NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

This is Part Two of a two-part series on the economic crisis and what disruptive leaders everywhere should do to survive and thrive. Go here for Part One.

“You can’t save yourself out of a recession.”

This quote was used often by Craig Barrett, Intel’s CEO in 2001. The basic meaning of this statement is this: companies can emerge stronger after a recession but only if they continue to invest in innovation, sales and business development. It does not mean that you can ignore the environment and continue to spend like before. Companies must cut back in non-performing or non-crucial areas, but maintain or increase investment in product innovation and development.

In 2001, after the dot-com bust and 9/11 induced recession, Intel – where I worked at the time – increased its multi-billion dollar investment in R&D and future manufacturing expansion, and tripled the multi-million dollar budget for business development in emerging markets. But they also cut back spending in other areas, laying off thousands of employees and shutting down many unprofitable business ventures (Intel Online Services, their failed data center operation, is just one example).

Analysts didn’t believe in the strategy (“Analysts Say Intel Is in Denial about Its Future“). But the analysts were wrong. The bet paid off big-time. The R&D investment resulted in Centrino and Core 2 Duo, Intel’s flagship notebook and desktop products that have fueled their competitiveness since 2003. The manufacturing investment in new fabs (each costing a few billion dollars to construct) allowed them to meet growing demand as they started going online in 2003. The investment in developing new emerging market business helped fill the gap from declining revenues from mature markets between 2001 to 2005.

Scott Anthony, one of the key thought leaders on disruptive innovation, recently wrote an article titled “Should Startups Focus on Growth or Profits?” His blog entry was prompted by a recent article in BusinessWeek that described how Facebook was continuing to hire and focus on expanding their user-base, while Myspace was “hunkering” down. Another article in the New York Times compared how two micro-blogging sites, Twitter and Yammer, were doing the same thing. It will be interesting to look back to see which model was more effective once they emerge from the downtown.

Streamline your business.

In boom times, companies often add employees and projects too fast. The result can be under-performing projects and personnel. Downturns are an excellent opportunity to beef-up spending & hiring discipline, increase operational excellence (OpX), cut back bloat, and shut down under-performing projects and personnel.

Never burn bridges.

Over my 20 year career, I have been on both sides of corporate downsizing, lay offs, employment reductions, re-deployments and <insert euphemistic phrase for being canned here>. I was laid off from my first job after college due to the impact of the recession in the early ’90’s. At Intel, I unfortunately had to lay off managers and employees from my team more times then I care to remember.

The adage “never burn bridges” applies to corporations just as it does to individuals. A lay off is the singular most professionally unpleasant experience for the manager and the employee. But it is significantly worse for the affected employee, so it is critical that the company and manager handle the layoff just like as they would handle winning a new customer…with due diligence, positive communication, empathy and respect. Key tactics include:

• Timing of communication – Ensure that all employees are informed at the proper time of potential actions. Communicating too early can cause productivity paralysis and unnecessary stress. Communicating too late can cause resentment. The manager should also check in with the affected employee routinely to see how the job search is going and offer whatever help he/she can provide.
• Make it personal – Communicate the news face-to-face if at all possible. Include your manager as well. I always attended all re-deployment notifications unless the manager requested that I not attend.
• Be as generous as possible with the severance package – It typically takes many months to find a new job. Of course what severance can be given depends on the financial state of the company, but being as generous as possible goes a long way to retain goodwill with the company.
• Don’t force an affected employee to work once notified – When I was laid off early in my career, I was given four months until my last payday, but I was expected to continue to work while I received salary. You can imagine the impact to my performance. At Intel, an employee is given a choice of 2-4 months to find a job within the company. That employee is not required to do work, and if they do work, it extends the time until their last day.

Bottom line for all managers is to consider the psychological impact and do what is necessary to soften the transition.

Unprecedented actions for unprecedented times.

If I have gleaned one thing from all the news and analysis about this crisis, it is that conventional wisdom has to be thrown out the window. What is happening is global, unprecedented and impacts every aspect of business. As a self-professed liberterian and capitalist, my gut reaction to government bail-outs, whether for banks or the automobile industry is to let them fail and go bankrupt. Survival of the fittest.

But that is just conventional wisdom. Do we want a recession of a few years or a deep depression of a decade or more? The millions of jobs lost if the US auto industry fails will be a tsunami impacting the entire worldwide ecosystem that supports it. Countries can no longer go it alone. It requires a concerted effort by all governments, working in tandem. And finally, those that think out of the box and aggressively embrace and flexibly navigate around the realities of today will emerge stronger when growth returns.