Success in a low-growth economy
Forecasts for this year see global GDP rising about 3 percent, which would be the third consecutive drop since it reached 5.2 percent in 2010. The deceleration is magnified by slowdowns in emerging economies that were the life rafts after the global financial crisis. Thus, consensus is mounting around the world on prolonged low growth.That dim view is shared in Korea. In a Samsung Economic Research Institute (SERI) survey of CEOs in April, half of the 603 respondents predicted low growth would continue for more than three years, and 21.4 percent of those said it last more than five years.
Persistent sluggishness will keep unemployment high, income growth low and spending soft, undermining both sales and internal dynamism. The overriding danger for them will be a negative feedback loop.
In such a cycle, new business opportunities would shrink and competition intensify. When balance sheets deteriorate, resources for future growth become exhausted, and success will be ever more elusive. These will further weigh on building up capabilities and human capital. At the extreme, the loop will reduce entrepreneurship and employees’ will to work, the basis of a company’s competitiveness. Once corporate vitality collapses, it cannot be restored easily.
In the SERI survey, the executives compared the condition of their businesses to 2008 at the threshold of the global financial crisis. Three-fourths said they are experiencing a decline in earnings, among which 34 percent said they suffer from eroding earnings, capability and vitality. Middle managers are feeling the vitality pinch even more, suggesting morale is already being affected.
Coping with persistent low growth will be exhausting. But a sense of crisis also is conducive for structural change. One or two short-term plans are not sufficient for a low-growth period. Long-term plans are necessary. They should promote three areas: sensing, focusing and energizing.
Sensing: Consumer sentiment contracts and market opportunities are reduced in low-growth periods. It is crucial identify and exploit new business opportunities. Companies should create new demand through constant observation of consumer actions and analysis of their underlying sentiment. In other words, a close sensing of customer and market behavior is essential.
Companies have used financial status and demographic criteria such age to classify customers. Now they need to redefine their customers by assessing their actions and relationships. Active investments in the “science of customer analysis” using social networking sites and big data are also necessary.
Focusing: During a long slowdown, it is difficult to recover from strategic mistakes. It is thus crucial to focus resources on the most promising areas to increase the probability of success. Companies should constantly redefine businesses by concentrating on areas where they can optimize and redeploy existing resources and strengths.
In identifying and pursuing new opportunities, the overall aim should be to accumulate small successes, which will help instill confidence during a tepid business climate.
Energizing: In a low-growth period, employees can become discouraged and lose their commitment and enthusiasm. Energizing the organization is thus very important. Executives should transparently share with employees he strategies and current status of the business, to ease fears of job insecurity, loss of business and reduced wages. This would require creation of a “strategic consensus” across the company.
Fair evaluation and compensation is another issue. Also, since resources are limited in the current low-growth period, non-monetary compensation should be promoted.
In a low-growth period, leaders must grapple with fewer resources. When asked about the important qualities managers need to overcome low growth, communication and vision presentation were cited most often by CEOs surveyed. CEOs should be more of a coach than a problem solver. The organizational system should be set up to empower employees so as not to overtax the CEO’s decision-making. In particular, the CEO should continuously explain and guide employees toward transformational changes so short-term performance is not overemphasized. The key to overcoming a long-term struggle is to enhance the ability to execute change based on trust throughout the company.
by Kim Seung-pyo
with the Korea JoongAng Daily
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