Lessons learned from the Great Recession - Trade Only Today

Lessons learned from the Great Recession

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Near the end of 2006, when I joined the Correct Craft team, there was one overriding goal in the back of my mind. I was consumed with how our team could take an 82-year-old boat company with a great brand and new facility to a level it had never before reached. How could we grow our company in a significant way?

Correct Craft was going through a pretty rough period as 2006 ended. I was the fifth CEO in five years and, maybe even more impactful, the man who had run the company’s production for more than 20 years had died unexpectedly. My first year as Correct Craft CEO was not much easier as I made changes necessary to prepare the company for the future.

However, with the support of our board chairman Ken Meloon (the grandson of our founder), we navigated through the tough start and ended up with what I believed (of course, I am biased) was a great strategic plan that would help our company achieve growth of 50 percent over five years. We were off to the races and excited.

Despite our excitement, the world changed in September 2008. People were suddenly talking about the possibility of a global depression. Our plans for growth were irrelevant. We would not be in growth mode; we were suddenly in survival mode.

As the Great Recession took its toll on retail boat sales we, as a boat manufacturer, took a double hit. Not only were we impacted by dramatically dropping retail sales, we were also impacted by dealers understandably determined to reduce their inventory levels to the new market reality. We had to change our plans and change them fast.

I told our team we needed to dramatically alter our business model with the assumption that the Great Recession was going to last 10 years. Of course, we were hoping it wouldn’t last that long, but we had to assume it would. Within months, our team completely changed how we did business, overhauling our distribution model and cutting costs; we significantly reduced our break-even point. We developed a new strategic plan to guide us in the new economic reality. And, more important, we did it all while continuing to invest in innovative new product and improving quality.

As I look back on the economic and industry collapse, I know we learned some pretty significant lessons. They were not all completely new lessons, but they were, at the least, principles that were dramatically reinforced. Here are seven of the big-picture things we learned.

1. Think in terms of transformational change (not incremental change) — When change is happening rapidly it is easy to fall into the trap of thinking about the incremental changes you need to make to survive. That does not work. Survival requires transformational change, which requires paradigm shifts. Paradigm shifts are not new ways of doing things; they represent new ways of thinking.

Over 80 years a company can raise a field of sacred cows, and our company was no different. Transformational thinking requires a willingness to kill the sacred cows. It requires a willingness to rethink everything you do. It requires asking the tough questions regarding whether specific sacred cows actually make our product or customer service better.

We were not willing to sacrifice product quality, performance or customer service. However, with a new transformational paradigm you begin to realize that some of the things you do don’t really add value and that you are just doing them because you always have. Transformational thinking requires thinking big — really big.

2. Create and maintain a flexible business model — As the Great Recession started, we quickly realized that we were operating in very uncertain times or, as we called it, a fog. We knew that to be successful and maintain our core value of premier quality we needed to be flexible.

Flexible for us meant looking at all of our fixed expenses and figuring out how to make them variable. It also meant adjusting our production to a minimum amount and staffing to that production on a four-day, 40-hour week. This new work schedule allows us to increase production easily by asking our team to work on Friday, which they enjoyed doing. Flexibility is now one of our core principles.

3. Innovation sells, even in a bad economy — One of the things we realized early in the recession was that while others may be cutting back, we needed to continue our focus on product development and innovation. As part of this commitment to innovation, we decided to develop and introduce a new ski boat. At first, people said we were crazy. They questioned why we would invest in a new boat during the worst boating market since the Great Depression.

Our thought was that there were still plenty of people who would spend money for a new and innovative boat. So even though we were questioned, we introduced a boat that took the market by storm. The new boat increased our market share in its segment by almost double. Its innovations have resulted in 10 world records in a little more than two years; no other boat is close.

The big lesson here is that great product and innovation continue to sell, even in very tough times. Many people can still afford to buy in even the roughest of times. They just need a reason.

4. Paradigms matter. You can do what you think you cannot do — Another big lesson of the Great Recession is that we can all operate on a much higher level than we do in normal times. Many times, difficulty brings out the best in us. The lesson is that we need to continually push ourselves out of our comfort zone and achieve the high performance we did while we were in survival mode, even when things are good. Many companies and leaders made 10 years’ worth of change in 10 weeks. Why can’t we operate at that level all the time?

We limit ourselves and our organizations by being comfortable. The recession allowed many people to catch a glimpse of what they are really capable of accomplishing. The hard reality is that many companies in our industry improved more in 2009 than they had in the 20 years before 2009. Great leaders will avoid the temptation to become comfortable and figure out how to sustain the rapid pace of improvement.

5. Develop a long-term and external view. Don’t ignore the signs — I tend to have a long-term and external view of the world. However, like almost everyone else, I did not see the recession coming. As I look back on what was happening in the world, we should have seen it coming. The real estate market collapsed well before the recession, and it does not take much to draw a correlation between home values dropping and the inevitable impact on boat sales. And there were other signs.

I am convinced that most leaders stay so focused on running their business that they don’t see what is happening to their business. We need to make sure we have a long-term and external view and don’t ignore or justify signs that are contrary to the way we want to see the world.

6. People matter — When we started taking action to adjust our business for the new reality, it was obvious that it was going to impact people. Our new business model required less than half of the people we had before the recession started. One of my core values throughout my entire career was that people matter, and we had to figure out how to live that out in the most difficult environment our team had ever experienced.

We did two things to try to live out our values, related to people. First, we implemented a three-month training program before our major staff reduction. I was honest with our team and told them all that we did not know whom we were going to be able to keep. However, we also promised three months of paid training before we had our major staff reduction. We told employees that we were going to do our best to help them develop skills that would last a lifetime, whether they stayed at Correct Craft or we had to part ways. At the end of the three months, we had to significantly reduce our staff, but we tried our best to do it in a way that demonstrated respect for the people we had to let go.

Second, we wanted to make sure the team that stayed knew they mattered. In order to do this, we implemented a companywide incentive plan that pays quarterly bonuses to those who stayed at the company, assuming we met specific performance targets. I am proud to say we have kept that plan until today and have no intention of ending it. We wanted our team to know that if they helped us weather the storm, they would be rewarded. People matter.

7. Problems are opportunities — Although I am not ready to draw this conclusion for our company, I do believe many companies will eventually decide that the Great Recession was one of the best things to happen to them. The reason is that the recession forced many to make changes and improve their organizations in ways that will benefit them for decades. The Great Recession was a huge problem, but it was also a huge opportunity. I know it is very hard to do, but if we can view problems as opportunities, that will make it significantly easier to make the changes we need to make.

Lastly, I am a bit of an amateur futurist and, as I mentioned, I tend to have a long-term and external focus. With that in mind, as I scan the horizon, it causes me to believe that we are going to see dramatic change during the next 10 years. In fact, I believe we will see more change in the next 10 years than we have in the last 25 years.

We need to be nimble and ready for change. Embracing the seven lessons I have shared here will help us all navigate through both future headwinds and tailwinds with ease.

Bill Yeargin is CEO of Correct Craft, an authority and writer on management topics and a frequent speaker at industry gatherings.

This article originally appeared in the February 2012 issue.

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