Who Bombed my Company - Preparing for the Inevitable!

Some years ago I started my ‘stock market investment’ initiative as a part of my Investment Portfolio. The ‘analyst’ in me demanded that I learn the game from the masters before putting in my hard earned money. I picked up a Warren Buffet book at the airport on my next business trip and read it from cover to cover understanding most of Mr. Buffet’s philosophy if not all! As my awareness grew, I learnt of Benjamin Graham (the man Buffet attributes his financial market education to) and his famous narrative - The Intelligent Advisor
(Wiki: http://en.wikipedia.org/wiki/The_Intelligent_Investor).

These masters taught me the fundamentals of value investing and the art of profiting from market follies and disruptions rather than by participating in it! How to identify and buy into ‘value’ companies and invest in them for the long haul. How to stay away from speculating in organizations and businesses I was not familiar with irrespective of how lucrative their valuation and potential seemed to be! Many other anecdotes and advise that I have come to understand and appreciate. I actually followed up by reviewing Berkshire Hathaway’s famed Letter to the Shareholders that Mr. Buffet writes every year. (http://www.berkshirehathaway.com/letters/letters.html). I also got insight into the Mr. Buffet’s own stock picks and other well regarded recommendations and then feeling fairly well ‘covered’ I put in my money in the market. Despite this attention, all my famed and well researched ‘blue chips’ are significantly down today!!! Mr. Buffet and Berkshire were not spared either! In the 2008 Letter to Shareholders he wrote – “Our decrease in net worth during 2008 was $11.5 billion, which reduced the per-share book value of both our Class A and Class B stock by 9.6%. Over the last 44 years book value has grown from $19 to $70,530, a rate of 20.3% compounded annually. As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”
While I trust in God, Mr. Graham and Mr. Buffet like the rest of the investor planet, I begin to wonder why these famed organizations that I trusted my money with are actually failing to perform as the financial markets go sour and what other established and upcoming organizations can learn from them! Once you think about it …there is plenty!

All organizations are destined to face ‘market disruptions’, ‘conflicting and negative internal forces’ at some stage of their evolution that will force them to take dramatic measures to survive and hold on to their positions of leadership. When this situation is coupled with a larger macro economic slowdown that we are in the middle of now, the impact obviously is further amplified! Unlike what is usually the norm, I do not blame the management team for the organization’s fall though this is easiest to do! The lackluster results are hardly because of a single wrong strategy that the leadership has implemented or a specific move of the competitor that the leaders failed to see. Rather, the root cause often is a sum of many different reasons – inability to see a prominent market shift early enough (normally called a ‘disruption), unwillingness to change the way of doing things, inability of hiring the right skills into the company and surprisingly the inability to see an emerging competitor who leverages the disruption and changes the game for the incumbent market leader!

Lets be realistic though, this is a natural consequence and will happen to every organization – not just once, but many times in the history of the organization. It will happen despite the skill, diligence and track record of the management team – no exceptions! The forces that make these happen are far more diabolical than the people who are impacted by it! So the end game is not about prevention but about how to respond to these circumstances.

Very often I see organizations and their leadership going straight in with knee jerk reflexes trying hard to do things that make them look good in the short term to their boards and shareholders. Sometimes they do not really have a choice either, as the larger forces start to lean on them! However, given the choice here is my pick of pointed actions by the leadership team when the going gets really tough…

Stay the course, show that you know what you are doing – Demonstration of confidence is critical in troubled times. It is natural for the leadership team to be concerned and worried but they need to be able to face their troops, stakeholders and customers with demonstrated confidence. Demonstrate ability to face the situation however bad it might be and lead through the crisis riding on the plan that they have built with their leadership teams! While doing so they can be vocal about what is unknown to them – taking this position does not weaken them, on the contrary, this makes them more credible and human!

Ensure complete consensus amongst the leadership team; commit to consistent & extensive communication, both internal and external – A classic fall out of a crisis is a flurry of misguided activities by executives who make a valiant attempt to demonstrate that they are doing ‘something’. These actions are not products of collaboration, consensus and in many instances are conflicting and counter productive. Hard times call for complete consensus amongst the leadership. Resources are usually scarce in today’s competitive environment, more so in troubled time. It is absolutely ridiculous to squander this rare asset due to irresponsible and unsynchronized planning by management. Once leadership gets around the table and determines a common set of actions, consistent and regular internal and external communication is a must – over-communicate rather than go soft on it! Communication gives people the belief that things are progressing and will hopefully be in control, positive data if available, heightens this optimism!

Focus on your customers more than ever before – Customers either make or break organizations. During the tough times, it is great to have your customers along with you. Do not just be happy satisfying them, wow them off their shoes! Knowing the situation that your organization is, they will admire your gesture even more than they did during the sweet times!

Focus on the areas of strength, in parallel fix your gaps – As I have mentioned earlier, it is common for crisis to bring in a flurry of activities that are neither properly orchestrated nor necessarily good for the organization. The leadership team has to agree on some key areas to focus the limited resources on and they better be areas of visible strength! These done, use the ‘downturn’ to let the bottom open out – discard wrong products, processes and people! Fix the engine that will propel the organization forward. This is as a good an opportunity as any that will come along!

Find every opportunity to differentiate – Leadership in revenue, margins and share has to be driven by differentiation. In today’s world of readily available information, it is hard to do anything that someone else has not already done or is not in the process of doing. Yet, a Yahoo happened despite an Alta Vista, a Google happened despite an Yahoo and an ipod despite a whole array of portable mp3 players that preceded it. You get the plot – great examples of differentiation and value creation. Do it better, faster, cheaper and easier than anything anybody has ever done before and you have a chance to win! Differentiation comes out of innovation and innovation is a product of attitude! Good times or bad, this attitude and commitment at every level of the organization is an absolute must for any organization to turn the corner. If you are in any doubt, ask a certain company in Cupertino and they will clarify your doubts!

I am confident Mr Buffet’s handpicked stocks (and the organizations that stand behind them) are staffed by executives who share my beliefs in one way or the other and are actually implementing them! I feel this way, not only in protection of my investments but the millions who are dependent on how these organizations will do, going forward. If they do, Mr. Buffet’s next letter to the Berkshire’s shareholders will be a lot more optimistic!