As the monster of recession slowly fades away to the background and as companies worldwide emerge out of the ashes, it is a time to introspect what could’ve been done better to reduce the impact of the downturn. One of the hot topics of discussions among management experts is whether an organization can be designed in such a way, so as to withstand a recession of comparable magnitude. Notwithstanding, the numerous scholarly works published in this direction, this article is a humble attempt to solve this riddle by taking a leaf out of the book of an Indian autocrat, who faced an analogous situation, some 7 centuries ago.
Alauddin Khalji, who ascended to the throne in 1296 A.D., was an efficient and an able administrator. He was responsible for extending the arms of the sultanate to the heart of Deccan. His ambition to expand his kingdom and the anxiety to protect it from the Mongols, prompted him to raise a huge standing army. Its dire necessity was felt in 1303 when he was suddenly caught between two whirlwinds – the prestigious siege of Chittor and the Mongol invasion of Delhi (led by Targhi Beg). Alauddin was successful in the two pronged struggle but made up his mind, thereafter to recruit a permanent army which, in the words of the historian Barani, “was not only large, choice, well armed, with archers, and all ready for immediate service”. His soldiers were not an ordinary lot; they were the favoured children of the sultanate, upon whose faithfulness depended the safety and stability of the crown; they were militarily rich and lived more comfortably than the masses. Alauddin was confronted with the problem of raising the strength of the army on the payment of a moderate salary, without adversely affecting their standard of living. His constant military exploits had already resulted in the excessive flow of gold and silver in the capital and adjoining towns. It led to the rise of prices due to increase in money supply. This naturally necessitated an increase in the salaries of the military personnel. With the existing treasury already under pressure, Alauddin thought of an ingenious price control system for the economy. He fixed the salaries of the personnel to a moderate amount but in turn made a regulation whereby the prices of essential commodities were fixed based on the production cost. He thus geared the entire economy towards maintaining his army. He recognized the fact that his kingdom was in danger of external invasion, which and the only factor which could’ve saved his empire was his army. So he subordinated all the internal variables to the welfare of his soldiers.
Surprisingly, Alauddin’s strategy which seems plain and simple, is not what is followed by many organizations facing the invading recession. The problem with many companies is that, they don’t recognize the factor which can prove decisive in their battle against recession. It can be brand equity, operational efficiency, customer loyalty or technical competence. It can even be background variables like employee satisfaction, organizational culture, vision or values which power the previously mentioned factors. Even if the factors are identified, seldom do companies take the risk of solidly backing the winning factor relegating others to the background. We find a hysterical emphasis on universal cost cutting and price reduction aimed to achieve a twin increase in both the top and bottom lines. Often this is done at the cost of precisely those strengths, which like Alauddin’s army, are the ones which are needed to fight turbulent economic conditions.
A case in the point is the famed US pickle company Vlasic. The company was known to be the founder of glass packed shelf stable pickles. The company in order to ward of distressed economic conditions reduced the price and sold its pickles in extra large ‘value for money’ bottles. The flawed strategy backfired resulting in a huge erosion of the company’s brand image which helped find the company the way to its bankruptcy. Had the company recognized the importance of its brand, which had faithfully served its interests in all kinds of economic weather, things would’ve been different. A recession is not a time to lay low and compromise on the quality by cutting costs mindlessly. It is a time to leverage on your strengths and gain a competitive advantage. Costs should be cut but at the right places. Alauddin changed the complete economic structure to benefit of his army. The message is – cut back on anything but your strategic weapon. New York Times is a salutary example. After the crash of 1929, the newspaper maintained its editorial quality and existing intellectual talent by paying the salaries from the surplus it built up during the boom years, even at the face of falling advertisements. The newspaper emerged out of the recession with increased readership and in turn increased ad rates.
The strength of companies like Google and Microsoft is the brilliant workforce which helps them to create breakthrough products and services. These companies are the dream destinations of the best minds from all over the world. Imagine, these companies cutting costs by going back on their well known employee benefits and perks. They will lose the very strategic weapon which gives them the edge. On the other end of the spectrum, legacy companies like GM continue giving huge benefits to the ageing workforce which is of little strategic advantage to the organization. Sometimes, the culture of the organization which is nurtured and built up over the years becomes the strategic force to fight the recession. Unmindful of this, companies, in a knee-jerk reaction employ “fire-fighting” measures which jeopardize the established norms resulting in downfall.
The lesson from the 13th century Indian emperor is loud and clear. In the face of the invader, the most important asset is the army. All other factors come afterwards. Organizations which realize the particular strength which will act as the army to fight have the winning formula to survive economic downturns.
– Anup Robins (Batch 2009-11)