Grow To Be Great: Breaking the Downsizing Cycle

by Dwight Gertz and Jaoa Baptista

I've been rereading Dwight Gertz' and Jaoa Baptista's Grow to be Great: Breaking the Downsizing Cycle. The book was published in 1995, in those blissful days when the market hovered in the stratosphere, Enron was a great investment, and the largest accounting firms were seen as sacrosanct. The book's thesis is that a firm "cannot save its way to prosperity"[1]-that an emphasis on cost-cutting can create short-term results but cannot sustain and grow a firm's bottom line. It's a message with particular relevance for businesspeople in 2003, when uncertainty rules and the market seems destined to nosedive forever.

In times of such uncertainty, cash is traditionally king. Firms hold onto their money, as Fred Allen once said, "as if nickels were manhole covers." In many cases this is not a bad strategy; it can provide flexibility in unreasonable times. It can also, however, do a supplier serious damage if it cuts costs in maintaining strategic relationships, such as those with customers and employees.

Where customers are concerned, we've already seen suppliers cut customer service people, field techs, and dedicated account support people out of their strategic account management programs. The cutting left those employees remaining with more work and therefore less ability to respond to accounts. Strategic customers can feel this lowered responsiveness very quickly. If the cutting and unresponsiveness continue, they can weaken the relationship, undermine account loyalty, and occasionally even drive an account to another supplier. An account leaving you can provide dramatic evidence that short-term cost-cutting can lead to long-term revenue removal. It's critical to remember what Adrian Slywotsky said in a recent Harvard Management Update: "In uncertain times, your best customers provide an even greater share of the profits. It's important, especially now, to see the world through their eyes."[2]

Seeing the world through your customer's eyes first means realizing that almost all firms are feeling the pressure of the times. In many cases strategic accounts rate as treasures to those suppliers that continue to serve them well in tough times. A second important realization is that these customer assets are your co-destiny accounts, your future. Start treating these customers as cost items (particularly tempting in a bear market) and you are no longer maintaining and growing those assets. As we saw above, the loss of a co-destiny account can easily be the unintended consequence of short-term cost-cutting.

Where employees are concerned, fear, like rot, spreads. Employees seeing parentheses on their 401k's for over a year are concerned to begin with. If they see raises frozen or co-workers suddenly let go as "non-essential," their concern can move into fear, their productivity seriously undermined. It's especially difficult for employees to give their all to their firm if they are constantly asking themselves whether they, too, might be "non-essential."

To minimize fear and maximize productivity, a firm's leaders must take a hard look at where they and their market are and then determine a strategy for dealing forcefully with their situation. The strategy might include cost-cutting but whatever it is, it needs to be communicated to all employees so they see that their firm recognizes the problems out there and is working to deal with them. I recall one firm in the 80's that had to cut costs. Instead of doing what many perceive to be the "fair" thing-removing 10% of every function's budgets--the firm approached the issue strategically. It asked where cuts needed to be made and also where budgets needed to be grown for firm success. The firm's leaders explained the strategy, how it was going to work, the temporary sacrifices employees would have to make, and the opportunities presented by reorganizing their company. Those executives promised that they would continue to let employees know what was happening-that there would be "no surprises." The firm weathered its troubles, remained productive and emerged stronger than ever. As Gertz and Baptista point out, "Everyone would rather work in an environment where possibilities are more tangible than limits-where hope matters more than fear."[3] It is the responsibility of the firm's leaders to make those possibilities more tangible.

Our experience has been that, even in good times, many suppliers tend to underinvest in the customer and employee relationships on whose future they depend. It's a dangerous strategy in the best of times. In the midst of uncertainty, it's a strategy can have unintended consequences that are dramatic and damaging.

Reviewed by S4 Consulting

© S4 Consulting

[1] Gertz, Dwight L. and Baptista, Joao P.A., Grow to be Great: Breaking the Downsizing Cycle, New York, The Free Press, 1995, p. 2

[2] Stauffer, David (2002). "Five Missteps to Avoid in Volatile Times," (p. 3) from Harvard Management Update, September, Volume 7, Number 9

[3] Gertz and Baptista, p.3