Strategy in the bad times

Yahoo Job Cuts: Dan Loeb Remains Unsatisfied – Deal Journal – WSJ: “Yahoo Job Cuts: Dan Loeb Remains Unsatisfied”

When times get tough, coherent, long-term strategy often goes right out the window. Instead of thinking through a comprehensive plan and using it to guide tactical decisions, panicky managers start slashing staff, capital projects and resource outlays helter-skelter. Morale fails, the best employees jump ship, core assets and capabilities languish or are sold outright. And thus begins the death spiral. A comprehensive, coherent plan not only guides reallocation of resources and cost reduction activities, but it also provides reassurance to the employees, suppliers, customers and investors you want to keep.

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One Comment on “Strategy in the bad times”

  1. stevepostrel says:

    Yep, organizational “thrashing around” is rarely a good idea. That applies not only to cuts, but to all sorts of initiatives launched in panicked circumstances. That said, I can imagine scenarios where ready-fire-aim might be the least-bad alternative.

    Loosely speaking, I can think of three plausible “cutting” possibilities for a struggling firm:

    1. Delay cuts until a good plan can be developed.
    2. Immediate random cuts to non-revenue-generating activities.
    3. Immediate cuts according to a snap-judgment or pre-existing theory.

    Surprisingly, it’s hard to unconditionally rank-order these on a priori grounds. #1 sounds better than #2–unless the delay is big and the firm has enough waste that random cuts are likely to be a good idea. #3 could be the best or the worst of all, depending on the quality of the theory employed.

    John Stopford and Dick Rumelt (I think) pointed out that one tried-and-true turnaround approach in large organizations is to decentralize into highly independent profit centers that can than be incentivized and evaluated while clearing the decks of expensive coordinating overheads. In effect, you forget about synergies for a time and force each unit to clean up its act as best it can while economizing on corporate-level oversight. That allows healthy businesses to reveal themselves while reducing waste, and allows loser businesses to be divested or liquidated. Once the crisis is over, the cycle of searching for synergies can begin again.


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