What Did You Learn During the Recession?
Are you doomed or destined?
By Holly G. Green
Those who forget
the past are doomed to repeat it. This famous aphorism has been
around a long time. But never has it been more applicable than to
today’s business environment. As we begin to ease our way of the
recent economic malaise, I propose taking a moment to reflect on
what we have learned over the past year and how we can apply that
hard-earned experience going forward.
It does seem that
those who forget the past tend to make the same mistakes over and
over. It’s also true that those who learn from the past can put
those lessons to good use. That’s exactly what Joseph Petrucelli
did as CEO of East Bridgewater Savings Bank, a small community bank
near Boston with $135 million in assets. During the wild ride to
the top of the economic cycle, when other banks were lending money
hand over foot, the FDIC criticized East Bridgewater for not loaning
enough money. Yet, it was the bank’s long-held strict lending
policies that allowed it to weather the financial industry meltdown
and come out the other side relatively unscathed.
were freely approving loans at a rate of $9 for every $10 in
deposits, East Bridgewater loaned less than $3 out of $10 in
deposits. Petrucelli, who describes himself as “paranoid” when it
comes to the credit worthiness of borrowers, refused to buckle under
to the FDIC, and the strategy paid off. To this day, East
Bridgewater has had no foreclosures and no delinquent loans. And it
continues to lend money while competitors struggle to stay afloat.
Petrucelli’s stubborn insistence on making only trustworthy loans?
The lessons learned during the 1980’s downturn when he was asked to
rescue Boston's Eliot Savings. Eliot Bank had transformed itself
from a sleepy community bank into a high-growth commercial lending
institution by making piles of loans. Unfortunately, most of those
loans were unsound. By the time Petrucelli arrived on the scene, the
bank’s risky lending policies had so decimated their assets that he
had no option but to permanently close the doors.
lessons of past recessions served Petrucelli well. So what can we
learn from the most recent one? The most fundamental lesson, I
believe, is the emergence of a new “normal” for today’s businesses.
Granted, some things (such as sound lending policies) remain
unchanged. But for most companies, the basic rules of the road have
shifted in very fundamental ways. In previous generations, economic
downturns were usually followed by mass sighs of relief and a quick
return to business as usual. This time the overriding issue is,
“Where do we go from here?”
The second big
lesson is that companies need to learn how to anticipate the
unanticipated. And they need to learn it quickly. Otherwise they
will get run over by faster and more agile competitors that build
their core competencies around the ability to take advantage of the
unexpected. When it comes to figuring out new directions to go in:
lessons from the past year or two. What major considerations need to inform your
strategic planning? What did you try that worked well? What
did you try that didn’t work? What old habits and processes
should you abandon even if you have invested in them for a long
time? Additionally, take into account actions, activities,
products and services that your competitors are not focusing
on. Are they not hiring? Are they not seizing an emerging
market? What gaps can you fill that they are not pursuing?
learning into focused action plans. Some actions might focus on short-term opportunities
to meet cash flow needs. Others might build long-term
sustainability by seizing an opportunity your competition is
missing. Regardless, any actions going forward must support
your core business mission and strategic objectives. Also, get
very clear on when you will take the action and what resources
will be required to do it well.
Plan for the
Make scenario planning part of your daily routine rather than an
after-the-disaster activity. Take the time (in advance) to
pause, think and plan. This may feel like slowing down, but it
will actually help you get where you want to go much faster.
Make asking “what if?” part of standard operating procedure.
Force yourself to challenge your own assumptions and engage
others who have diverse views.
Accept the fact that change will happen faster and more
dramatically than you would like and that it will often feel
uncomfortable. Coach employees at all levels to understand that
constant change is the “new normal.” This will lower stress
levels and reduce anxiety so that you can effectively execute
complexities of business. During chaotic times, the natural human tendency is to
simplify everything. While casting off inefficient processes or
under-performing products usually makes sense, never do so
without validating assumptions. Use scenario planning to
challenge your assumptions and dig into the details before
making any major decisions. Weighing different alternatives can
often uncover competitive differentiators you would never find
by simply cutting your product line by 20 percent.
Great leaders rarely make decisions without supporting data.
But in the absence of information they aren’t afraid to
occasionally “go with their gut.” If something doesn’t feel
right, don’t hesitate to shift. Often, this intuition comes
from front-line employees who can spot warning signs long before
top brass. Make every effort to solicit feedback from those who
are in close contact with your customers.
economy offers a real opportunity to separate your company from
weaker competitors, a fact supported by a recent Bain and Company
study that found more businesses fail after a downturn than during a
recession. Why? Because many companies are simply too weak from
cutbacks to easily switch back into a growth mode. Employees are
demoralized, customers have lost faith in the company, and vendors
are slow to restore damaged credit lines. As a result,
opportunities abound for companies that are prepared to seize the
Now is the time for bold action! Don’t forget the past, but don’t
allow yourself to get stuck in it either. Chart a course to take
advantage of the opportunities in front of you, and prepare yourself
for a bumpy ride. Some companies are doomed to repeat history while
others are destined to write it. Which one will you be?
Read other articles and learn more about
Holly G. Green.
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