Hibernation--A Strategy for Building Competitiveness During a Recession.

• Author: Bostrom, Gert-Olof

INTRODUCTION

Changes in business cycles are well known among business people; in recent memory is the severe downturn in the world economy in 2008 which started with the bankruptcy of Lehman Brothers. This crisis had a global impact and this impact is still present in many countries (Kitos & Bishop, 2018). A global impact means that all markets are affected by the recession and the company cannot turn any "new" market in order to keep sales figure up. The impact of this crisis varied for different companies, but one clear observation is the severe challenge for SMEs to overcome recessions (Shamara et al, 2011).

There are a number of matters that need to be addressed in a company when the recession comes (Gulatani et al 2010). A recession always comes as a surprise; it can be anticipated but exactly when the recession arrives is an open question. It is therefore hard to prepare beforehand and when the recession comes it is just as hard to tell the duration and magnitude of it. Another way to express the situation is to claim that the recession has to be handled concurrently, often learning from mistakes and trying new solutions. It is only when the recession is a fact that it can be addressed with different strategies.

A recession means a drastic drop in demand for the company's offer, which compels an adjustment. A common strategy for handling a recession is downsizing, meaning adjusting the workforce in the company to match the demand of its offers (van Dalen & Henkens, 2013). The downsizing strategy is risky, as decreasing the number of employees usually also means loss of competence, which in terms of the resource-based theory can be translated to loss of competitive advantage (cf. Barney 1991). The downsizing strategy also anticipates the availability of a workforce after the recession that has equivalent skills as the one that was laid off during the recession.

The paramount question for this paper is: What strategies can a SME create in order to keep the main part of the workforce, and thus the vital competence in the company, during a recession? In this paper, we study how the recession that started with the Lehman Brothers bankruptcy was dealt with in a SME manufacturing company, with a focus on the CEO's narrative about the ingenious and innovative strategies to keep the workforce as intact at possible during the recession in order to secure the company's competitiveness. We present a qualitative case study of a world leading SME company located in the northern parts of Sweden. This case is of particular interest because it is about a small, but world leading company, that was fully exposed for the global business cycle. There was no safe home market to regress to. The remote location of the company stressed the situation of a laboratory experiment; it implied very limited, if any, options to adjust the size of the workforce. Letting people go meant letting competitiveness vanish. When business cycle changed, there would be no people with adequate skills to hire due to the location of the company. A very close relationship between the community and the company evolved as the company "hibernated" during the recession, which demanded loyalty, sacrifices and team spirit of all parties.

BACKGROUND

In order to understand the context of the studied SME company, there are some environmental circumstances that need to be made clear. These issues will have a great impact on the studied company as they set the agenda for possible options of managing the crisis. The first issue to consider is the country.

Sweden is a country with highly competitive industry and an indication of the nation's competitiveness is the value of the export, which is about 47 percent of GDP (Carlgren, 2019). A natural implication of this high level of export is the exposure for global business cycles. Sweden is a global minimarket regarding temperature of the global business cycle. Thus, when the recession in 2008 appeared it hit Sweden with full effect. In order to understand the Swedish context regarding letting people go there are also other circumstances that need to be explained.

The unions in Sweden are strong; 9 out of 10 people have an employment that is embraced with a collective labour agreement (Fryskog 2016). Of interest for the context of this paper is: the company has to negotiate with the union when people are to be laid off. The general procedure is that number of years in the company determines the order in which the employees have to go in case of redundancy, "last in first out". When a person organized in the union is notified, he/she has a time of six months before the notification is effectuated and the person has to leave. When you are laid off, you are entitled to unemployment support for a year. This period of time can be extended by specific issues, e.g., education, but on a general basis it is a year.

For this case study, is crucial to mention the location of the company, which is in a sparsely populated region, i.e. northern part of Sweden (which actually consists of 2/3 of the total land in Sweden but few people). In this particular region, there are large distances between towns and villages. Another way to express this circumstance is by using population density, which in this region is 4,9 people per square kilometre, translated into square mile (British) it is 1,9 people (Regionfakta, 2018).

Resource-Based Theory

This study relies on the Resource-Based Theory (RBT) (Teece, 2007) as a framework in order to understand how a company acts during a recession in order to preserve its competitiveness--competitive advantage. Taking a departure in the work of Barney (1991), the RBT has developed to be an advanced theory which conceptualizes organizations' competitive advantage. Of course, the RBT can be traced to have its roots in earlier work for example Penrose (1959) but for the use of the theory in the context of this paper it is appropriate to relate to Barney (1991). In this work of Barney, the concept of competitive advantage is clearly identified and related to the resources in the company (cf. Bostrom et al 2003).

The roots of RBT comes from the characteristics of the resources which the firm has access to; the resources must be valuable, rare, imperfectly to imitate, exploited by the organization (usually summarized in the acronym: VRIO). VRIO is the framework which RBT uses for evaluating the potential sustainable competitive advantage (Barney, 1991, 2012). In their review of RBT Corte et al (2017) suggest five different areas in which the contemporary literature in RBT would have a benefit of focusing on and this paper addresses the fifth domain: application of RBT on managerial issues. In the case study dealt with in this paper the focus will be on the managerial issue of managing the workforce in a situation of crisis and using this setting to develop a significant improved competitiveness within the company.

METHOD

This case study builds on two in-depth interviews with the former CEO of a manufacturing SME. The interviews were digitally recorded and notes were taken during the interview. The content was summarized and significant quotes were transcribed verbatim (cf. Kvale 2014). The interview was subject to thematic narrative analysis (Riesman 2008; see also Czarniawska 1998; Boye 2001) in order to investigate how the CEO made sense of the company's recent history, including the recession, and managing for competitiveness and overcoming the crisis.

Narrating is a social practice taking place in a cultural and ideological space. Narrative as a genre tends to order and simplify complex and often ambiguous processes--e.g. of organizing--by turning it into sequences of episodes and applying causal relations and explanations (see e.g. Riesman, 2008; Rantakari & Vaara, 2017, Schulz & Steyaert 2014). A plotline using well-defined "complications" and "solutions" enhances the listener's curiosity and engagement, and creates effectful epiphanies or turning points. In the COE's narrative, the crisis consisted of a dramatic downturn in the economy and a threat of bankruptcy. The narrator then processed to tell how the crisis was dealt with, overcome, and how it all ended in success.

Of interest were not only the economic, abut also legal, organisational, cultural and moral issues expressed or implied in the interview. How were the disruptions and the strategies for managing and the recurrent achievements conceptualized, presented and evaluated? We examined e.g. how the questions of...