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Six courses of action to survive and thrive
in a crisis
Andre
´
de Waal and Esther Mollema
Context, context, context
Organizations generally respond to times of crisis as though they all suffer to the same
extent. The woes and worries are supposedly the same for every sector, every size of
company and every circumstance. Consequently, most organizations respond to a crisis in
the same manner (Banerij et al., 2009). However, why is then that there are always
companies that not only survive the crisis but also benefit from it (Rigby, 2009)? Next to all the
doom and gloom reports in the media on failing companies there are also stories on
organizations that appear to be relatively unaffected by the crisis. It turns out that these
companies differ from the majority in that they approach the crisis situation from their own
context: What are our specific circumstances? What is the nature of our market? What are
our threats and opportunities? What are our condition and striking power? These companies
have an excellent insight into their situation on which to base their decision for a specific
course of action, and this does not always need to be the Pavlov reaction of reducing costs
(Faas, 2009; Wileman, 2009). For example, KLM Royal Dutch Airlines is now making
anticyclic investments in new aircrafts. Because currently many orders for Boeing and
Airbus aircrafts are cancelled the company can negotiate substantial discounts.
A company’s condition can be determined by reviewing its financial status and the strength
of its internal organization. The company’s financial status determines whether it has the
financial capacity needed to adopt and execute a specific course of action. For example, the
investments needed to begin new operations are higher than those involved in the
divestment of a non-profitable business unit. The financial status of an organization can be
characterized as strong, when the company has sufficient funds to undertake new
operations; reasonable, when the company needs to adopt a cautious financial approach
but nevertheless has some scope for new investments; and weak, a situation in which the
company has to be financially extremely cautious.
A company’s internal strength can be determined by carrying out the so-called HPO
diagnosis. Studies of high-performance organizations (HPOs) – organizations with better
financial and non-financial results than their competitors during a period of at least five to ten
years – reveal that five factors determine an organization’s ability to achieve sustainable
better results based on a superior internal organization. These factors are: a high quality
management, a high quality workforce, a long-term orientation, an open and action-oriented
culture, and a focus on continuous improvement and renewal (see Box 1) (de Waal, 2008).
An insight into the company’s HPO status is obtained by distributing HPO questionnaires to
the company’s management and staff. The individual scores as given by the respondents
are totaled and averaged to obtain a score for each of the five HPO factors, on a scale from 1
(a great deal of improvement is required) to 10 (excellent). These scores can be compared
with the average HPO scores in the industry to obtain an insight into the relative performance
of the organization being assessed. The results from the HPO diagnosis form the basis for
discussions with management on potential improvemen ts within the company. An
DOI 10.1108/17515631011080740 VOL. 11 NO. 5 2010, pp. 333-339, Q Emerald Group Publishing Limited, ISSN 1751-5637
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Andre
´
de Waal and
Esther Mollema are both
based at the Center for
Organizational
Performance, Hilversum,
The Netherlands.
The authors would like to thank
the management of the
aforementioned companies for
their cooperation in the
preparation of this article,
Kasper Klaarenbeek (Talenten
en Teams) and Jan Roording
(GTI) for their provision of
examples, and the participants
in the HPO Leaders Network for
their comments on the matrix.
A previous version of this article
was published in the Dutch
journal Holland Management
Review (2009, No. 125).
organization with a score of more than eight for all factors is regarded as having a strong
HPO status. A score or five or less means the organization has a weak HPO status. An
organization with a score of between five and eight has an average HPO status. The
combination of the organization’s financial status and HPO status determines the striking
power it has for the adoption of a specific course of action (Reingold, 2009; Collins, 2009).
Six courses of action
In general organizations have to always, in both good times and bad times, monitor their
costs and profitability and manage their cash flow. Therefore excellent organizations watch
their financials since this is basic sound business strategy. Companies that have no cost
awareness will lose sight of their costs that inevitably weakens their financial position. At the
same time organizations have to continually monitor their profitability to avoid the real threat
of non-profitable growth. In recent years there have been numerous examples of
structurally-healthy companies that grew themselves to death. So the key question is: what
courses of actions are there, besides cost control and profit monitoring, for an organization
during difficult times? A review of the activities organizations have undertaken during past
crises reveals that there are six courses of action that companies can adopt in times of crisis
(Charan, 2009; Colvin, 2009a, b; Mainardi et al., 2008; Thornton, 2009). The first three
courses of action are defensive, where the primary objective of the organization is to survive.
The other three courses of action are offensive, where the intention of the company is to
benefit from a crisis by growing profitably and becoming market leader. The courses of
action are:
B
Focus on cost reduction. When the financial situation of the organization is in a dire state,
reducing the company’s complexity, streamlining processes, postponing investments,
Box 1. The high performance organization study
A five-year research study, based on an extensive study of 290 literature sources and a world-wide
survey among more than 1,400 organizations, reveals that there are five factors that ensure that an
organization becomes and stays a HPO. These five factors have a direct, positive correlation with
competitive results. The higher the organization scores on the HPO factors, the better it performs
competitively; the lower the scores for the HPO factors, the worse the organization performs relative
to its competitors in the industry.
The first and most important HPO factor is the quality of the management. The managers of an
excellen t organiz ation are cha racteri zed by int egrity, dec isiven ess, acti on-ori entati on,
performance-orientation, effectiveness, self-assuredness and a strong leadership style. They are
what is referred to as ‘‘high performance individuals’ ’ (HPIs): they are guided by
customer-orientation, quality-focus and continual improvement principles in all their actions and
their work, as a result of which they inspire others to work together in achieving excellent results.
The second HPO factor is the presence of an open and action-oriented organizational culture. An
excellent organization promotes interactive internal communications (‘‘an open dialogue’’) between
members of the organization to ensure that open and continual exchanges of information take
place, both vertically and horizontally throughout the organization.
The third factor is the organization’s long-term orientation. HPOs always assign a higher priority to
long-term continuity than to short-term gains. The excellent organization will do it utmost best to
serve all stakeholders of the company as best as possible, as long as possible. In this way the
organization deserves it place in society.
The four th HPO factor is continual improvement and renewal. Excellent organizations have a
strategy that clearly distinguishes them from the competition. In addition, the organization is
continuously improving its processes, products and services and strengthening its core
competencies, to be able to fulfill its unique strategy.
The fifth and last HPO factor is the quality of the staff. Staff of an excellent organization want to be
held responsible for their results and at the same time want to be inspired to achieve exceptional
results. At the same time, staff is resilient and flexible, always focusing on achieving better
performance.
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reducing stock levels, cutting back on travel and accommodation expenses and
refraining from extensions of temporary employment contracts can achieve a significant
decrease in the costs and increase the financial capacity of the organization fast.
B
Focus on core operations. By investing solely in the company’s core operations whilst at
the same time divesting the non-core operations that distract management, the
organization can exclusively focus on improving and strengthening these operations,
thus increase its capacity to serve specific clients well.
B
Downsize. Divesting the organization’s marginally profitable and loss-making operations
increases financial capacity and creates more scope for investments in the core
operations and more promising ventures.
B
Strengthen the internal organization. Improving the quality of management and staff,
improving the primary and supporting processes, and devoting more attention to
innovation and renewal enhances th e inter nal organizati on and improves the
organization’s ability to deal with changed circumstances and profit from them.
B
Focus on increasing turnover and margin. Streamlining the sales process, paying more
attention to pricing, focusing on a smaller and higher-quality product range, and
strengthening relations with customers, increases turnover and the margin.
B
Exploit opportunities. The period in which many competitors are occupied with defensive
measures offers an ideal opportunity to undertake activities that will enhance the
organization’s position in the market, such as launching new products and services,
taking over companies, entering into partnerships that enhance core operations, and
recruiting excellent staff currently employed by the competition.
Aligning the course of action to the organization’s context
By combining the financial status with the HPO status of an organization a matrix with eight
squares originates. This matrix can be used to plot the six courses of action (Figure 1). The
matrix contains eight rather than nine squares because, pursuant to the definition of a HPO,
an organization with a strong HPO status and a long-term weak financial position is not really
feasible.
An organization with both a strong financial and HPO status has sufficient financial scope
and internal strength to make maximum use of the chances that arise during a crisis such as
a recession. It can therefore exploit opportunities to the fullest by for instance starting new
operations that enhance its market position during a period in which the competition is
struggling to survive. Witteveen þ Bos, a Dutch consultancy and engineering company that
ranks ninth in terms of turnover but first in terms of profitability, is in a strong financial position
due to its continuous profitable growth since 2002. At the same time the company, owned by
its 500 þ staff/shareholders and characterized by a powerful family culture, has a strong
internal organization as manifested by a high score in the HPO diagnosis. Witteveen þ Bos
always monitors the cost and profitability of its operations, but does not place extra
emphasis on these in the current difficult times. Instead, the organization manages its
operations primarily on the basis of authenticity and passion: increasing quality, enjoying
carrying out high-profile projects, acting as the partner of ambitious clients, and creating
scope for the development and entrepreneurship of staff. In the midst of the recession
Witteveen þ Bos started new operations in Belgium by setting up an office in Antwerp and
entered in a new partnership in the railway consultancy industry with Royal Haskoning, DB
International and Verebus. In so doing, Witteveen þ Bos is considerably enhancing its
leading position in the sector (matrix position 1).
When an organization has a strong financial position but an average HPO status it still is able
to exploit opportunities, although the scope of the new operations and the pace at which
these opportunities can be utilized depends on how much the internal organization can
handle. Therefore the company has to devote explicit attention to strengthening the internal
organization so it can make effective use of the opportunities. GTI, the Dutch market leader
in the provision of technical services, has a strong financial position. The company balance
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sheet does not show any (bank) debts and, as a subsidiary of the financially strong GDF
SUEZ parent company, GTI is par t of a powerful international player in the energy market.
GTI’s customers require solutions that have a direct relation with sustainability, corporate
social responsibility and cost efficiency. For this reason the company anticipates on social
trends by distinguishing itself with the themes of increased efficiency of energy supply,
increased comfort in the living and working environment, and lower overall consumption of
energy. The current crisis offers GTI the opportunity to fulfill its ambition. Several business
propositions have been developed at an accelerated pace that will achieve an immediate
desired effect: a permanent increase in turnover and margin at the expense of competitors.
GTI has improved its services to customers by increased cross-selling of its solutions, and
approaches new customers with sophisticated solutions at lower financial and social costs.
At the same time, as GTI has an average HPO status, the company focuses on the
enhancement of the internal organization. GTI has always been cost conscious, the
company began to focus on its core operations several years ago by divesting unprofitable
units. A process has been initiated to amalgamate GTI’s 40 þ individual units into one group
that will be able the company to operate more powerfully in the market. A great deal of effort
is being devoted to the merger, simplification and harmonization of processes, and the
implementation of an unified SAP system for the entire company that will make performance
information better measurable and more transparent. In addition, GTI is also working on
improving the quality of management as in the new constellation new management skills are
required. As a result some managers of the formerly independent units who were unable to
adapt to the change have left the company, whilst other managers are still receiving
coaching (matrix position 2).
Until recently a Dutch temporary employment agency had a strong financial position which
was used to initiate a range of new niche-market operations. However, as the agency had an
average HPO status the company could not handle this extension and started slipping
financially. Therefore the agency now has to divest many of the recently acquired operations
and has to make additional time and resource investments to accelerate an increase of
profitability in the remaining niche operations. While doing so the organization, in spite of the
Figure 1 Matrix of courses of action that can be undertaken, based on an organization’s
striking power
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financial pressures, will need to expressly devote attention to strengthening the internal
organization otherwise the risk exist that the company will slip even further (from matrix
position 2 to position 5).
A Dutch multinational positions itself as an organization with a strong financial position and
an average HPO status. According to the Chief Financial Officer, the current crisis is not a
normal economic crisis but a credit crisis, not a cost crisis, but rather a liquidity crisis. For
this reason he states:
Cash is king. The real problem is the difficulty in obtaining credit so there is not enough oil to
lubricate the trade. The banks are no longer functioning adequately and it seems that the
business sector has to take over their role. However, that is not what companies are for. For
example, they cannot extend their credit periods to customers indefinitely because they don’t
have the financial capacity to do so. Moreover, their suppliers also want to receive their payments.
Consequently, at present solvency is much less important than liquidity. A company can have a
very high solvency ratio but if it cannot meet its payment obligations it can go bankrupt overnight.
Another element characterizing this crisis is the changed nature of refinancing, which is no longer
an ordinary business process. Companies with a high leverage find it very difficult to secure
refinancing, and when they are offered refinancing the costs are substantially higher and,
consequently, profits are lower. Obviously, at the moment issuing shares is out of the question.
This is an additional reason for dealing carefully with liquidity: pay off debts quickly and refrain
from unnecessary investments. As such, acquisitions currently do not have priority. A competitor
that goes under is one competitor less anyway! Obviously, you mustn’t miss a golden opportunity
but any takeover will need to generate added value and cash flow straight away.
For these reasons the multinational attaches great importance to managing its operating
capital well so that it can meet its obligations and make use of opportunities. Consequently,
the net debt/EBITDA is now the most important ratio, and the organization is implementing
measures such as lowering stock levels, reducing assets on the balance sheet, cutting
costs, and focusing on the management of cash flow. The board of management has
intensive discussions on these topics with managers in all divisions to coach them in
executing these processes efficiently and flawless. The multinational accepts that during the
crisis some of its clients will go bankrupt as the organization will not be able to lend a helping
hand without placing itself in jeopardy. In the CFO’s words: ‘‘This crisis is not about survival of
the fittest but survival of the fattest’’ (matrix position 2).
When an organization has a strong financial position but a weak HPO status it needs to focus
on strengthening the internal organization. This is the case for many healthcare
organizations that built up a very strong financial position during the past decades of their
monopoly. They however have, as a result of a series of failed mega mergers and due to poor
management, a weak internal organization and are increasingly confronted with financial
pressures as the free market enters the sector. The same goes for housing corporations who,
because of their unique position as state-funded organizations, did not have any interest in
the HPO idea as they could set their own financial agenda by for instance dictating rents. As
this situation is changing quickly because of free marker principles, these organizations
need to make use of their strong financial position to strengthen their internal operations
rapidly (matrix position 3).
An organization in a reasonable financial state needs to focus on strengthening its financial
position. When the company has a strong HPO status it has to reduce costs and increase
turnover and margin in order to create the financial striking power to make use of
opportunities and ensure that the company is elevated to the top-right field in the matrix
(matrix position 4).
An organization with an average HPO status needs to follow the same courses of action,
supplemented with strengthening the internal organization so that the company is able to
effectively carry out the requisite actions. Bagels & Beans, a franchise company with 38
outlets throughout The Netherlands, has a reasonable financial position. Franchise
organizations grow by attracting new franchisees who invest in the franchise formula by
paying a franchise fee, so Bagels & Beans needs to continually monitor organizational costs
in order to keep this fee low. Bagels & Beans can increase the chain’s profitability by opening
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new franchise outlets. As the franchise formula and franchise organization is already in place
every new franchisee makes an immediate contribution to the profit. Bagels & Beans opened
four new outlets in the second half of 2008 – when the recession was in full swing – and has
plans for opening at least a further four outlets this year. Bagels & Beans has an average
HPO status. This is due to the nature of a franchise organization which has a diversity of
franchisees such that it is difficult to create a uniform culture. Bagels & Beans appreciates
this problem, and for this reason during the coming year the company will determine the
profile of a successful Bagels & Beans franchisee (including the profile of a successful
Bagels & Beans manager) and then design a training program for the franchisees
accordingly (matrix position 5).
The Dutch subsidiary of Grohe, a global supplier of sanitary fittings, recently carried out a
HPO diagnosis which revealed that the company has an average HPO status. In addition, it
has a reasonable financial position. The company has decided to focus primarily on
reduction of costs that do not have an immediate bearing on the manufacture, distribution
and marketing of products (such as travel and accommodation expenses, office supplies,
give-aways, and visits to trade fairs), and increase of turnover by placing the emphasis on
supplying the more expensive-home segment of the market. The HPO diagnosis also
initiated project groups that will work on further strengthening the internal organization
(matrix position 5).
An organization with a weak HPO status has no other option but to reduce costs, since the
company lacks the strength and innovative capacity required to increase turnover and
margin. A good means of cutting costs rapidly is to divest all non-core operations and
exclusively focus on core operations. Of course companies in this middle-left field also need
to strengthen the internal organization (matrix position 6).
In a period of crisis organizations with a weak financial position have no choice but to opt for
one of the survival courses of action. This automatically implies a focus on reduction of costs,
since there is little or no financial scope for initiation of new operations, improvement of
turnover and margin, or even strengthening the internal organization. The effects of cost
reduction can be enhanced by withdrawing to the core operations, thereby avoiding the
spending of funds on operations in areas in which the company lacks the strength to reap the
benefits (matrix position 7). In addition, when the financially weak organization also has a
weak HPO status, it needs to downsize to rapidly generate financial resources. After many
years of growth an international fashion company entered a difficult phase because it was
unable to manage the rapidly increasing scale of operations adequately. Management
started to waver in its strategy and quality and performance of the operations began to
decline at an alarming pace. Parts of the company had to be sold and ultimately ownership
of the entire company passed into other hands. What once was a world-famous, well-oiled
and profitable company had become a shadow of its former self. The new management is
currently endeavoring to break the impasse by drastically reducing the size of the head
office. All ‘‘fat’’ in the staffing is being cut out and the processes are being simplified and
reduced to the essence. The company’s focus is now on ‘‘back to the core business’’ and
therefore it is in the process of divesting all secondary operations. The entire HRM cycle is
being redesigned in line with the new focus and the remuneration structure is amended.
Pursuant to this operation staff will exchange part of their fixed salary for a variable reward
system. In addition, management is devoting a great deal of effort to strengthen the internal
organization. In the words of a member of the management team: ‘‘During times in which you
have few funds available for investment it is essential to gain everyone’s support for the
investments you do make. We are making every effort to promote open dialogue in which
everyone is free to contribute what he or she can. This ensures that good people keep
confidence in the future of the company and dedicate themselves with heart and soul to its
success’’ (matrix position 8).
Conclusion
The examples of the courses of action as taken by the organizations described in this article
clearly reveal that ‘‘one size does not fit all’’. Each organization needs to examine its position
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carefully to identify the status of its financial situation and internal organization.
Organizations can then use the matrix of courses of action, to determine the most
appropriate course for the coming time. This requires management to be brutally honest
when identifying not only the company’s strengths and weaknesses but also its own
strengths and weaknesses. ‘‘Improve the world, start with yourself’’ is an approach that is
certainly appropriate here. Management needs to take the lead in enhancing the five HPO
factors, including strengthening the quality of management itself, so that the company can
not only survive a crisis but even thrive. And the real HPO always keeps the long-term goal in
its visor: to become the best in its industry!
References
Banerij, S., McArthur, N., Mainardi, C. and Ammann, C. (2009), ‘‘Recession response, why companies
are making the wrong moves’’, white paper, Booz & Company, New York, NY.
Charan, R. (2009), Leadership in the Era of Economic Uncertainty, McGraw-Hill, New York, NY.
Collins, J. (2009), How the Mighty Fall, and Why Some Companies Never Give In, Random House
Business Books, London.
Colvin, G. (2009a), The Upside of the Downturn, 10 Management Strategies to Prevail in the Recession
and Thrive in the Aftermath, Nicholas Brealey Publishing, London.
Colvin, G. (2009b), ‘‘How to manage your business in a recession’’, Fortune, January 19.
de Waal, A.A. (2008), ‘‘The secret of high performance organisztions’’, Management Online Review,
April, available at: www.morexpertise.com/download.php?id ¼ 88
Faas, R. (2009), ‘‘Navigating the downturn’’, white paper, Deloitte Consulting, New York, NY.
Mainardi, C., Leinwand, P. and Lauster, S. (2008), ‘‘How to win by changing the game’’, Strategy þ
Business, Vol. 53, Winter.
Reingold, J. (2009), ‘‘Jim Collins: how great companies turn crisis into opportunity’’, CNNMoney.com,
January 22.
Rigby, D. (2009), ‘‘Winning in turbulence, pull the right levers for your situation’’, white paper, Bain &
Company, Boston, MA.
Thornton, E. (2009), ‘‘The new rules, managing through a crisis’’, Business Week, January 19.
Wileman, A. (2 009), ‘‘The six million dollar cost manager’’, The Conference Board Review,
January/February.
About the authors
Andre
´
de Waal is Associate Professor of Strategic Management at the Maastricht School of
Management and Academic Director of the Center for Organizational Performance. His
latest book is called Strategic Performance Management: A Managerial And Behavioural
Approach (Palgrave MacMillan, 2007). Andre
´
de Waal is the corresponding author and can
be contacted at: andredewaal@planet.nl
Esther Mollema is Managing Director of the Center for Organizational Performance.
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