Don’t let the downturn grind you down

Change and transformation in an economic downturn can be a lifeline.

Faced with an economic downturn and possible stagflation, companies may decide to batten down the hatches by cutting costs and protecting cash. Given the uncertainty of the current period, notably the availability and escalating prices of gas and oil, such a strategy is understandable. But Professor of Strategy & Innovation Siobhan O’Mahony and Strategy & Innovation Research Assistant Veronica Escobar-Mesa warn of the danger of “the ‘threat rigidity effect’ where organizations become rigid rather than adaptive in threatening situations (Staw et al., 1981)… When a culture is rigid, people are less willing to share, try and test their new ideas and this can lead to a decline in innovative activity and thus a decline in the rate of new concepts introduced to market.”

Instead, several leaders are taking the contrarian view, whether it is spending more on innovation or transforming their business in other ways. For example Hakan Bulgurlu, CEO of Arçelik, owner of white goods brand Beko, saw an opportunity in the energy crisis and invested £80m in R&D to develop ever more energy-efficient products. 

However studies have shown that companies should not attempt transformation just by reorganising; rather they should implement meaningful change. They need to select a transformation where there is a clear goal such as addressing changing customer needs, finding partners to collaborate on new projects and products, and protecting the resources needed to keep innovation alive. O’Mahony and Escobar-Mesa refer to “a study of 2,329 new ventures in the Netherlands facing the 2008 economic crisis found that organizational changes were detrimental for survival, while technological innovations that enhanced innovation capabilities entailed a more enduring premium post-crisis (Cefis and Marsili, 2019).

Transformation in these uncertain and unpredictable times is obviously not for the faint hearted, and needs constant monitoring and correction if necessary. Tensense has been studying the culture climate of companies for many years and, in combination with observation of other perspectives of high performing organisations, developed

Grounded in the science of Sensemaking, harnesses the instinct of the workforce, who see what is happening on the ground, by asking them how they feel the organisation is performing. This innovative diagnostic has been instrumental in helping large and small organisations successfully navigate change and transformation – by helping leaders ‘read the room’ if you will. This extra perspective can be a game changer for leaders, giving them a heads up if things are going wrong, because many transformations will be disruptive, even if their goals are positive for the company.

Since collects data as a pulse in real-time, it acts as an early warning system of potential issues before they are identified by other metrics, for example financial or via Employee Engagement surveys.  

Leaving the last word to Ella Goldner, Co-founder and General Manager of venture capitalist Zinc – “invest in innovation; rethink your supply chains; streamline operations to reduce complexity; spend on training and retention; and build strong digital infrastructure. All this will create a competitive advantage and enable a much faster bounce-back when the economy picks up again. Investment in innovation, coupled with rigorous, well-executed cost management, will separate the winners and losers in this downturn.”