The economic meltdown that started in the United States has spread around the world with pundits advising us to brace for a rough ride in 2009. Consumer confidence in the US is at a 30-year low (see below) and merchants who have come to rely on heavy Christmas season shopping are quaking in the boots. And right behind them are those of us in the supply chain that feeds it all waiting for the next shoe to drop. Oh, and by the way, did I mention the historic US election?
A few weeks ago, making the rounds in Silicon Valley was a viral email linking to a presentation from Sequoia Capital, a leading venture capital firm that called all of its portfolio companies CEO's together one Friday for a "Good Times: Rest in Peace" presentation. Their message: cut costs to the bone and have at least one year of cash on hand to weather the storm.
There's quite a bit of wisdom in this presentation and it should be standard reading material for not only private companies, but public ones as well. I must admit though that I'm a bit surprised that Sequoia CEO's had to be told any of this as its first principles for any post-dot-com era start-up.
So now what? You've cut the fat, eliminated the under-performers, killed the perks, and battened the hatches; what's the plan for Robinson Crusoe to get off this cursed desert island!
Missing in the Sequoia tough love story is a prescription for success. Implicit in the theme is to hunker down and wait for the storm to pass, that when the clouds lift you can pick up where you left off. Wrong. We are going down the rabbit-hole and we don't know what is on the other side. Chances are it won't be the same world we're in now.
I will offer for consideration a prescription consisting of three fundamental parts:
- Acute awareness of your customer's environment
- Extreme agility to shift focus and re-plan
- Flawless execution
Let's take the first one. The reason the economy is suffering is because consumers are suffering. Each link in the supply chain needs to develop insight into the day-day business problems its customer faces. The closer we are to our customers the better we are able to develop products that are valuable for them. Beautifully summing up this idea is a United Airlines commercial from about 20 years ago about a CEO taking action when their best customer fired them.
Second, if there is any "re-engineering" that needs to take place in our industry it's in building an infrastructure and culture of agility within our companies.
My own company, IPextreme, was founded and even named based on some of the agility principles embodied by Extreme Programming. In these competitive times, survival will depend on management's ability to quickly change direction to adapt to new customer needs. Cost cutting for the purpose of reducing expenses is the wrong way to look at the problem of evolving markets. Cost cutting with the aim of a healthier, more effective, more nimble work force is the right mental framework for such decisions. Management should be asking the question "What are the cuts that make us faster?"
Finally, all of the above is moot without excellence in execution. From my point of view, the world economy is splitting into two types of businesses: Low-cost businesses that are driven almost exclusively by cost and value-based businesses which are all about quality and brand. These represent two distinct types of execution.
The first type is well-illustrated by the recent news item that Texas Instruments is exiting the 2/2.5G GSM market to focus on its more profitable 3G segments. It seems Mediatek in Taiwan was putting severe price pressure on these markets and in fact now find itself under the same pressure from a Shanghai-based rival. TI is doing the smart thing by running away from a race to the bottom. The cost game is different from the value game and they know it.
Judy Estrin, former CTO of Cisco, describes in her new book Closing the Innovation Gap, that often lost in the cost cutting measures is essential research which is necessary to replace products moving into the low-cost genre. Loss of such research and associated output of new products can produce a downward spiral that some companies will not survive. Research is an essential part of the execution machine that needs to be a core competency of western companies to create high brand, value-based products.
Research and development must be blended together with a deft understanding of our customer's problems and the ability to execute quickly to create that differentiation from cost-based competitors that will separate the winners and losers as we emerge from the other side of the rabbit hole.
There's a lot on everyone's mind right now and it's easy to get drawn into a negative frame of mind. But we must resist. The decisions we make today, at every level of organization will have an impact on our future. It's easy to think doom and gloom, but more appropriate to stretch our minds a little and imagine doom and boom. See you on the other side.
Warren Savage, President and CEO of IPextreme, is a well-known and published authority in the field of semiconductor intellectual property.
He has a long history of pushing the envelope of design methodology from his work in fault tolerant computing at Tandem Computers in the 1980's and driving reliable design methodologies into commercial practice at Synopsys for its DesignWare IP product in the 1990s. Much of his thinking became embodied in the seminal book on IP reuse, the Reuse Methodology Manual.
Previous columns
(Nov 07) Warren Savage On: Making the Case for Invented Here
(Dec 07) Warren Savage On: Swiss Cheese Solutions
(Jan 08) Warren Savage On: Collaboration Needed for Success
(Feb 08) Warren Savage On: Knowing Your No
(Mar 08) Warren Savage On: The Next Big Thing
(Apr 08) Warren Savage On: Gumming Up the Works?
(May 08) Warren Savage On: Waiting for Godot
(June 08) Warren Savage On: Our Virtual Future
(July 08) Warren Savage On: Being Plugged In
(Aug 08) Warren Savage On: The Dog Days of Summer
(Sep 08) Warren Savage On: Samurais, Sedans, and Semiconductors