Leadership and Sinking Markets

by Krishna on March 24, 2007

This is the last in a series of posts regarding how companies and their leaders and managers should change their organizational strategies to suit different market conditions. The previous posts are here, here and here.

Obviously, this is not a market where a company should be. Many companies, however, do find themselves in this situation because of various reasons like:

  1. Resting on one’s laurels: The organization may have been the leader at one time and has grown complacent over time. If it had maintained the same competitive focus as it had in the past, it may have been in a better condition.
  2. Lack of innovation: The company continues to milk its past successes without planning for the future.
  3. Ignorance or disdain of external happenings: The company is inwardly focused. It doesn’t pay attention to trends in the market place and among consumers. It becomes arrogant and dismisses the activities of competitors without seeing them as possible threats.

There are external factors why the market is shrinking. Demographics, social changes, changing consumer tastes, competitive innovations, etc. all contribute to reducing demand for a particular good or service. However, when a company is in a state where it depends on declining products and services for the bulk of its revenue and profits, it has only itself to blame.

Management at different levels of the company usually is the primary guilty party for this state of affairs. When things are going right, they fail to notice contrary signals in the market. In bigger companies, this happens because management is more heavily shielded from the end customer’s complaints and suggestions. However, smaller companies, who are closer to the end user, fail to take advantage too, because sometimes change means significant investment of time, money and effort – which may be a stretch for the resources of that company.

Companies typically use R&D divisions to avoid landing into such situations. However, many companies don’t do well in commercializing innovations for various reasons. One is that the new product or service needs sufficient support in development and marketing effort before it can become a sustainable success. Secondly, the launch of the new invention may be wrongly timed – it may have to be shut down and re-launched at a later time. A good example of the latter is when existing technology (like household Internet bandwidth) is not capable of supporting the innovation.

What can a company already mired in a declining industry do? Sometimes, there may be little to salvage. Most talented employees may already have left the organization for greener pastures. The remaining employees and managers are low on motivation and capability. Capital reserves may have shrunk to insignificance. No new product or service offering has potential.

But perhaps all is not lost. The first step, though, is to infuse a spirit of fightback into the company and generate momentum. This may start with a change in the leadership and management team by bringing on or promoting managers who are action-driven. The company must reach out to its existing customers (some of whom may be disillusioned or angry with it) and see how it can serve them better – perhaps by introducing simpler or different variants of its products or services.

Restoring a company from this situation is a long-haul game. It requires perseverance and enormous patience to deal with setbacks on the road to recovery. Of course, there are always quick-fix artists who can bring back profitability to a company by laying off people and cutting expenses everywhere. But without coupling that to steps that can align the company with market demands, it is a futile exercise that only delays the end.

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