Living in a city known for the largest sporting venue in the world — the Indianapolis Motor Speedway — you can’t help but notice a few things about auto racing.
In particular, witnessing 33 cars pile into a turn at over 200 mph during the Indianapolis 500 is the ultimate risk/reward scenario. Cars can make up significant ground, but can also cause spectacular crashes. Just like a turn in auto racing, a turn in business greatly increases risk, but also significantly increases the potential reward.
Turns come in many forms
Economic turns are common in business, but there are many other types of turns (see Table 1): unexpected changes that force decisions. These turns may appear without much notice and from unforeseen directions. Some may be extreme, like when a non-traditional competitor that doesn’t need to make a profit enters your market or when the time to impact is short, like during a quickly escalating trade war. These turns sometimes come in combinations, increasing the need to react on different business vectors and requiring a high-performing executive team.
But, just as in auto racing, with risk comes significant and long-lasting reward for those who take advantage. In researching the last recession, Gartner’s Finance practice found that a large proportion of companies that “win” during the turn sustain those gains across the long term.
This research illustrates that executive leadership should have their teams prepared to act by focusing on three vital areas:
- Strategy: Preparedness to Act Confidently Amid Uncertainty
- Cost: Discipline in Allocating Resources and Execution
- Talent: Position Talent to Sustain Progress on Transformation
Preparedness to Act Confidently Amid Uncertainty
The nature and timing of decisions (e.g., investments, acquisitions) made during turns matter greatly. Gartner data from the last recession shows executives regretted acting too slowly and investing too little. There are three main approaches to reduce strategic uncertainty: first, winners pull forward debate on the underlying decision criteria and weightings, and how they could change under alternate scenarios. Second, they implement a bottom-up process in which variation in making assumptions is used to better capture and reflect uncertainties. Finally, winners model “end-state” optionality by refocusing business development valuation on the range of actions and investments available today, and the strategic options they open or close.
Discipline in Allocating Resources and Execution
During the most disruptive turns, we often stop discretionary spending, lay off staff, reduce training and cut capital investments, but Gartner’s study of the last recession shows those who came out stronger thought long term and forecast for the upturn. A prerequisite of this future view, however, was having an ongoing cost management discipline and practice cost optimization as opposed to reactionary cost cutting. With cost optimization already engrained in the culture, these organizations were able to position for long-term success by protecting innovation funding even as the cost belt tightened.
Position Talent to Sustain Progress on Transformation
Turns present us an opportunity to revamp our hiring, development and performance management playbook, build our organization’s brand and be on the offensive when it comes to talent scouting. Identify your competitors that are struggling to keep up internal morale — and call their best talent. When turns occur, the best talent wants to be on a winning team and they are more likely to move during this period. It is a double-edged sword, however, as our next generation of leaders are at risk of disengagement during the turns. We ask them to do more and contribute more at a time when financial rewards and promotions are rarer.
Don’t Freeze in the Turn
We need to fight the urge to take a “wait-and-see” approach until the signals are clear, or fall back on defensive cost-cutting to weather the uncertainty. There is little clarity on a range of economic, regulatory, geopolitical and trade issues, and digital disruption — but with that risk comes reward.
Michael Uskert, Chief of Research, Gartner Supply Chain