptom of economic downturns.
Possibly the most common reaction is cost-cutting. Cost-cutting is relatively simple to do and can solve short-term cash- flow needs, but in itself, cost-cutting does not improve the company’s situation for the future. The question we need to focus on is how to improve return on investment.
There is a direct correlation between the perceived customer benefit you create and the customer’s willingness to pay for it. Therefore we should think about how to create the greatest possible customer benefit with the least possible resources. What is really important for the customer? How well do we meet and exceed our customers’ expectations? How can we change our offer, processes or behavior to increase customer value with fewer resources? Hunting costs is easy but creating extremely cost-effective companies is difficult, very difficult. That is why far too many companies focus on saving money in a crisis without reflecting on what impact the cost savings will have on the organization. I have seen at close range repeated examples where we send 10% of the workforce home but we don’t send 10% of the work home. We have also not defined new ways of working that make it possible to get everything done with fewer resources. The truth is that you often don’t have time or competence to address those challenges.
It is also interesting to note that HR-managers in the USA are almost as pessimistic as their Swedish colleagues. My homeland, the USA, is also the home of (what Swedes call) “quarterly capitalism” and Sweden is often quick to jump on the latest management trends from the USA. Is it possible that we have adopted this American practice even stronger than they have? I have worked all over Europe and seen that central and southern European companies have a more long-term perspective especially with regard to financial planning in contrast to the Anglo-Saxon countries and Sweden.
Sweden’s corporate leaders have not created the current global economic crises on their own, but together we have unconsciously, and in cooperation with other business leaders and owners around the world, contributed to making the crisis worse.