| ||||||||||
| ||||||||||
— Analysis —
Crouching still seems the most common posture this time around, even among the biggest companies. In a January survey of executives at 155 of the top 500 companies, Booz & Co. found plenty of tactical cost cutting and not much investment in growth. Among this financially sturdy group, nearly one in five said they were cutting capital expenditures by 25% or more.
That's a mistake, the study argues. The right cost cuts are important, but so is attention to long-term success in a market that's sure to change a lot in this unusually severe economic dislocation. Ashok Divakaran and Mahadeva Matt Mani, two of the study's authors, attribute the excess of caution to the way a sharp, sudden reversal has left many executives in a state of shock, unsure of where they stand with regard to shareholders, banks, customers, suppliers. "They're struggling to find visibility," Mani says. Yet not everyone feels vision-impaired. Browse through the first quarter's news reports about the top 500 companies and mixed in with all the announcements of major layoffs you'll find a smaller number of stories in which executives discuss plans for acquisitions and other growth initiatives. As it turns out, some of the growth stories are coming from some of the most aggressive restructurers and downsizers. Caterpillar Inc. announced 20,000 layoffs in January. But it just broke ground on phase II of an engine complex in China, and it wants to acquire mining equipment manufacturers. United Technologies Corp. said in March that it will trim 11,600 jobs, but its Pratt & Whitney unit is eyeing power-sector deals. And when Peter Friedman, a UTC director of corporate strategy and development, spoke at a conference in New York earlier in March, he called the recession a "generational opportunity to change what the company looks like." Then there's the really sweeping vision of Sam Palmisano, chairman of IBM Corp. In his letter to shareholders in IBM's recently released 2008 annual report, Palmisano argues that we're at a moment of "historic change" that gives IBM an opportunity not just to assert leadership in its industry, but to "change how the world literally works." If that sounds a bit like IBM's current ad campaign, there's a reason for that. But if you read the letter (and it is worth reading) and you look at the things IBM is actually doing, it's clear that Palmisano is serious when he talks about major change via acquisitions and investment in research and development. Big Blue's discussions about buying Sun Microsystems Inc., whether or not they bear fruit, surely represent a readiness to try and assert industry leadership. IBM has been cutting some jobs too. Though the company hasn't commented, reports in late March indicated that the latest round of cuts could affect 5,000 U.S. workers in its global business services unit and that at least some of the work they've been doing could be taken up by employees in India. If so, that would be consistent with IBM's previously announced plans to "rebalance" its workforce in favor of the developing world. But there's more than one kind of balance required here. While investors applauded IBM's strong 2008 performance, and its shares figured prominently in the March rebound in the stock market, there's also resentment among tech workers about the ongoing reduction of its U.S. workforce -- still huge at 115,000 in 2008, but down from 121,000 in 2007. Other companies are getting pushback on layoffs as well. And while IBM knows emerging markets well, could other companies actually be overemphasizing them? That's a warning the Booz study sounds, noting that developing-world initiatives are the area where respondents were most willing to press on with capital expenditures -- but that the recession may not unfold in these markets as they expect. For a CEO with clear ideas about where things are going, choosing to help drive change is clearly the better option at a time like this. The choices aren't easy, though. Business may be slowing, but the world is spinning faster than ever. |
Some call our economic mess a recession, others dub it a downturn or even a depression. All these terms capture the idea of business slowing or even grinding to a halt. But they miss the way a tough economy accelerates the pace of change in most industries, posing a stark choice for many companies: Try to help drive that change, or go into a defensive crouch.
|
|
|
|
|
