In times of economic uncertainty, whether it’s a recession, market instability, or a downturn, organizations often resort to cost-cutting as a knee-jerk reaction. The common belief is that by reducing expenses, companies can safeguard their financial stability. However, this approach is not only short-sighted but also counterproductive. In this blog post, I’ll explore why cutting costs, particularly in areas like agile coaching, training, and business agility, can actually disadvantage your organization in the long run. I’ll also share insights on how to navigate economic downturns effectively, ensuring your business emerges stronger on the other side.
The Fallacy of Cost-Cutting During Recessions
Short-Term Gains vs. Long-Term Success
When faced with a recession, many organizations immediately look for ways to cut costs. Often, this involves laying off employees, reducing investment in training and development, and cutting back on initiatives that are deemed non-essential. While this might seem like a sensible approach to protect the bottom line, it’s a short-term gain that often leads to long-term pain.
- Example: Companies like Capital One have been seen divesting themselves of agile coaches and Scrum Masters during tough times, only to later realize the mistake as they continue to hire for these roles. This indicates a misunderstanding of the true value these roles bring to an organization, especially in challenging times.
The reality is that during a recession, businesses that invest in efficiency, productivity, and effectiveness are more likely to thrive once the economic tide turns. Those who merely focus on cutting costs often find themselves at a disadvantage, struggling to catch up when the market recovers.
Investing When Sales Are Down
One of the best analogies I’ve encountered from my marketing days is that the best time to invest in marketing is when sales are down. The same principle applies to business agility and effectiveness. During a boom, when everything is going well, you don’t need to push as hard to achieve results. But when the market is struggling, that’s when you need to do more to capture what’s available.
- Key Point: The businesses that continue to invest in sales, marketing, and agility during a downturn are the ones that come out on top when the market stabilizes. This is because they’ve maintained or even improved their effectiveness while others have merely survived.
Why You Should Invest in Efficiency, Productivity, and Effectiveness During a Recession
Breathing Room to Reorganize
Recessions offer a unique opportunity for businesses to take stock of their operations. With less pressure from a booming market, companies have the breathing room to reorganize, re-evaluate, and improve their processes.
- Example: In volatile markets like oil and gas, companies that invest in their efficiency, productivity, and effectiveness during downturns are better positioned to capitalize on market opportunities when they arise.
This is the time to focus on your internal operations, ensuring that your house is in order. Rather than making hasty decisions to appease shareholders, consider reinvesting in your organization and your people. This not only prepares you for the recovery but also builds a more resilient business.
One of the biggest mistakes companies make during a recession is prioritizing revenue extraction over value creation. This often manifests as layoffs, which might please shareholders in the short term but can create a culture of fear within the organization.
- Impact of Layoffs: When employees see their colleagues being laid off, it creates a sense of insecurity. Fearful employees are less likely to be innovative, less likely to take risks, and less likely to serve customers effectively. This can lead to a downward spiral where declining employee morale leads to poor customer service, which in turn leads to further business decline.
Instead of focusing on short-term revenue extraction, companies should focus on long-term value creation. This means investing in the effectiveness of your teams and processes, even during tough times.
Building a Resilient Organization
Principles Over Rules
A key element of building a resilient organization is focusing on principles rather than rigid rules. Rules are static and can prevent employees from thinking critically when market opportunities arise. In contrast, principles provide a framework within which employees can make decisions, adapt to changes, and capitalize on opportunities.
- Satya Nadella’s Insight: As Microsoft’s CEO, Satya Nadella once emphasized the importance of prioritizing productivity systems over new features. This approach is rooted in the idea that by making your processes slicker and more effective, you set the stage for greater success in the long run.
Empowering Employees to Make Decisions
Empowerment is crucial for fostering effectiveness within an organization. Employees who are closest to the market are often best positioned to make decisions that drive the business forward. This is particularly important in volatile markets where conditions can change rapidly.
- Real-World Example: I’ve worked with a company in Spain that gives every employee a training and consulting budget. This allows teams to bring in experts or coaches that meet their specific needs, fostering a culture of continuous learning and improvement. When employees have the autonomy to choose their training and support, they are more engaged and invested in the outcomes.
The Role of Training and Consulting
Investing in training and consulting is another way to build a resilient organization. However, it’s important to do this strategically. Rather than imposing a one-size-fits-all approach, allow teams to determine what training they need to be more effective in their specific contexts.
- Advice: Avoid hiring large consulting firms to dictate your processes. Instead, focus on empowering your teams to make decisions and learn by doing. This hands-on approach to learning ensures that your employees not only understand the principles but are also able to apply them in real-world situations.
Creating a Culture of Learning and Experimentation
Autonomy and Ownership
A culture of learning and experimentation is essential for driving improvement and adapting to market changes. This involves giving employees the autonomy to experiment, make mistakes, and learn from them.
- Concentric Circles of Interaction: Think of your organization as a series of concentric circles, with each team interacting directly with the market. These teams should be empowered to make decisions and bring in the support they need to maximize their effectiveness.
Continuous Improvement Through Small Experiments
Encourage teams to run small experiments, even during a recession. While it might seem risky, the potential rewards far outweigh the risks. Small, incremental improvements can lead to significant gains over time, particularly when the market recovers.
- Key Insight: The more opportunities your teams are able to take advantage of within the market, the less impact a recession will have on your overall business. By continuously adapting and improving, your organization is more likely to survive and thrive, regardless of market conditions.
Conclusion: Weathering the Storm
Recessions and economic downturns are inevitable, but how your organization responds to them is what will determine your long-term success. Rather than resorting to cost-cutting and layoffs, focus on investing in your people, processes, and effectiveness. By creating a culture of learning, empowering your employees, and prioritizing value creation over short-term revenue extraction, you’ll be better positioned to weather any storm that comes your way. Remember, all markets deal in surprises. A recession is just another type of surprise. How effective is your organization at dealing with those surprises? The answer to that question will determine your ability to not just survive, but thrive, in any market condition. 🌟
I always find it interesting when in a recession or potential recession or market instability, right? Whatever your story is in your country, we talk about this idea of cost cutting and organisations divesting themselves of things they believe is waste. Like we’ve seen Capital One get rid of a lot of agile coaches and scrum masters, and even though they didn’t really, because they’re still hiring agile coaches and scrum masters, lots of other organisations have kind of done a lot of those cost cutting measures.
Actually, they’re shooting themselves in the foot. They’re absolutely shooting themselves in the foot. They’re disadvantaging themselves in the face of other organisations that don’t do that, that do it differently. Probably the best analogy I remember, I have done a little bit of marketing in the distant past or remember from university at least, is that the best time to invest in marketing is when sales are down and the economy is not so great.
Because the benefits that you reach on the other end are the payday, right? You have to put in the investment, put in the time when everything’s booming and everything’s going on. You don’t need a lot of marketing to do the business that you want to do. When everything sucks, you need to do more to get what’s there, right? Because everything sucks and there’s not enough to go around.
So those that invest in sales and marketing during a recession are the ones that are more likely to be successful coming at the other end. The same is true for agile and let’s call it business agility rather than the big A word, whatever we want to call it. I want businesses to be able to effectively take advantage of market opportunities when they arise, right?
All businesses exist in a volatile market. There are very few non-volatile markets. Today, there are very few non-volatile markets. Maybe diamonds, I don’t know, that’s maybe a non-volatile market. I don’t know much about it, but it feels non-volatile. But all of the markets that we’re all going to exist in, if you’re building software and products, I have a good example in oil.
Oil and gas, if you’re in that volatile market, when things start to suck, that’s the time you should be investing in your efficiency, your productivity, and your effectiveness, right? Those are the times when you should be investing in those things. Because part of it is you get a little bit of breathing room, right? Because if there’s not a lot going on in the market, like the market starting to stagnate a little bit, then you’ve not got that clamouring for new features, and it gives you time to get your house in order, to reorganise, re-evaluate what’s going on.
But we tend to focus purely on the numbers, right? Because a lot of organisations have shareholders, and shareholders want their cash. So we can either not pay the shareholders this quarter and reinvest in our company and our people and our organisation, or we can fire 500 people and give the shareholders this higher yield than they were expecting, right? And lots of organisations opt for that second one, and that is shooting yourself in the foot.
That is revenue extraction over value creation. We want to be focusing on value creation because long-term value creation is what builds an effective business. It’s how your business was built in the first place. So we want to be focusing during a recession on effectiveness, productivity, and all those lovely goodies.
So in the boom times, we tried all the things, right? Anything that came along, “Oh, we’ve got cash for it, let’s do that.” “Oh, we’ve got cash for this, let’s do that,” right? Because we’ve got a lot of cash. We’re affluent. When we start moving into the opposite of boom, bust, I guess, when that bubble pops or deflates, right? It could just be deflating a little bit.
Then we need to focus on our own effectiveness. If we can become more effective, we can do more with what we’ve got, and that means that we’ll be the ones in the market innovating and adapting to the changing market more effectively. Does that make sense? If we start firing lots of people, we’re going to have an unhappy workforce because people are unhappy when their friends get fired or other people in the company because they get scared.
Then there’s fear, and they don’t want to do stuff, and they’re like, “Holy crap, what’s going on?” So unhappy, afraid people don’t do good work. By having those layoffs within your organisation, you’ve created a culture of fear, maybe unwittingly, and maybe some of it’s necessary, right? But you’ve created that culture of fear, and the people that are in there are not going to be serving the customers’ needs as well because they’re fearful.
So then customers are more unhappy with what it is that you’re doing, and you get that vicious cycle. Lots of organisations end up in a death spiral at that point, and you just know they’re going to disappear. It can be quite difficult to recover from some of those things.
So what we do when the bubble starts deflating is we start focusing on our effectiveness. How do we ensure that we’re able to maximise the amount we’re able to deliver? If you think of this, this is my market line, right? Above the line is the market, and then the people that are doing the work are here, and all the way down here is the CEO, who’s not really connecting with the market, right?
The market, the people in your organisation are connected directly to the market. They’re the ones that we want to have as effective as possible and dynamically shifting to whatever market opportunities come up. Because the more opportunities we’re able to take advantage of within that market space, even in a recession, the less impact it’s going to have on our overall business, especially if we’re doing lots of small experiments, which can be risky.
But also, without risk, you don’t get the bonus, right? If we’re able to adapt to those changing needs as much as possible, as quickly as possible, then we, as a business, are more likely to survive. We’re just more likely to survive if we’re able to adapt to those changing market needs.
I want to quote Satya Nadella here. I have a little quote up here: “There cannot be a more important thing for an engineer, for a product team, than to work on the systems that drive our productivity.” So I would any day of the week trade off features for our own productivity. I want our best engineers to work on our engineering systems so that later on we can come back and build all of the new concepts we want.
That is the epitome of this idea, right? Although from an engineering perspective, because Satya has an engineering background, right? If we, as a business, have slicker, more effective processes, minimised processes, right? You want to have systems in your business that are based on principles, not rules.
If you have rules, everybody will follow them, and they don’t need to think. If they don’t need to think when a market opportunity comes along, they follow the rule, not the market, right? Because they’re not thinking. They need to follow the rule. But if we have a system based on principles, then the people within it need to think.
Within the bounds of those principles, they take advantage of market opportunities as they arise or other opportunities or different ways of doing things in order to be successful. So this idea of boom and bust, of non-recession and recession, is when things are going badly, the thing you want to be investing in is your people and your organisation and your practices and processes and making things more effective.
More effective is really important. A lot of people in business talk about productivity, and productivity is important, but I think effectiveness is that nuanced version of the word productivity. Because we could be highly productive, we’re delivering lots of stuff, but are we delivering the right stuff, right?
I know that this is basically me nitpicking the word, right? But effectiveness includes, are we building enough of the right stuff? These are the types of things that we need to invest in. That doesn’t mean that you have to go and invest hundreds of thousands in scrum training or Kanban training or coaches or scrum masters or any of those things.
You want to figure out for your business in your market, right? Because remember, you were in that volatile market. What help and support do the people that are interacting with the market need in order to become more effective? Now, sometimes that is going to be training, right? Do they understand the theory and principles behind this?
We think this might help those teams. Let’s train them in this. We’re not going to make them do that, right? For example, let’s take scrum as an example. We’re not going to make them do scrum. We want the people that are doing the work, that are engaging with the volatile markets, to choose to be able to choose the best approach based on the principles that we base our organisation on.
So in order for them to choose the best approach, best within the context, right? Most effective within the context, they need to have the knowledge and skills and understanding necessary to be able to make those decisions. So this is where actually you also don’t go and hire one of the big consulting companies to come in and do it for you, right?
You could hire a Boston Consulting Group or McKinsey to come in and say, “This is how you’re going to do everything.” But the people in the system didn’t learn. The way humans learn is by doing. We learn more by doing than by just talking about it. So in order to learn what works and what doesn’t and how much it works and how much it doesn’t, we need to actually do and try the things.
So you need the people within your system, right? That’s the people that work for you in your company. This is your people. They need to be the ones that do the work. They need to be the ones that learn, that become the practitioners that understand those processes, practices, tools, principles, theories, right?
So the theory of constraints, you might be talking about scrum theory, you might be talking about first principles for all of these things. They need to be the ones that understand it so that they’re able, within any context, to make the best decision possible, right? To make the best choices possible within the system of principles that we build around our organisational structure.
That means that you’re probably going to be doing a lot of training. You’re probably going to be bringing in experts on specific topics to help engage with people inside the organisation. But generally, you probably don’t want to be doing that wholesale, right? Because what’s right for one part of the organisation might not be right for another part of the organisation.
So what I think is an effective way is to let the people that are doing the work decide who and what they need. I work with a company in Spain. There are kind of two sister companies that are kind of the same but different. They give every single one of their employees a budget for training and consulting, right?
So every employee, I can’t remember how much it was, let’s say it’s €5,000. Every employee has €5,000. So if you’ve got a team of five people, that’s €25,000 to spend on training and consulting. It’s their budget. They can spend it how they like. They can get together and bring in some kind of coach. They can get together and bring in maybe they want a scrum master for a little while or somebody specific, right?
Like you want somebody who focuses on sprint goals and value, and there’s people out there that focus on engineering practices and DevOps, right? So you could bring in an expert for a period of time to participate with the team, and it comes out of their budget. They’re the ones making the decision, and that means that because they’re making the decision, they care about what that person they’ve chosen to bring in has to say.
This is the whole thing of other people don’t care about your goals, right? They care about their goals. So the way you enable more effective organisations is either you make their goals your goals, or they make your goals their goals, right? So we all have to be going in the same direction. What is it we’re trying to do?
Principles and goals, strategic goals, intermediate strategic goals, those are the things that help us move together in the same direction as a distinct company. When we put all of that together, we’re then able to be more effective. We’re able to deliver more value. We’re able to adapt as needed to the changing circumstances, right?
So as a team or group inside of your organisation decides they need some help with something, they can just bring that help in. It’s not hard. There’s not a bunch of procurement hoops, none of that crap, right? That just gets in the way. They’re able to just bring in those people, get them to help them with that story, make it a little bit better.
What’s the next problem we’ve got, right? We need this other person to come in and help with this little bit, make them a little bit awesome, right? What’s next? We maybe don’t know what’s next. Maybe we bring in a generic expert who’s able to say, “Oh, maybe you should try this, this, and this.” “Oh, that’s a good idea, let’s try that.”
They’re able to do all of those experiments, build that story of effectiveness that works best for them, and each area within your organisation is able to do that. Concentric circles, all interacting with the market.
So ultimately, it doesn’t matter whether you’re in boom or bust. This is how you want to focus on maximising your chances of weathering that storm. All markets deal in surprise. It doesn’t matter what markets you’re in, there are going to be surprises. A recession is just another type of surprise. How effective is your organisation at dealing with those surprises?
