How to build a culture that withstands economic downturns

There are three keys to building an adaptive culture and resilient organisation that will help in withstanding the knocks and shocks of economic downturns

There are three keys to building an adaptive culture and resilient organisation that will help in withstanding the knocks and shocks of economic downturns, writes Dave Hanna

An economic downturn inevitably leads to a number of companies scrambling to stay afloat. Many will sink and disappear from view. Even those who survive may fall victim to another habit that I have observed all too often.

The scenario is this: when an economic downturn hits, the company suspends its normal way of operating and initiates a number of emergency measures, such as:

  • modifying standard operating procedures to do more with less
  • assigning associates to work on special task forces or project teams to accelerate improvements
  • creating new roles to improve co-ordination between business units or functions
  • upgrading associates’ skills in areas critical to the company’s survival.

Then, as time passes and the economic downturn disappears, these high-performing companies return to operating “normally”, just as they did before the emergency situation arose. If these so-called “emergency measures” deliver superior results in a downturn, why not institutionalise them as the new standard operating procedures? The case example of Procter & Gamble’s Vizir laundry detergent – the forerunner of Ariel and Tide liquid detergents today – illustrates the value of this approach.

Some years ago a combination of drought conditions and an unseasonal monsoon decimated most of the Philippines’ coconut crop (the source of more than 90 per cent of the world’s coconuts at the time). The now-scarce coconut oil (a key Vizir ingredient) had skyrocketed in price almost overnight, literally erasing Vizir’s total profit margin. This was a downturn indeed!

Just before this tragedy, Procter & Gamble had organised multifunctional brand teams to boost its sagging business in Europe. The Vizir brand team now met in an emergency session to see what it could do to avoid disaster. The team considered every aspect of brand operations such as alternative product formulas, ways to cut costs, and ideas for simplifying the packaging.

Literally, by the end of one working day, the savings identified fully offset the increased cost of coconut oil, and in only a few weeks, these savings restored Vizir’s profit margin. Additional savings of the same magnitude were also clearly identified for the following fiscal year. When all these savings converged, Vizir expanded across Europe faster and cheaper than before and profits more than doubled from the pre-catastrophe period. Today, the combined sales in more than 140 countries of Ariel Liquid and its US cousin, Tide Liquid, make it number one in the world.

The Vizir story, though dramatic, is anything but a one-time miracle. The multifunctional team approach has been institutionalised and is now a key element in the management of Procter & Gamble’s world brands. Operating in parallel to normal business units and functional groups, these brand teams continue to streamline company organisational structures, supply systems, manufacturing facilities, marketing approaches, and distribution channels. In the past 15 years alone, P&G’s number of billion dollar global brands has grown from 10 to 22, paced by the creativity and collective expertise of these teams.

As traumatic as economic downturns are, they also offer an invisible silver lining to organisations who have the vision to see it. If leaders revisit the basics of their business (see below), they can actually raise their performance at a time when others are just hanging on to survive.

Brand team

To those who experience the dynamics of reversing an economic downturn, I offer my congratulations… and a word of caution. Once the storm has passed, don’t relax and merely enjoy your success. Work hard now to institutionalise your new breakthrough practices, teamwork and innovations so that they become your new way of life.

Tips for bulding cultures to withstand economic downturns

  1. Make a deeper connection with key stakeholders. A downturn doesn’t just affect your business; it also affects every stakeholder connected to you. You could determine with each of your key stakeholders what their most critical needs are in the downturn and find new ways to help each other. I’ve seen such teamwork actually gain ground for the partners while others are losing it.
  2. Re-purposing. Decision one in re-purposing is being clear about the core principles of the company that will not change in the downturn. Integrity, fairness, focus on the customer and so on must be maintained. But the practices may need to be adapted. Decision two is to formulate a “Triage Strategy” – a definition of the urgent measures you will take to keep the ship afloat. Decision three is to make clear to your associates “what’s in it for them” to fulfil the Triage Strategy.
  3. Flexible redeployment. This means changing task assignments, processes, structures and decision-making points to meet your stakeholders’ needs better than your competitors in the downturn. The Vizir case situation is a good example of flexible redeployment.

Image source: iStock