Leadership in Different Market Situations

by Krishna on March 15, 2007

This is the first in a series of posts regarding how companies and their leaders and managers should change their organizational strategies to suit different market conditions.

The state of a company’s market can have significant influence on the behavior of managers and employees within an organization. This, in turn, places some limitations on the leadership of a company in terms of internal and external strategies and processes. For this discussion, I am not considering the state of the economy as a whole, although in general, most companies have a good market situation when the economy is better.

Please note that this is not just about the company’s products and services only. Here I am referring to the entire potential market which includes untapped potential and the share of the competition. There are three possible general market situations, as follows (no real surprises there):

  1. Rising market: The market (in which the company is operating in) has huge potential and is growing fast very visibly. Example: Internet search advertising.
  2. Stable market: The market is stable and growing at a steady pace. Example: Car companies.
  3. Dwindling market: There is a clear indication that the market is decreasing and few companies in the market will survive. Example: desktop computers (being replaced by laptops and handhelds).

A few points to note here:

  • A market may be cyclical or seasonal in the sense that it has wide swings of the symptoms of rising and dwindling markets. Staffing companies are good examples. They are highly affected by economic cycles, because their revenue comes from the staffing budgets of regular corporations. [Aside: Staffing and consultancy have an organizational character very different from typical organizations because of its fragmented nature and many typical organizational strategies cannot be applied to them.] Some new markets may be extremely volatile.
  • The state of the market and the state of the company need not correspond. Some companies can do well for a while in poor markets. If the company is competing poorly, it will fail in a rising market and a stable market.
  • A rising market is an invitation for companies to rush in, bring innovation and lower prices – so there will be a lot of crunching until a stable market is reached. This is the “long run” concept in economics.

Each situation demands different management approaches because the room for making mistakes and errors in judgment varies considerably in different markets. What choices the market place offers makes a tremendous difference about the level of tolerance of people (customers, employees and vendors) who interact with the company.

The questions the leadership has to ask are

  • In this situation, what sort of people should be on the management team?
  • Who should report to top management directly?
  • What personality characteristics of key personnel should be emphasized?
  • How should the organization be structured in terms of human resources?
  • What organizational functions (marketing, finance, etc.) should be the primary focus of operations?

In my next post, I will look at the rising market situation and attempt to answer some of these questions.

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