Thoughts On How To Weather The Storm With Empathy And Integrity
Forthcoming. Looming. Impending. These are some of the words over two-thirds of U.S. economists are using to describe the likelihood of a recession in the year(s) ahead. As the CEO and founder of a strategy and design practice focused on helping organizations not only grow in boom times, but also think through strategies that will help them endure leaner years, this topic has been coming closer and closer to the fore.
Before we talk about how leaders can provide some insulation for this inevitable economic chilling, let’s look at what got us here.
What Goes Up Must Come Down
The past few years have been an unexpected gift for the U.S. economy. Business deregulation, trade policy and an overall investor-friendly climate has made everyone from individual investors to corporate behemoths see an uptick in the value of their portfolios. That said, to borrow a phrase from the great philosopher Heraclitus, the only reliable constant is change.
A recent study from the National Association for Business Economics indicates that forecasters are predicting the downturn could start as early as this year. With this sort of news percolating in the zeitgeist; it’s time for business leaders to take proactive measures to ensure their resilience. Looking back at the two most recent U.S. recessions, there are some best practices we can rely upon to help weather the storm.
My organization, Sub Rosa, leverages a type of systems thinking we call empathic design to foster deep understanding of complex, interdependent ecosystems. The first step in this process looks across three key vectors in the marketplace in order to find opportunity areas to shore up businesses and prime them for the resilience required in a recessionary climate. They include an analysis of a given company, its diverse consumers and the broader context within which both the former reside.
Company: It Starts At Home
The first place a business and its team needs to focus their efforts is on truly understanding themselves. Companies that show a continued commitment to their people, their products/services and their principles are often able to maintain more stability when the weather gets rough. A recent conversation with WeWork’s Chief People Officer, John Reid-Dodick, served to highlight this even further. He told me, “Cost cutting is unavoidable in a recession. Because most companies will emerge from a recession in growth mode, it's essential to sustain your brand - including your employer brand - through the process. A key concept is 'save to invest' - while the net result will be a reduced cost base, you should invest in the people who will remain with you for the long-term while handling the necessary reductions with fairness, dignity and transparency. The ideal outcome is 'few people; better people; better paid.'”
Sadly, the loss of key talent during a recession is far too common. This is because there is a short-sighted tendency among many companies to forego investing in their people and their products when the market or their margins are strained. This tendency is often exasperated inside companies who are ambiguous about their values, resulting in internal cultural erosion. The rules get bent, or even broken, because a value like “quality” can’t be upheld when the product/output is overlooked in favor of near-term profitability. Instead, in these moments, businesses need to double-down on their values and show their employees, and the market, that they have the sort of mettle to stick with what really matters, especially when times are tough. Indeed it is only when values are truly tested that we learn how much a company actually values them at all.
We recently worked with a company who was rethinking their company values. We discussed a variety of nuanced words and phrases that marketing and brand people love to chat about; things like integrity, honesty and hope. For many organizations, these words often end up in a brand book collecting dust on someone’s shelf. We’re not satisfied with that and don’t want our clients to be either. We collectively held our feet to the fire in this conversation – testing the true willingness of the leadership in this organization to stand by these words and to ensure they were not only part of the brand canon, but moreover, part of its DNA. Would they be willing to risk losing customers when their value of integrity forced them to decide between cheaper ingredients or a retail price increase? The executives squirmed a little when asked to consider which way they’d go in such a moment of truth. While perhaps uncomfortable, these are the questions leaders must ask–and answer–well before the time for that sort of decision is upon them.
We were happy to hear that the team would be willing to raise the price if it meant maintaining quality. This showed us, but more importantly showed them, that this was a value that truly mattered. And what’s more, they believed that their customers would see that hypothetical price increase the same way – as a testament to the company’s integrity in making a product that delivered on its high quality ingredients promise.
At the same time, an investment in your people is often equally as critical to maintaining a grip on what truly matters when times get tough. Here’s an apocryphal adage of a conversation between a CEO and CFO:
The CFO is reviewing the details of the new year’s budget and fixates on a large line item for employee training and development. The CFO says to the CEO, “Look at the amount we are spending on our people. It’s nearly 10% of our annual budget. What if we invest all this money in them and they leave?”
The CEO responds, “What if we don’t and they stay?”
This is the common tension that arises when making meaningful investments in the recruitment and development of people within an organization. There’s inherent financial concern associated with this, but in my experience, the good far outweighs the bad. A Boston Consulting Group study on this topic stated that the number one area where HR impact can be felt was in effective talent acquisition. “Recruiting is the HR function with the highest impact on revenue. Excellent recruiting practices contribute to more than 3x revenue growth and 2x profit margins.” The report goes on to cite onboarding and retention, talent management, employer branding, performance management/rewards and developing leadership all to be linked to delivering over 2x in revenue growth and over 1.8x in profit margin. When investments in people, culture and products and services are in question, it’s important to weigh the consequences and understand the effect of not doing so. This applies doubly in recessionary times when companies are operating on a razor’s edge to stay competitive and relevant and therefore need their best talent to be empowered and motivated to drive the business forward.
Leaders might ask themselves:
- Am I doing what it takes to retain my very best people?
- Are we willing to stand by our company values even when times get tough?
- What are the acceptable sacrifices we can make to ensure our resilience?
Consumer: Tribal Knowledge
Today every successful business knows that there is no singular “consumer” they serve. There are likely a variety of groups consuming information or goods from a company at any given time. Within each of those groups there are likely sub-groups, or tribes, that are psychographically nuanced and need to be catered to in different ways.
For example, one group that consumes information from a company would be the Media. That said, it isn’t simply enough to have a "blanket media strategy" that covers all conversations with the Press. A reporter from the Financial Times is going to want to know decidedly different things than a reporter from Variety, when covering a conversation with a Netflix executive. Sure, some aspects of the conversation may be the same, but ultimately true empathy for the sub-categories of consumers within each ecosystem is what is critical to driving the sort of deep understanding required to make well-informed decisions – especially during a recession.
If you’re not making an effort to understand what’s driving the mindset of your consumers and what they truly rely on your organization to provide them, the recession will be a cold and lonely place to live. The brands that do this best make an effort not only to conduct research and insights work, but they also meet their consumers on their own turf and really work to get inside their heads in order to better serve them.
A case study authored in March 2010, by Harvard Business School's Faculty & Research division, beautifully examines the marketshare fight between big box retailers Walmart and Target during the 2008 recession. Walmart’s “everyday low prices” message resonated with consumers and Target’s sales were declining. As a result, Target decided to refocus their positioning to emphasize “needs” over “wants” and decided to reformat their stores to quickly and clearly make this strategy apparent. The new layout doubled the space allocated for food, a clear need for any family, and expanded their Market Pantry and Archer Farms brands. To further reinforce this plan, their now iconic “expect more, pay less” slogan was hammered home via communications and advertising. As a result of these efforts, Target’s food sales grew into an $1.8 billion business.
This is the sort of deep understanding of consumer needs that’s required to show that a company is listening, cares and is willing to show up for consumers. It also shows that a company is willing to spend money in order to better address consumer needs, even when times are tough. In fact, it matters even more when times are tough to show up for people in this kind of way.
A recent piece of work we did for a large media company asked us to help them shift to an audience-first mentality. In order to do so, we did the expected ethnographic research of their consumers – working to deeply understand what made them tick and what they had come to expect from this global content creator. However it wasn’t enough to understand them, we needed to truly engage them in the business. Through conversations with the leadership team, we were able to get them to agree to developing a consumer advisory board – going so far as to embed actual consumers within the four-walls of their corporate headquarters as subject matter experts. These consumers were invited to internal meetings, given opportunities to share their own ideas and acted as canaries in the content coal mine, flagging whenever content ideas bubbled up that seemed off-base.
In the end, no single tactic will prove to be the panacea. Deep consumer understanding requires diligence and endurance. Audiences change sentiment as often as the weather, and it’s critical that companies continually invest in the deep listening and concerted dialogue necessary to not only obtain, but retain an understanding of the audiences they serve.
Leaders might ask themselves:
-When was the last time I invested in understanding my customer’s changing needs?
-Do I have a clear grasp of the entire consumer ecosystem (from consumer segments to media to shareholders and even to prospective employees)?
-Who will be the most valuable audiences to our business’ future and are we doing enough to engage with them today?
Context: Getting Outside Of The Echo Chamber
Leaders must consider the broader context happening around their business and what insights can be gleaned from it when preparing to endure a recession. I recently found myself in a conversation with the CEO of a large furniture company. We were talking about the company’s goals to double their revenues in the next two years; an audacious aim in any climate, not to mention a pre-recessionary one.
I asked the CEO what kept him up at night. He responded quickly with the names of his top three competitors and what they were doing in the space to nibble away at their marketshare.
I let him finish and then, almost reflexively, without hesitation, I said, “You’re thinking about the wrong things.” It’s in these moments that time slows down and I can almost see my foot moving in super slow motion toward my own mouth. To his credit, he didn’t bristle, but instead leaned in and asked why I thought so.
I told him that worrying about those competitors wasn't wrong. In fact it’s the very thing that got the business to the leading market position it presently enjoyed. However this worry wasn’t going to be the thing that doubled their business. Finding solutions to his concerns regarding those direct competition were likely important, but they weren’t the whole picture.
“Who are your indirect competitors?” I asked.
“I’m not sure I know how to answer that,” was his response.
We then began a conversation about how, particularly in a recession, consumer considerations change. A newlywed Millennial couple, moving into their first apartment together might not be lying in bed browsing the websites of four top furniture brands discussing the merits of this couch versus that couch. Budgets tighten in such times and decision making changes. Instead, they might be having a conversation about a new couch versus a new Sonos system, or a meal-delivery kit service, or the merits of squirreling some money away in savings. For them it’s not a couch conversation, it’s a home-making conversation.
The CEO pushed back in his chair and sighed, “We’ve got a whole new set of things to think about.”
And that's just it. Particularly during a recession, organizations need to think more broadly than they have in the past. They need to look beyond their direct competitive set and into the indirect landscape. They need to look at trends that might inadvertently impact their business model. You can bet the best automotive companies are more focused on ride-sharing and collaborative consumption business models than worrying about which 2020 models will be offered by their direct competitors. In the same vein, leading hospitality companies are more focused on how to recession proof their properties from travelers who are now considering more affordable options like Airbnb. This is the sort of empathic systems thinking that will shore up business model vulnerabilities in recessionary times.
Context is critical and looking beyond your business, and its first-degree interactions with the world, is key to fostering resilience.
Leaders might ask:
-Do we have an indirect competitor strategy?
-What macro-trends are taking place that we need to have a point of view on?
-Are there opportunities for collaboration or coopetition that we should be exploring?
The Glass Is Half Full
I’ve suffered from chronic optimism almost my entire life. It can (at times) be debilitating, but in truth, I wouldn’t trade it for the world. To that end, I’ll say something that may seem counterintuitive; in the long run I think a recession could be a good thing.
It is during more challenging times that leaders are forced to take stock of what really matters. They have to get creative. They have to be dedicated. They have to be brave enough to implement change if they want to succeed. Will there be losses? Undoubtedly. But those able to ride it out by making the appropriate investments in people, values, consumers and insights derived from looking at the bigger picture, will be made better for it.
