Scanning today’s news, you’re likely to hear analysts, economists, historians, reporters and others calling the current economic times the “Great Recession.” It’s a term that also cropped up during recessions in the 1970s, 1980s and 1990s and is obviously referring to the Great Depression.
Relating events from past to present have long been used to analyze results and predict the future. The same rule applies to modern companies; the Great Depression provides a useful framework for us to act on today.
For example, during the Roaring Twenties, the decade leading up to the Great Depression, businesses overextended themselves with irresponsible lending and excessive spending. The era was characterized by rampant consumerism, technological breakthroughs and loose social values. On Wall Street investors believed that markets could sustain high levels indefinitely, but they suddenly collapsed like a house of cards. The financial crash of 1929 triggered a wave of business failures, starting with reputable financial institutions and spreading to all sectors of the economy.
Beyond the few recession-resistant niches, all other industries saw major losses during the three years following the market crash of 1929. The only companies that grew were those that capitalized on the shifting trends. To little credit of their own, certain industries were simply recession-proof. During the hardest times people continued to consume food, use cosmetics and spend on entertainment. Unable to indulge in more expensive luxuries, consumers turned to simpler, still affordable pleasures that provided temporary relief from reality.
The widespread loss of consumer confidence and capital contraction gripped most of the world for a decade. However, not everyone remained on the slumps for the entire span of the depression. After markets hit bottom, some companies, regardless of their industry, began to grow quickly, even exponentially. By increasing efficiency, investing in technology and redefining employee relationships, among other strategies, not only did some companies recover, they thrived.
Navigating a Downturn
The companies that eventually prospered increased efficiency in a way that made them stronger. The most successful firms didn’t just cut costs—they became efficient innovators by investing in technology, redefining worker relationships, engaging entrepreneurial drive, restoring customer confidence, and strengthening core operations. Their counterparts, however, were progressively weakened by continual cost reduction.
Investing in Technology
Despite largely reduced budgets, some companies continued to invest in technology leading to breakthrough discoveries and profits.
For example, after years of research, DuPont’s discovery of nylon, the first synthetic fiber, led to innovations in clothing and hundreds of applications ranging from parachutes to tires. The plastic age exploded as entrepreneurs found a variety of commercial applications for fiberglass. Commercial airlines made air travel more affordable to the traveling public. Discoveries in construction methods triggered a competition for the tallest skyscrapers. As technology advanced, entirely new industries flourished.
Redefining Worker Relationships
In the first three years during the Great Depression, unemployment peaked at 25 percent. Rising labor tensions redefined employee/employer relationships. In some cases, labor unrest and unemployment pressures exploded into violent clashes. The cost and negative publicity of worker strikes ultimately forced management into painful settlements with organized labor, and the formation of powerful unions.
Seeing the dire consequences of unrest, and moved by an inner sense of loyalty to their workers, some employers refused to lay off workers, resorting instead to flexible work agreements. Notable cases include Armco Steel Company, Johnson & Johnson and Eli Lilly. Leaders at these companies engaged their employees in cost-saving activities, resulting in sustainable operational efficiency and voluntary payroll reductions. Those who kept their jobs saw their income drop by as much as one-third.
Some companies reduced working hours. This approach paid off when their committed workforces became a competitive advantage during the recovery.
Engaging Entrepreneurial Drive
Some businesses and individuals reinvented themselves in order to forge a new future.
Margaret F. Rudkin, the wife of a once successful New York City stockbroker, was accustomed to a life of affluence in high society. But after the stock market crash and her husband’s polo accident, she was forced to sell most of her family’s assets. However, she emerged from the crisis as a dynamic and resourceful female entrepreneur. After a few failed startups, Rudkin turned an almost forgotten childhood hobby and her money-losing estate into her road to recovery.
Her talent for baking high quality bread became the basis for the successful Pepperidge Farms. “I never saw a cookbook in my house, and I never saw my grandmother or my mother write anything down. So my recipes came out of my head—just memories of how things tasted and looked,” she says in The Margaret Rudkin Pepperidge Farm Cookbook.
She connected with her expanding clientele by personally vouching in the company’s advertising for the natural ingredients and consistent quality of her products. Within a few years, her local enterprise was selling more than 25,000 loaves of bread per week and expanding into related products.
Restoring Customer Confidence
In an environment where many businesses were blighted by scandals, confidence in the financial services industry was especially low. It was in this caustic environment that Harold Stanley, one of the youngest partners at the J.P. Morgan & Company, decided at age 42 to start over.
With a handful of executives, Stanley formed Morgan, Stanley & Company. Using his connections in financial circles, Stanley issued more than $1 billion in public offerings and placements in his first year.
At a time when distrust and lack of integrity ran high, Stanley represented unflinching ethics and uncompromising values. He based each transaction on a personal philosophy that business relationships, just like other relationships, should be built on integrity, mutual respect and balance. He built long-term relationships with customers, despite competitive and regulatory practices, to earn trust with his clients. Morgan, Stanley & Company emerged from the 1930s as one of the strongest and most reputable financial houses.
Strengthening Core Operations
The companies that survived the Great Depression had a relentless drive to excel at what they did best. The Pennsylvania Railroad company is a good example of how a large and well-established employer expanded its services through strengthening the core. In 1935, Martin W. Clement headed the world’s largest railway network. It operated thousands of miles of track, employed about 130,000 employees and managed revenues of $350 million. Faced with a decline in business, Clement decided to undertake a vast expansion and renovation.
Clement took advantage of easily available labor and low-cost supplies, invested in light-weight electric locomotives and passenger cars that streamlined operating costs and reduced travel time to major U.S. cities, and drastically reduced the amount of work-related injuries with enhanced safety standards. Rail cars were also refurbished, providing the largest fleet of air-conditioning and comfortable passenger cars, attracting more long-distance travelers. Clement expanded the Pennsylvania Railroad services into a full transportation network able to deliver freight door-to-door from over one thousand train stations. Making skillful use of workers and strategic investments, the company became a symbol of operational efficiency and its revenues rose by 26 percent during the Depression years.
Building Stronger Organizations Now
History repeats itself. We can draw obvious parallels from the past to gain perspective and face our current challenges. Individuals and organizations are emerging from the downturn stronger by applying the principles that helped companies grow during previous uncertain times.
VitalSmarts, for example, a training and development company based in Utah Valley, has grown steadily through the current recession. While the industry in general is still experiencing a severe contraction, it has managed to expand, steadily adding customers, creating jobs and increasing revenues. How is it doing that?
VitalSmarts is focused on building trust with its customers. From sales, to marketing, to training, the company provides positive educational experiences for its clients. It also enhances company value through continuous investment in technology that makes it easier for customers to access, review, buy and apply its award-winning training products. The company’s its workforce is committed to the business, openly participating in important business decisions such as reinvesting due bonuses in order to continue to grow. As the company grows, employees continue to find new and better ways to add value.
Our research suggests that the downturn winners don’t lock their purses, but strategically invest in their future. Rather than wait for the market conditions to turn, they expand into new under-serviced markets. Instead of resorting to layoffs that erode workforce commitment, they build employee loyalty to strengthen long-term capacity. In place of establishing budget restrictions that weaken their competitiveness, they undertake thrifty operational improvements. The wiser approach out of a downturn is to engage everyone in making sustainable changes.
Leading change in uncertain times takes great courage. But challenging times also provide the greatest opportunities for making a difference. The future is determined only by our present actions.
Juan Riboldi is the author of The Path of Ascent: The Five principles for Mastering Change. Additional examples of recent company successes can be found at www.ascent-advisor.com
and in the book The Path of Ascent. Juan welcomes inquiries and can provide relevant case studies for your industry.