By Dr.Mitul Mehta

[ Article done for Electronic Business Europe - OCTOBER 2001 http://www.eb-mag.com ]

Lessons in getting out of a slump

In the last issue of ELECTRONIC BUSINESS EUROPE, I highlighted the self-induced recession Europe was talking itself into and why the technology companies are in so much trouble. Here, I will concentrate on the lessons European companies should learn from it all.

Have good measurement systems in place:

When early in the year Cisco announced that the market was going to slow down drastically, it also took severe remedial action. The company had five bad days in December and rather than thinking this was a fluke, it got bothered. The alarm bells started ringing and analysis and questions followed, both internally and to its clients. The CEO, John Chambers, talked to companies like GE and then saw what was coming. This gave Cisco time to prepare and react to the coming slowdown well before its rivals did. This was the time when Nortel and Marconi executives were saying things were ‘fine’. Through no fault of their own, and like with most companies, their systems were not designed to show these events until a lag time has passed, thus the slowdown wasn’t picked up until the end of the quarter.

So, the important lesson for European companies is to design and have measurement systems and processes in place that are almost real-time. They need to be reliable, so that firms can have confidence in them to react to whatever trends they might show, and they’ll need to be followed diligently. Clients will need to get involved too – to become partners and to act as weather wanes. This is quite commonly understood but still never managed to a satisfactory level.

Work with your customers and rivals:

And as industry utilities begin to spring up, we are reminded of the importance of ‘co-sourcing’ projects, where rivals have to start collaborating to generate commercial returns and design new processes of mutual benefits. This means outsourcing to another company some of the most important internal processes. Europe has to learn how to maximise returns from these new utilities but also generate new external revenue streams (and savings) as more partners/rivals get involved. The best technology companies seem to be on their way to heavy restructuring, already. Cisco has announced it is moving towards a centralised engineering and marketing organisation, similar to the so-called ‘front-back’ model. Hewlett Packard is also in transition, moving away from decentralisation to coordinated technology - product back-end and a front-end focused on the customer, with a single message from sales and marketing. These new structures are more in tune with changing customer requirements. It has taken time for most companies to see the benefits of this set-up but IBM has shown the way it could work well.

Europe needs to rapidly migrate along this evolving path as technology sales become more complex and global management becomes a key issue. Service and solutions need to lead the sale.

Manage your cash well:

With venture capitalists in a crisis and talking about a ‘blood bath’, huge capital cannibalisation and going under, this is the worst time to be in heavy debt. But even in this disastrous economic climate, Cisco is sitting on a huge pile of cash. This means it can leverage it to get extremely good bargains, but more to the point, it does not have to go out with a ‘begging bowl’, being at the mercy of the lenders. Thus good cash management is a key.

Control greed:

Greed will need to be controlled too, starting with executive pay, which seems to hold no bound. Mere greed seems to have taken over with boardroom pay, having no correlation to results and performance. Old boys’ networks seem abound, with executives sitting on each other’s boards and benefiting from all concerns. How can one justify a $15 million bonus to a telecom CEO, on the basis that no other person can do the job as well? It is ridiculous that the top quarter of CEOs have rises of over 37% whilst a vast number of the workforce is getting fired.

Keep on top of R&D and IP:

Does anyone in Europe talk about nanochips? Yes - the universities do, but so do HP, IBM and Cisco. Isn’t it time European companies got their act together and were able to transfer their research into marketable products too? They also need to think about intellectual property. It is about time Europe addressed this issue and started utilising and leveraging its IP.

Dr Mitul Mehta is managing director of business transformation and strategic direction consultancy firm TekPlus Limited. He can be reached at mitul@tekplus.com

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