There have recently been a number of reports published showing signs of gentle upticks in economic activity. Increasingly, business decision makers are more optimistic about their markets and their prospects, even if there is still a sense that a full recovery will not take place for some time. In other words, we are beginning to glimpse the light at the end of the tunnel, even if we have a long way to go before we emerge into the open air.
It is notable that despite a certain amount of bad news and less than satisfying results in the past year, technology companies on the whole are floundering much less in Asia/Pacific than in North America and Europe. In fact, some are even flourishing in the region. Substantial growth has taken place; more than a few local Asian firms have taken advantage of the opportunities the crisis has brought to emerge as serious global players. In general, Asia’s economies remain fundamentally sound and probably will emerge from the global downturn more rapidly than economies in other regions. Is this a coincidence or does Asia know something that the rest of the world does not?
There are certain fundamentals that help. Asia has an enormous emerging middle class, sizable infrastructure needs that continue to drive capital investment through the downturn and some of the world’s largest sovereign wealth funds. But Asia has another advantage over the West: More extensive experience of managing large-scale crises. The Asian financial crisis in 1997 and the Severe Acute Respiratory Syndrome (SARS) outbreak of 2003—in addition to the global dot-com bubble in 2001—produced a generation of leaders with significant first-hand knowledge of how to respond to worst-case scenarios. In order to take a closer look at how experienced business leaders view the current crisis, we had confidential, one-on-one conversations with a dozen regional chief executive officers (CEOs) of leading technology companies in Australia, China, Hong Kong, India and Singapore during August and September, 2009.
These conversations focused on two central topics:
How has your business focus for the region changed in response to the current global downturn?
What human capital strategies have you adopted to position your business for the recovery?
While cautioning against overgeneralisation, the technology CEOs with whom we spoke were united in the view that the Asia/Pacific region has borne the impact of the crisis much better than the United States or Europe. “We are the best-performing region in the world” was a common remark. Even so, it is undoubtedly the case that perspectives and priorities have needed to change.
A renewed focus on decision making
As is the case elsewhere in the world, decision-making processes—by management and by customers—have slowed significantly and cost-consciousness reigns. Every potential investment is scrutinised under the litmus tests of necessity and potential return. “Our investment decisions are both more disciplined and more creative than ever before,” noted one CEO. “For every investment decision we make, we ask ourselves: Would we have spent this money in this way before?”
Not only is the decision-making process changing, but the identities of the decision-makers are changing as well. “CIOs are no longer making technology investment decisions alone,” noted the chief executive of a telecom service provider. “The CEO or the board is involved now.” Another CEO noted that there is now a greater premium placed on financial astuteness throughout the C-suite—sales and revenue generation are no longer enough to drive the business.
Opportunities for the fortunate and the fast
Any crisis presents opportunities. Technology companies in Asia that entered the downturn already positioned as a low-cost alternative were well-positioned to take advantage of the opportunities this crisis brought. “The past year’s turmoil has actually helped us grow,” noted the CEO of one such company, echoing the sentiments of others.
The companies that did not occupy a low-cost niche found that they could prevail by refusing to panic and adapting quickly. Having strong partnerships and channels was essential: “There is a new level of interdependence with our partners,” commented one CEO. “We realise we are all in this together. It has really created a camaraderie and a focus on working together to deliver a better outcome for the customer.”
Previous experience helped CEOs read the situation quickly and react without hesitation: “I was the one who had to sort out the dot-com fallout at my company,” recalled one CEO with whom we spoke. “From that experience, I learned the importance of getting on the front foot and making the tough decisions early.”
Human Capital Implications
Despite Asia’s relative position of strength, the crisis took its toll in headcount as waves of layoffs swept through the region and a number of CEOs and senior executives accepted pay cuts. Many CEOs see the layoffs as painful but necessary: “We were fat before. We needed to lose weight,” said one. For employees under 30, this first brush with something other than growth and expansion was particularly painful: “The younger people in my company have had the shock of their lives. Their egos are punctured,” noted one executive.
Only when the tide goes out, do you discover who is swimming naked.”
This quote, usually attributed to Warren Buffett, summarises what many CEOs told us: The crisis shone a bright light on the talented—and the less talented—people on their teams. Tough times make it easier to see who is performing and who is not. As one CEO put it, “It’s easier to identify leaders who still get strong business results despite this downturn. The crisis has helped us differentiate the A players from the B players.” Another commented that the crisis made it easier for him to identify “the great leaders of tomorrow.”
The talent pipeline is a strategic asset
As in earlier crises, the current downturn reminded the CEOs with whom we spoke of the importance of having a strong pipeline and proactive succession planning. More attention is being given across the Asia region to identifying top talent and high potentials already on staff and providing them with the training, mentors and development support they need to continue to shine. Companies are performing assessments and then are working to move talented directors into executive-level positions while grooming the next-in-line successors.
“I have put people in their first management jobs,” one CEO confirmed. Another said his company was making a special effort to make high-potential employees aware of their company’s interest and investment in them. There is also a broad effort to “match A players to A positions,” as one chief executive phrased it. Not surprisingly, there is a similar focus on identifying those at the opposite end of the spectrum. We’re working on exiting bottom performers via a much more rigorous process,” said one CEO with whom we spoke. A similarly stringent CEO noted that “we are being more assertive in differentiating talent with bonuses—the calibration process was much more comprehensive this time, and our top 10 percent took a much bigger slice of the bonus pool.”
Recruiting is harder, but retention is easier
Many of the executives with whom we spoke noted that it is simultaneously easier to retain talent and harder to recruit new talent than it was before the economic meltdown. Retaining team members in a downturn is easier because people are less likely to move from company to company. “The downturn has made people become more pragmatic,” noted one CEO. “They are more focused on their own career development and how they build experience and expertise.” Another added, “It is definitely an opportunity to build loyalty and team spirit and, as a result, to strengthen the culture of the organisation.”
But while there are certainly many more people on the job market than before, highly qualified people may be even harder to find than before because their companies are holding on to the best performers: “There are many people looking for a job, but they may not be the right people to hire,” was a regular refrain. “We need to sieve through more sand in order to find the gems.” In this environment, the value of a complete assessment of candidates and an analysis of his or her fit with the corporate culture is made all the clearer.
Smart CEOs are preparing for the uptick
Part of the challenge of a crisis is getting ready for the inevitable uptick, with a heavy emphasis on human capital management: The CEOs with whom we spoke all viewed having the right team in place as vital to being competitive once the crisis passes. “The biggest issue is building the capabilities of your people, because the market is going to come back,” one said. A number of technology companies highlighted that they are looking to expand their capabilities by recruiting talent from other sectors.
In laying the groundwork for the future, many CEOs felt that some of the budget cutting of the past year may have been short-sighted. Cuts in travel budgets were often mentioned as a false economy. “We shouldn’t have cut travel so much”, summarised one CEO in hindsight. Indeed, the value of the human relationship and the need for in-person meetings are more important in Asia than elsewhere: “In Asia, people need face-to-face meetings to establish trust and to build a relationship,” noted one executive. “Conference calls won’t work here. We just can’t do business over the phone like people can in other countries.”
There does indeed seem to be a cautious optimism emerging across the region: Most CEOs expect to have a better year in 2010 than they did in 2009. In preparing for the year ahead, they are focusing on innovation, sales discipline and instilling rigour across their organisations; they are investing in their brand and in deep conversations with partners and investors. Most CEOs with whom we spoke agreed that companies with the following characteristics are most likely to come out on top next year:
Customer-focus: Companies that stay close to their customers and continue to add real value to their customers’ activities will best survive the downturn.
A strong and proven offer: The market is not sympathetic towards untested solutions.
Companies with established and reliable products and solutions have an invaluable foundation.
Portfolio diversity: The more diverse a company’s customers, markets and products, the easier it is to balance difficulties in one area with stronger performances in others.
The right corporate culture: In trying times, having a strong company culture that brings people together as a team is a competitive advantage.
Leveraging the Asian Experience
Multinational technology companies around the world might want to regard the Asian experience with more than passing interest. Having survived three separate crises in the dozen years before the current downturn, regional CEOs and senior executives learned invaluable lessons that they are applying to today’s challenges.
This series of conversations, as well as other discussions with our clients, confirms the importance of managing the talent pipeline, and the value of conducting regular assessments of the existing management team. This was already recognised as important during the growth period prior to the crisis when organisations moved from reactive hiring to capability building; now the need to ensure the right fit between and within teams and to develop and support a cohesive corporate culture is all the more vital.