The current financial crisis is all over the media right now and I think it raises an important question for most businesses (or I suppose it should): How do we go about our business in a downturn?
This is of course not the easiest question in the world – or is it? It is nothing new that the global economy follows certain cycles, in fact it is bound to happen according to modern theory in the field although the scale in this case was probably the main cause of concern to most.
However, there is no reason to believe this is anything but a short-term fluctuation and as such it is my personal opinion that it does not change a thing.
Granted, for a specific function like purchasing reality could be different in terms of imposed limits on spending or similar during a downturn but I sincerely hope not many businesses take to that approach. In general if you are already on track with e.g. your eProcurement initiative and on top of your KPIs there really is no need to act differently.
If anything purchasing should play a bigger role – we have previously covered some of the short-term opportunities that could be considered during a period like this but I think the focus should be on sustainability in the long run first and foremost. In the words of Warren Buffett:
Only when the tide goes out do you discover who’s been swimming naked.
Basically what he is saying is that the ones most affected in a downturn are those that did not do business as usual during an upturn. This is to some extent of course what makes the cycles appear in the first place and I think the key here, regardless of the current state of the global (or regional) economy – is to go about your business as usual and not let the short-term interfere with your long-term efforts.
The best case study on this I could find is actually 15 years old – Toyota’s Global 21 (G21) project probably better known as the Toyota Prius.
The Toyota Prius - A Step Ahead
The Toyota Prius, scheduled to be released in its 3rd generation in 2009, has consistently been the front runner for environmentally friendly cars ever since its debut in October 1997, while at the same time reaping in awards and praise from happy owners all over the world – a testament to the great efforts of the G21 development team.
The Toyota Way of doing business in general of course plays a major role in this success, but exceptional execution aside I think the real lesson to be learned here is that Toyota top management realised (during a period with great bottom-line results in the beginning of the 90s) that additional R&D efforts where needed to maintain sustainability in the long run, kicking off the G21 project with the highest level executive sponsorship in 1993.
Practicing the Toyota Management principle #1, the goal for this project was to develop an automotive manufacturing platform for the 21st century:
Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals
The targets for this project were e.g. a spacious cabin, a perceived overly aggressive goal of increasing mpg by some 50% (based on the notion that natural resource availability would be a serious issue some time in the future) – seemingly impossible targets which in turn forced the team to come up with innovative solutions like the hybrid engine.
Throughout the project executive sponsorship was dominant – a high-level committee of Toyota board members, or kenjinkai (“committee of wise men”) that met weekly – sending a very clear signal to the entire organization that this was a top priority project.
I think the Toyota Prius is a great example of how management stepped up and focused on long-term sustainability and made sure everyone was aware of it – even though the company was doing really great.
So, unless you are already naked I think the answer is to keep the long-term focus regardless of the tide and make sure your organization is aware of it.
