Following the global crisis, poor prospects for a rapid economic recovery have led many companies around the world to come up with a strategy for 2010 to keep themselves afloat. “2010 will be a year for working twice as hard and making half as much,” said Javier Fernandez Aguado, professor of general management at the European Forum of the Navarre School of Business in Spain, and the author of some thirty books, including Creators in the History of Spanish Management and Leadership Creators. He was speaking at the latest conference of business leaders sponsored by Expansion, the economic daily, last December. “This will be a year of transition, and of political and conceptual renovation.”
So while most financial institutions face a change in their business models, with governmental announcements about limiting their power and developing transparency, multinationals and small and midsize firms are pursuing their own paths. From a financial viewpoint, U.S. President Barack Obama has been the latest to provide his vision about the future of banking. At the beginning of January, he announced that he was setting up strict regulations for banking institutions that would limit — and even prohibit — certain financial activities in order to avoid speculation in banking markets, both on their own accounts (through proprietary trading) as well as those of third parties.
A New Business Paradigm
This announcement, applauded by the European authorities, will encompass a new paradigm for the financial sector — a renewal that the business environment will also undergo, and which will involve management and new managerial tools.
This recession has provided an inflexion point for business managers and redefined a new business paradigm. Most management experts stress that everything that has happened – from the decline in the world’s main economies to governmental intervention in large financial institutions – must serve to mold the growth and model the development of every participant in the global economy: from the big international companies, which have seen how their business plans became obsolete with the financial crisis, to the family-owned firms affected by credit restrictions, high unemployment and fear that other companies would join those ranks.
In many cases, the first step that companies must carry out is to discover the new reality they are involved in. “Everyone has to know that there are ups and downs, and the important thing isn’t figuring out if you have a crisis but how to manage it,” said Aguado. In this context, Enrique Alcat, professor of corporate communications at the European Business School in Spain and a consultant in crisis management, noted that there are only two options: “Hide or look to the future, trusting yourself, and being pro-active and using your network of contacts. Those who choose to take positive steps will wind up afloat.” He cited three concepts for becoming stronger during the current situation: preparation, prevention and transparent communication.
Reducing Expenses
Until now, most companies, both public and private, have chosen to reduce their operating costs rather than cut their revenues and profits. Taking this approach, there are many cases of business leaders who have changed their management model by making adjustments in their personnel. “Crises are crises, and we have done the same thing in all of them: reduce costs,” said José María Ortiz, director of the Excellens Program (which comprises Administration and Corporate Management, Law, and a Master’s degree in Human and Professional Leadership) at the Francisco de Vitoria Universia in Madrid. He pursues this policy of corporate cost savings since “reducing costs is usually synonymous with increasing control.” However, you always have to go further, he added, looking for management formulas that permit recovery, such as innovation and capturing talent.
In addition, the outsourcing of many services developed in companies emerges as a possibility for cost savings, facilitating the adjustment in the plant toward the market’s current needs for services.
Once these new conditions are created, experts advise that it is important to emphasize the process of change, with constant care and vigilance and, of course, the possibility of actualizing the model, and even finding the perfect formula for each business. “The most frequent mistakes in the management of change are improvisation, confusion about goals and individualism,” noted José Aguilar, author of Growing after a Crisis. He is the managing partner of Mind Value, a consultancy. “Change is successful when it is rigorously planned and realistically executed, but it can fail when you don’t take into account the reactions, which are perfectly predictable, of all the interest groups that are affected,” he said.
According to Carlos Sánchez, managing partner of e-Motiva, a consultancy that specializes in strategic management, “There are moments when companies must face situations that are so difficult that even survival itself is at risk. Overcoming those situations successfully requires making decisions at every level that have a strong impact on people.” He added, “Success in managing the process of change; cohesion and credibility of the managerial team; the decisive commitment of mid-level managers, and the attitude of the workers will be the difference between life and death for many companies.”
Experts agree that innovation, committed leadership and sustainability are the most often mentioned formulas, and they must play a role in the success of the corporate recovery. “We need leaders who are in sync with the new paradigm, in which old values like individualism no longer work,” said Nuria Sáez, partner of InCrescendo, a consultancy specialized in organizational change and transformation. Araceli Mendieta, who coaches executives and teams, agreed with this idea, arguing that some models were successful in the past but that it is necessary now “to be more permeable” when it comes to adopting new systems that work effectively under the new conditions created after the international crisis.
According to Javier Martín de la Fuente, partner of Person’a, a professional career services consultancy, companies can no longer continue to be anchored in a culture focused on costs, but must commit to innovation. This means not only Research and Development, which has a more technological meaning, but also the creation of open spaces where creativity in the business environment can be encouraged.
Clearly, innovation as the key to success is the doctrine most often repeated by management experts. Looking for alternative paths; pursuing the maxim of “if something does not work, try something different”; taking on risks and committing to talent; and getting everyone in the company involved in the process. “The only people who can expand organizations indefinitely are those whose future involves treating people in a humane and dignified way,” noted Aguado.
“2010 offers an excellent opportunity to give more weight to people in organizations, and to break this barrier between personnel and management,” added Mendienta, who pleads for “flexibility” when it is time to interact with new generations as the best formula for breaking the barrier in the business environment.
As a result, it is very important for managers to communicate all managerial policies that the company is going to carry out, so that their staff can understand them and implement them. “Employees are the company’s most important clients, and it is something that should not be forgotten, especially now that negative decisions require more explanations and there are companies that are in a deteriorating condition,” warned Alcat.
“Communication is a basic tool for softening the impact of contrary reactions, and building constructive reactions in situations of change,” notes Jose Aguilar. He believes that workers’ commitment to their respective companies “is a little bit lacking but it is increasing.” He forecasts that “the capacity to give and generate commitment is a competency that in coming years will play a more important role when it is time to promote people into key positions.”
A New Model for Management
Business managers need to be able to carry out this sort of transparent communication between the different components in an organization. The current situation seems to have sent into exile the so-called “shark managers,” and favors those managers who are closer and more charismatic — those who get the entire team involved and committed to the decisions that are taken. “Management in the coming decade will be talking about concepts such as the humanity, authenticity and generosity of directors. You have to create strong personalities so that when the first storm hits, there are no leaders who collapse and repeat old patterns,” added Sáez.
Pascual Montañés, professor of strategy at the IE Business School, agreed and was very critical of the current situation for managers. “There are more than enough charismatic leaders, but there is a shortage of strategists.” Montañés added there is a need for deep analysis and a long-term vision in the top management.
In his book, Preparing for the Crisis: Lessons from Classical Greece, Fernández Aguado defends values such as reason, discretion and humility as ways to reach sustainability over time. For Aguado, the new recipes for dealing with the storm will only work out if they are implanted simultaneously in every layer of the global economic environment. Aguado emphasizes the need to take account of other external factors, such as the role played by various public agencies and international organizations (such as supranational organizations, including the European Union’s decision-making council and such groups as the G-20, which brings together senior representatives from the great global powers), as well as internal organizations, for which corporate policies aimed at sustainable growth are most important.
