History suggests that even the deepest downturns can create huge opportunities for companies with money and ideas. HBS’s prof Tom Nicholas went back to data in the 30s and examined valuable lessons from the downturn. It is all about investing in innovation. This is the true test of any CEOs. What does Richard Branson, Martin Sorrell, Indra Nooryi and Jeff Bezos have in common? Read on.
Executives and managers are often told to maintain investment during downturns. It’s easy said than done when they can’t see beyond 6-12 months. Many companies hesitated to innovate during the 1930s. Yet several successful companies did not delay such investments. One was DuPont. In April 1930, a noted DuPont research scientist, Wallace Carothers, recorded the initial discovery of neoprene (synthetic rubber). Although the company’s price levels and sales fell by roughly 10 and 15%, respectively, that year, DuPont boosted R&D spending to develop the new technology commercially.
A buyer’s market for research scientists and low raw-material prices helped the company to keep the cost of its research investments manageable. Neoprene, which DuPont publicly announced in Nov 1931 and introduced commercially in 1937, became one of the 20th century’s major innovations. By 1939, every automobile and airplane manufactured in the US had neoprene components. Similarly, DuPont discovered nylon in 1934 and introduced it in 1938 after intensive R&D and product development. There are many stories on how investing in innovation resulted in a long boom for companies. The question is what kind of leaders can demonstrate leading the industry by innovation.
It takes a very different kind of management to manage in this climate. This is the true test of management quality as there are no bull market to hide behind under performance. So what are the management qualities that are needed to thrive?
It’s pretty simply, whether it's the young or mature, male or female, b-school trained or self-taught, it all comes down to three things: Foresight, Energy and Focus. Many CEOs lack one of the three, either lacking in foresight or lack of focus. This is key for purposeful action-taking. According to research by two management profs (The late Sumantra Ghoshal, London Business School and Heike Bruch, University of St. Gallen.), these are the common management behavior:
- 30% of executives procrastinate; they hesitate and fail to take initiative because they suffer from low-level energy and focus. This is very common behavior in the corporate world.
- 20% of managers exhibit disengaged behavior; they are highly focused but have little energy. This is purely a function of energy and dedication.
- 40% of executives exhibit distracted behavior - busyness - by being highly energetic but engaging in unfocused activity. This happens not only within top management, a lot of middle management suffers the same problem. It is about applying the 80-20 rule, find 2 or 3 things that if executed right can create significant value. I often see a lot of executives bouncing from one meeting to another and blackberring the world in between. Lots of speed and activities but not much progress.
- Only 10% of executives take purposeful action, a type of behavior that combines high energy and high focus. These are the truly the great leaders that are capable of bringing the company beyond the economic crisis. This 10% are the top CEOs (everyone pictured here is the top of the top CEOs)
A good CEO not only needs to posses high energy. He/She must possess strong execution skills. In fact, rather than team-related skills, being able to successfully execute decisions (with limited data) is particularly important in this environment. Being more execution-focused does not hurt team-related attributes and research shows execution skills are shown to lead to higher rates of success. If you can roll up your sleeves and executive, provide laser focus to guide your executive team and bring high energy, you belong to the 2% of the 10% high energy and high focus group. It is very difficult for you to fail.