Investment Opportunity

August 21, 2008
I don’t follow the GDP very closely, but I did notice that the second-quarter numbers released by the Commerce Department in late July show that the U.S. economy grew by 1.9 percent,

fueled largely by all those economic stimulus checks we were getting (and spending).

In other words, as bad as the economy might feel right now, we’re still not officially in a recession.

This might be comforting to some, but it’s not if you are one of the many people struggling with gas prices or layoffs or the rising cost of just about everything. It’s pretty tough out there, and that goes for nearly everyone, whether you are looking for a job or trying to hold on to the one you’ve got.

This also points to a management maxim that’s good to remember at times like this: The true test of managers is not how they behave when times are good, but rather, how they do things when times are bad.

I’ve managed in both circumstances. I loved the dot-com boom. Managing then was a piece of cake. But as I look back, I’m proudest of the work I did during periods of economic distress and turmoil, when I really had to bear down and put all of my talents to work getting myself (and more important, my staff) through the tough times.

Many organizations just don’t know how to deal with an economic downturn. When tough times hit, they take the slash-and-burn approach —cut staff, tighten the budget, hunker down for the duration. This is a time-tested approach, but as a young manager trying to get through a long-ago downturn, I had drilled into me the notion that smart managers take a different approach: Push to invest and regroup in tough times, because that is the best time to gain competitive advantage.

No less a manager than Steve Jobs made this very same point recently when he told Fortune: "We’ve had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place—the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time."

Unfortunately, there are all too many executives who don’t agree with the Steve Jobs approach. Companies have been cutting jobs at a furious pace, and new claims for unemployment benefits hit a five-year high last month, helping to fuel even more of the economic anxiety we have all been feeling.

And beyond unemployment claims, The New York Times reports a new and more ominous trend: "The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million—the largest figure since the government began tracking such data more than half a century ago."

Managing in tough times is not easy, but the mindless cutting of workers and budgets is not the answer. Not only does it not take much skill or thought, it leaves the organization unable to quickly move when the economic recovery finally does begin.

Business author and management guru Ram Charan probably had the final word on this philosophy when he wrote recently (also in Fortune): "Being on the downside of the business cycle is not much fun. That said, a slump can also be an opportunity if you use the sense of urgency to improve strategy, management, and discipline. In that sense, happy and unhappy times are alike: The companies that take charge and outcompete will win."

Investing in the business, improving strategy, resisting the urge to cut staff—sounds simple, no? I wish it were, but it takes visionary leadership and confident management to do it. That’s why Apple is where it is, and why other organizations are not.

Workforce Management, August 11, 2008, p. 42 -- Subscribe Now!