Best defense for business now may be a counterattack

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Bill Virgin

Best defense for business now may be a counterattack

Wednesday, October 31, 2001

By BILL VIRGIN
SEATTLE POST-INTELLIGENCER COLUMNIST

During the first battle of the Marne in World War I, French Marshal Ferdinand Foch sent a message that is a model for succinctness in strategic evaluation and response:

"My center is giving way, my right is retreating. Situation excellent; I am attacking."

More than a few corporate executives, business owners, employees and consumers would empathize with the first two components of the assessment.

Very few would summarize the present condition as excellent. Fewer still would decide that the proper response is to counterattack.

Maybe more should.

Military analogies are dicey propositions these days, because we happen to be in a real war and to apply such terminology to other situations runs the risk of trivializing the seriousness of the conflict.

But there are some interesting parallels between the way military operations are conceived and carried out and how businesses react when faced with a crisis.

Give in? Hunker down and hope you can last long enough for the threat to go away?

Or perhaps find some opportunity in the mess?

Option No. 1 certainly isn't attractive, but some companies may be so overwhelmed by economic events that they can't survive. Most are opting for No. 2.

For most of them, Option No. 2 is more necessity than choice. Bereft of cash reserves (what we might at one time have called a war chest) or rainy-day funds, their only hope is to ride out the siege (there go those terms again).

Hunkering down doesn't mean doing nothing. Some companies may use the dire situation as a motivating tool to rally employees around cost-reduction and efficiency programs such as just-in-time inventories, says Greg Magnan, assistant professor of operations management at Seattle University; when times are good, it's much harder to convince people of the necessity of such measures. Companies may even be able to snare a few points of market share from those less able to adapt to leaner times.

But hunkering down is no guarantee of survival, even if a company does try to keep its own finances in shape. Competitors could be working even more feverishly to survive.

"If Airbus continues to turn out airplanes and sell them below cost just to keep the lines moving, it could affect the demand curve for Boeing," Magnan says.

So what about option No. 3? Might not a few mavericks figure that the best defense is a good offense, whether in war or business?

At least in business, the strategy makes sense on paper. "A down cycle is the best time for companies to buy, build and invest," Magnan says. "Things are cheaper than they were six months ago."

Of course, most businesses tend to invest in an up cycle -- sometimes right at the peak. In fact that's one reason why up cycles become down cycles, and down cycles become nasty plunges -- everyone has such optimism that they add too much capacity for the number of customers. The paper industry in the 1990s was a famous example of a production glut. The boom and bust of many big-box stores was the retailing equivalent.

Expanding at or near the bottom of the down cycle also offers more opportunity to grab a greater share of the growth when the economy rebounds.

Doing so, however, presupposes two things. One is "you have to have some cash to do that," Magnan says. But that's exactly how many companies don't enter down cycles, since they've maxed out debt and run up spending during the boom.

The other: knowing how to expand. Simply counterattacking in any direction is not wise strategy in war or business. Foch's role in disastrous offensives in the middle years of World War I led to his removal from command; he later returned to participate in the final drives that led to the war's conclusion.

Similarly some companies that use a contrarian strategy will pick the wrong time, the wrong markets, the wrong products or services to entice customers. In perilous times, the risks of guessing wrong are greater. "You have less buffer or earnings margin," Magnan says. "You can't really be wrong now. You can't play with money so freely."

For those reasons, most will figure it's safer to take the hunker-down strategy. Yet there are signs everywhere, from finance to retailing to manufacturing, of companies figuring that doing something is better than doing nothing. All during third-quarter earnings release season, Pacific Northwest companies have been warning of lagging revenues, slumping earnings and slow markets. Yet they've also been announcing acquisitions, opening new offices, branches and stores, introducing new products and investing in new technologies.

The success of those strategies will be determined by planning, execution, sacrifice, determination, endurance, resources ... not to mention a healthy dose of luck.

Come back in a year and we'll know who among the mavericks, and among those who chose the hunker-down strategy, made the right calls.

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com. His column appears Mondays and Wednesdays.

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