The Value of Counterintuitive Thinking in a Recession

Business people in the service sector received additional confirmation of what they have suspected for some time to be unfolding in Ireland: services are being hit hard as all but the most essential purchases are pared back by consumers and businesses alike. The NCB Purchasing Manager's Index (where the baseline value is 50) dropped to a low of 36.1 in October; it has now shrunk for nine months on the trot. Bottom-line indicators on new work levels, staffing and pipeline activity are all continuing to splutter.

The first response of most managers in these circumstances is to cut costs: staffing shrinks, and expenditure on marketing, advertising and consultancy shrivels as companies try to get lean. If the economy doesn't pick up, additional rounds of cuts are made, as the company grimly hunkers down, adopts the hedgehog position to protect itself, and hopes it can survive the economic winter.

In one way, this policy of self-preservation may be seen to reflect a lack of timely business planning; as Donald Keough, the former president of Coca-Cola writes in 'The Ten Commandments for Business Failure', any company that doesn't keep a watchful eye on staffing and non-core expenditure in times of plenty is likely to be ill-equipped for any pending heavy weather.

It is arguable that cutting all costs, the first response of managers, is the first response precisely because they learned it in Business Management 101: but this does not automatically mean it is the right response. The Stanford business professor, Jeffrey Pfeffer, writes about the value for pausing to reflect on one's thinking. In his book entitled 'What Were They Thinking? Unconventional Wisdom in Management', Pfeffer writes of the death spiral in business, where companies shrink the offerings they make available to the market through cutting staff, thus hamstringing them when trying to staff incoming workloads, and less tangibly, stemming the flow of new business ideas. In the first instance, the organisation may not be able to meet demand, or has remaining staff that are ill-equipped to assume the responsibilities left vacant by the staff made redundant. In the second instance, organisations should consider whether or not the people left behind after a round of redundancies are the team that can help them to survive the recession, then to deliver strong results in the resulting upswing (economists make many column inches out of the collective amnesia around the fact that business cycles exist). Organisations should continually question whether those who choose not to leave do so in fact because they do not rate their chances of succeeding out there, and whether those who willingly leave are in fact their best talent, confident in the knowledge that their skills will be rewarded elsewhere.

Business psychology research is moving more now to look at the thought processes individual managers and companies go through when evaluating their strategic options. The number, type and form of the choices are not 'givens', but instead vary according to the thinking style of the manager, or the culture of the organisation. The lesson from Keough and Pfeffer is that sometimes doing the obvious thing is doing the wrong thing. Copying what your rivals are doing is not a considered strategy, it's an act of mimicry. Conversely, counterintuitive thinking may contain the solution, or at least a partial solution, to the business problem of besting the recession. Two Irish examples from different sectors - aviation and media - illustrate what is possible with turning accepted business thinking on its head.

Etihad Airways, the national airline of the United Arab Emirates, seems at first glance to be an unlikely sponsor of the All-Ireland hurling championships. After all, what does an Arab airline have to do with Croke Park in September? Many observers scratched their heads - with aviation arguable the most ruthless industry out there, one that burns cash incredibly quickly, any below-the-line advertising budget must surely be quickly convertible to air tickets bought. With the Irish market being so small as it is, and with Aer Lingus abandoning its Dubai route due to unprofitability, it did not seem to make sense for Etihad to tie itself in with the All-Ireland. Etihad did not explain the logic in the face of puzzled queries as to why they were becoming a sponsor. The answer lies surely in the size of the Irish diaspora in the US, and the growth in the subscription sports television market there. Etihad presumably know that they will not enrich themselves on the Dublin route. But having their name beamed into Irish bars from New York to Chicago to Los Angeles helps to grow their business. The potential size of the Irish market for Etihad is worth looking at and research by David McWilliams is useful here (www.davidmcwilliams.ie). Irish Americans are the second-richest ethnic group in the US. Arranging for the Irish Compromise Rules team to fly to Australia on Etihad is another piece of the jigsaw, with the Australian-Irish diaspora, another wealthy and well-travelled group being the target this time. The Etihad sponsorship deal now looks very cheap, very timely, and very smart.

An example of counterintuitive thinking that is currently becoming accepted business wisdom is the growth in free online versions of print newspapers. In the summer of 2008, The Irish Times announced it was moving to free online access, thus cutting off a cash supply it had through its subscription model. For years, print industry commentators had warned that newspapers would be de-invented by the web, and that giving away content online would further lessen the incentive for people to buy the paper copy, pushing advertising revenue down, which in turn would hurt the quality of the journalism as staff and budgets get chopped. So is a free online content business model for newspapers a simple case of turkeys voting for Christmas? There is no other way: newspapers have realised that web technologies, both software and hardware, have made newspapers ubiquitous. Advertisers know they can hit Irish readers abroad, either on holiday or as emigrants, let alone as the indigenous Irish surf the web whilst (or instead of) working. The Irish Times loses money in the short term by binning the subscription model, but gains in tapping into the 'always on' wired market. This, though, is not particularly ingenious on the part of The Irish Times - in the UK, The Guardian has long set the standard with what can be done with free online business models, both in terms of the content spawned and the revenue earned.

Being both able and willing to recognise that the long-term view has to be different to the short-term view is a difficult thing to always bear in mind, but businesses forget it at their peril. Embracing swingeing cost-cutting now may be right, but utterly harmful for the future of the business. In working out what a business has to do next, rotating all the options through all the angles is required. Not thinking is not an option.

Ken McKenzie

www.pearnkandola.com