New mindset: for growth during crisis.

• Author: Laurie, Donald L.
• Position: READ FOR CPE CREDIT - Avery Dennison Corp. - Interview

The current economic uncertainty has introduced organizational fear worldwide and inspired deep evaluation of short-term financing. Many chief executive officers and chief financial Officers are focusing on paring expenses, eliminating discretionary programs and planning head-count reductions--actions that are necessary, but inadequate for responding to the global crisis.

Indeed, last year's credit-market freeze caused a radical stock-market decline, cutting the net worth of investors by 30 to 50 percent and triggering the loss of 5 million jobs in the United States alone.

During an earlier crisis, management guru Peter Drucker advised: "In turbulent times, an enterprise has to be managed to withstand sudden blows and avail itself of sudden opportunities."

Survival is necessary but not sufficient. It is only the first task. The larger, more important task is preparing the organization to seize the new opportunities that every crisis reveals. Finding and exploiting these opportunities--more than cost cutting--will separate tomorrow's winners from the losers.

Difficult times require a "curious" chief financial officer--one who looks beyond the obvious for the subtleties others miss. Companies that miss new markets and growth areas that emerge from this crisis will be vulnerable to competitors and new entrants that seize them. To successfully navigate these turbulent waters, financial executives must simultaneously cut costs aggressively and invest adroitly for the future.

Many executives are, for the first time in their careers, experiencing the uncertainties and challenges involved in identifying and building new businesses. They must apply their well-honed operational skills and capabilities to a new set of questions.

Dean Scarbough, the chief executive officer of Avery Dennison Corp., captured many of these sentiments, saying of his firm: "We have always been good at squeezing out costs from our mature businesses--but that won't create shareholder value; only profitable growth will do that."

To assist in the journey, CEOs and CFOs committed to exploiting opportunities that will emerge from the crisis need to consider a few questions.

Looking into the Future

Most tough-minded managers spend little time analyzing future trends and scenarios and relating them to business opportunities. They view this as academic, theoretical, impractical and irrelevant to their immediate problem-solving and decision-making responsibilities. Indeed, because for so many years, the degree of change in most industries has been within a predictable range, such issues haven't been as pressing as they are now.

Today's leaders have grown up in a world of continual, steady expansion. Experience and intuition have been good predictors of the future. But that world is gone forever.

Questions: Three-to-five years from now, will the total profits in your industry be greater or less than now? If less, what are the drivers of this conclusion? What are the implications for your business? How interesting will it be to chase a declining revenue and earnings pool in the years ahead? Will you be a consolidator or be consolidated? Will your business shrink faster than the pack or find opportunities and "unstoppable" trends you can ride into the future and grow?

Consider health care. Everyone has been a patient at some time, and everyone knows transforming this industry will remain a priority in years to come--along with substantial costs for taxpayers.

Questions: Where do you expect the locus of health care's power will be? With large governments in monopolistic or oligopolistic settings or individual patients in a market-driven setting?

Which should a company develop? Individual products, for example, glucose-monitoring devices for diabetics, or solutions to diseases such as diabetes? Which do patients want? Will insurers pay for products or disease solutions? What trends or multiple trends would you bet on as you develop your business strategy. What signals would you monitor? What sensors would you use?

Tackling the unknowable with confidence about the future requires standing in the future and looking back. Executives must venture forward to develop a sense of potential outcomes and determine how to influence and shape that world. They will need clues about what to look for, recognizing and monitoring trends that are important and relevant to their businesses. They will need to view change and understand the implications for the core business and emerging opportunities. They will need to set milestones that show their teams which business polarities are more and less likely to unfold.

Questions: Given these dynamics, which companies in your industry will become "toast?" Which will survive and thrive? And which companies will exploit the opportunities you missed? Hello...