Thanks to the work of Walter Cannon, our natural “animal” responses to fear are generally well known.1 The courageous, strong, fit (or possibly crazy) dig in their heels and fight. Unfortunately, the “dig in” part as we apply it to businesses typically means that a company decides the plan and strategy they have been following for years has led them this far and will, subsequently, lead them through any “muck” the business environment may continue to throw its way. Sometimes extremely large companies succumb to this strategy simply because they lack the agility to react any other way. Alternatively, a company may develop a new plan with a unique strategy to combat the shrinking revenue stream but then commit to it with such ferocity that they become blind to the possibility of any modifications. Of course, this approach carries a requisite ignorance of the fact that a dynamic business environment cannot reasonably be conquered with a static business plan.
The quick-footed, agile, more willing to change, (and cowards, of course) will take flight. A company choosing to fly will generally forego the time and energy required to develop a “freeze plan” and cut straight to the chase. They will announce employee layoffs and plant closings as soon as the fear reaches the decision-makers. This is often the case when a company decides to quickly exit one specific market segment.
Numerous companies see flight as the best (or perhaps even only) strategy to pursue when they realize that expenses must be cut quickly and drastically in order to survive. The authors are not alone in our belief that this is an ineffective strategy. Donald Keough, former president of The Coca-Cola Company and author of a recent book titled “The Ten Commandments for Business Failure” states that in his experience, “in the absence of other strategic changes, the truism is true – you can never cost cut your way to profitability”.2
And, finally, those who do not fall into either of these two categories will assume a static (or, worst case, permanent) position. In other words, these individuals will freeze and neither fight nor fly – presumably paralyzed by fear. In fact, they may even lie down and ‘play possum’ to avoid being a target. Is this not what Niccolo Machiavelli warned against when he stated, “For this is the tragedy of man – circumstances change, but he doesn’t”?
From an organizational perspective, those who freeze in the presence of fear are easy to identify. These companies institute one or more policies that actually contain the word freeze. Perhaps you are familiar with some of these “strategic actions”. Hiring freeze. Training freeze. Travel freeze. Promotion freeze. It is interesting to note that on this last action the only thing that is actually “frozen” is the pay increase. The title and the additional responsibilities will often be exempt from the “promotion freeze”. And so it goes with too many companies caught in the throes of an uncertain market.
These reactions to fear are significant as individual human behaviors. Why? In the simplest terms, individual human behavior in an organization becomes organizational behavior. The organizational behavior will then direct the culture of the organization. The culture will then greatly influence the organization’s reaction to fear. For example, the fear generated by an economic recession.
What if an approach was employed that was different from “fight, flight or freeze”? In fact, what if a fourth approach existed to confront our fears? Might a fourth approach synthesize the first three? And is it feasible that this synthesized approach would reasonably exhibit one or more of the other three behaviors at any specific point in time? The purpose of this article is to suggest that there is an approach that companies should consider during times of market uncertainty such as what we are currently experiencing in most of the global marketplace. We call this approach being “fluid”. Specifically, it is the use of a fluid strategy. But beware, Paul J. H. Schoemaker, research director of the Wharton School’s Mack Center for Technological Innovation, warns that this just might be the most difficult choice to make as an organization3. In a recent article published on Financial Times.com titled “Destination dustbin”, Francesco Guerrera poses a question similar to those we are asking. Guerrera writes, “In the middle of the worst economic downturn since the Great Depression, companies face a daunting choice. Do they exploit the tough times to lose the ballast accumulated during the boom years and make risky strategic changes in the hope of emerging as lighter but stronger organizations?4 Or do they adopt a defensive stance, trying to weather the storm without rocking the boat until their markets and the economy rebound?” This sounds like Guerrera is asking, “Which “F” will companies choose to follow”. Guerrera later states, “unlike in good times, when corporate inertia and humanity’s preference for the status quo heighten resistance to change, crises make it easier to take radical action and sell it to employees, customers and investors.” Radical? Maybe. But perhaps it is time for us to break that paradox and begin referring to these strategic behaviors as simply a “fluid” approach. Perhaps, too, it is time for this approach to become standard operating procedure as opposed to a consequential crisis that justifies short-sighted flight or freeze plans.
The best way to understand how these reactions to sources of fear are manifested in a company is to study companies who exhibit one or more of these strategies for dealing with fear. We have selected four extremely large companies with global footprints as a matter of convenience, as we have personal knowledge and experience with all of these companies. Each of them is an international company in every aspect of that label. For this article, we will refer to them as Company A, B, C, and D.
Company A
This large manufacturer has been around for more than 100 years. It has variously been labeled as an innovator and a behemoth too large to keep up with the changing business environment. With thousands of employees and billions of dollars in annual revenue, this organization is a glowing example of the company who is so large (not only physically but organizationally, too) that fight is the most natural strategy during times of uncertainty. However, as is nearly always the case with large (think overweight and out of shape) companies, fight is not the only strategy used by this company. During the most recent economic crisis, the company has alternately utilized freezes on hiring, travel, training, wages, and other variable expenditures as well as divesting itself of employees, factories and even market segments. These behaviors are the archetypes of freeze and flight strategies.
Historically, the company tends to follow a predictable pattern. Initially, they dig in their heels and fight. The logic (strategy) is something like “we know we have a good plan but external forces are making it difficult for us to succeed. We must work harder”. When those external forces persist, they concede that some freezing is required in order to “weather the storm”. If the environment still does not improve, flight is required and the drastic actions associated with this strategy are enacted. As the organization is pared down, it eventually becomes healthy enough to, once again, fight for survival. This cycle may be repeated depending upon the severity of each market interruption. This cycle does not represent the strategy of fluidity, as posited by the authors, because the company merely alternates among the three lesser-preferred approaches to confronting fearful situations. When the crisis is over, this company always reverts to a fight-only strategy.
Company B
This company is one of the world’s largest engineering service providers. Their clients literally span the globe. Their employee population is as diverse as the world’s population. With tens of thousands of employees, millions of dollars in high-tech equipment, and numerous facilities worldwide, one could easily predict Company B would be too large for any strategy except fighting. That assumption, however, is not entirely accurate.
During the recent economic recession, Company B did make use of a freeze strategy. The company implemented travel, hiring and wage freezes. It also employed some flight strategy in bowing out of one or two volatile markets. Of course, a company this large would surely be right to employ some level of fight strategy and, indeed, they did. But upon closer examination, something deeper than the natural fight or flight instincts of an organism were at play. Something much closer to what we would term a fluid strategy.
First, the company resisted the temptation to freeze all expenses. Training and hiring were pared back but not frozen completely. As a technology-centered company, suspending training (or hiring) would surely strip the organization of comparative advantage in both the short and longer-terms. Secondly, their flight path would be more accurately described as a retreat path. Though the company ceased plans for expanding service centers in volatile markets, they chose to leave sales and marketing activity intact to preserve their presence in those volatile markets for the future.
This company clearly represents the implementation of right things at the right times for all the right reasons. Moreover, Company B has exhibited this strategy-setting process even during times of market growth and stability. The authors suspect this company possesses a distinct competitive advantage with this type of strategy. Imagine fighting a competitor whose next move you could not predict, but whose employees knew it and had prepared for it for months. This is the power of a fluid strategy.
Company C
Company C operates primarily (though not completely) in the commodities market. Again, they are a large multinational organization with nearly a hundred thousand employees, dozens of locations and total asset value in the hundreds of millions of dollars. Such a close tie to the commodities market means frequent and often-dramatic market cycles for this company.
Historically, the company has reacted to market peaks by pushing hard (a fight strategy) to produce as much product as could possibly be sold. When the market would fall, the company pushed equally hard to reduce costs (a flight strategy) while generally bypassing any freeze policies. So frequently has the company executed this cycling of strategy that it has long since become culture. In fact, even external stakeholders of the organization expect these predictable reactions to each respective market cycle.
However, this “fight to flight and back again” strategy does not hold sway over every facility within the corporation. One plant, in particular, has recently chosen to break the traditional strategy cycle and pursue something that more closely resembles a fluid strategy. As a result, this plant is reaping benefits not seen in the rest of the corporation.
The plant to which we refer has identified “right practices” for each function of their organization. They have dedicated resources (including money, people and time) to implementing best practice processes throughout the organization even during the current economic recession. These efforts have not been easy, but they have produced benefits not achievable through the old traditional “fight then flight” strategy. This fluid-like strategy has led the facility to be one of only two plants corporate-wide to avoid layoffs, shutdowns, and the other consequences of a flight strategy.
Company D
For over 10 years, this organization has spent an abundance of time, money, and effort improving their overall business effectiveness. They’ve done this by not only improving their ability to produce at an optimal profit level, but also by understanding the variance that is created by other contributing sources to the overall performance of the company. Recognizing these variances was, in fact, a big step in the overall improvement. Leadership understood that no single department ensured the company’s overall success. It would take effort and a desire to improve from all parties and all divisions.
As with many large diversified companies, not all divisions sing from the same sheet of music. This is no less true for Company D. One particular division has never fully embraced the path to success followed by other divisions. They continue to use the old phrase, “we’re different, and that won’t work for us”.
For example, when given the opportunity and support necessary to improve, they chose to hide their inefficiencies with a capital expenditure rather than to change their internal processes in order to improve performance. The result? After spending more than 20 million dollars, (representing 220% of the amount of their hidden plant – a measure of production inefficiency), they were only able to capture 41% of their pre-capital expenditure losses. They believe that they are different. However, the numbers tell the story differently.
Company D has now acknowledged these “low performing” plants and has recently taken significant strides toward standardizing continuous improvement throughout their entire corporation. Company D understands the current state of the economy and has implemented similar cost saving approaches as Companies A, B, and C using a freeze strategy. They have reduced the amount of training and limited or placed freezes on travel and other variable expenses. However, they have also spent an unprecedented amount (well over one hundred million dollars) on standardization including “best practices”. These best practice processes have been mandated for the entire corporation and will be rolled out to every division – no exceptions. Now that is a statement! In fact, perhaps no other example familiar to the authors, displays so well our definition of implementing a fluid strategy during the worst (and the best) of economic times.
Conclusion
So what point are we trying to make? During downturns (including the current recession), the economy only slows – it does not stop. Fear-induced strategies of fight, flight or freezing only prepares a company to be surpassed by its competitors who have elected to utilize a fluid strategy. Think of it this way. How much force does it take to start moving an object at rest? How much force does it take to simply increase the speed of an object that is already moving? Which object would you rather move?
In closing, major shifts in the marketplace cause fear among companies. As humans (and by extension organizations) we tend to execute one of three strategies to combat fear – we fight, we fly or we freeze. Each strategy has its unique strengths and weaknesses. None of the three strategies should ever be used to the exclusion of the others. However, we believe from our experience that employing a fluid strategy is the single best approach to ensure long-term organizational performance. A fluid strategy is one that continually scans the environment looking for best practices and then uses fight, flight or freeze strategies in the right amounts and at the right times to ensure that those practices are successfully implemented. A fluid strategy is simply doing the right things at the right times for all the right reasons.
Remember: to the victor, not the coward, go the spoils. Is your strategy delivering the spoils you truly desire?
Timothy R. Weilbaker is the Founder and President of Process Thinking, a management consulting firm in New Albany, Indiana and an adjunct professor in the School of Engineering Technology at Eastern Michigan University.
Chris Colson is the Director of Strategic Accounts for GPAllied, LLC., an international maintenance and reliability consulting and training firm.
References
1. Walter Cannon, Bodily Changes in Pain, Hunger, Fear and Rage: An Account of Recent Researches into the Function of Emotional Excitement, Appleton, New York, 1915.
2. Keough, Donald, The Ten Commandments for Business Failure, First published in 2008 by Portfolio, a member of Penguin Group (USA) Inc.
3. Eyes Wide Open: Embracing Uncertainty through Scenario Planning, Published: July 22, 2009 in Knowledge@Wharton, http://knowledge.wharton.upenn.edu/.
4. Guerrera, Francesco, (2009), “Destination dustbin”, Financial Times.com, Published: August 9th, 2009, 3 Pages.