September 18, 2012
3 strategies to dominate a scary economy
Here's how smart companies are facing the doomsayers with great ideas and fearless moves.
FORTUNE --Gloom has become a menace. The drumbeat of distressing news -- Europe, the fiscal cliff, China -- is enough to rob anyone of hope. It's a nasty, insidious force that's undermining the native optimism that buoys up businesspeople everywhere.
Resist! The reality is that even in today's uncertain economy, some companies are winning big. Growth and success are always possible if we adapt to the times. Three strategies are helping smart companies dominate.
They manage for value -- not for EPS, Ebitda, gross margin, revenue, cash, or anything else. That sounds obvious, but in difficult times, managers get seduced into value-destroying moves. For example, accounting rules say that R&D and marketing are expenses, so if you cut them -- and they're easy to cut -- reported profit jumps. Who doesn't want higher profits now? But in reality those costs are investments that pay off for years, so cutting them destroys value.
A company that understands that is Qualcomm (QCOM), maker of the chips that power mobile phones. In the recession its profits fell in 2008, then fell sharply in 2009 -- yet the company increased R&D, sometimes substantially, every year through the downturn and beyond. The complaint that mindlessly short-term-obsessed investors punish such behavior just isn't valid; Qualcomm's stock has been surging for more than three years.
Other companies manage for value in other ways. Intel (INTC) launched billions of dollars in new plant construction when its industry was on life support and credit markets were traumatized. Coca-Cola (KO) never let up on brand building. Those companies are thriving.
They keep developing human capital. Every company claims that "people are our most important asset," but few mean it. In tough times most companies slack off on leadership development. Training costs money, and moving high-potential managers into developmental assignments feels like a luxury that can wait for better times. But the best-performing companies know that human capital truly is a business's most valuable asset, the scarcest resource, no matter what kind of business it is. Look at highflying IBM (IBM), No. 1 in our latest ranking of the world's top companies for leadership development. It hasn't even considered cutting back its Corporate Service Corps, which sends teams of promising employees around the world to work with local organizations on local problems. Former CEO Sam Palmisano liked to observe that calling IBM a hardware or software or services company was wrong in each case. "We're a people company," he said. Or consider General Mills (GIS), prospering in the fiercely competitive food industry. Its famously demanding leadership culture hasn't wavered, and the company ranks No. 21 on Glassdoor.com's new list of the 25 companies where it's hardest to get hired.
They get radically customer-centric. Most companies don't even know what that means. They have no idea how much money they make or lose with each customer, and they don't craft genuinely different offers for different customers or customer segments based on those customers' needs. But top-performing companies do.
Amazon (AMZN) is the reigning champ, achieving its long-declared goal of being "Earth's most customer-centric company"; the stock just keeps climbing. In a much different industry, Wells Fargo (WFC) has become America's most valuable bank, with a customer-centric strategy since 2003. Wharton professor Peter Fader notes that "the average Wells Fargo household has over five different bank products, roughly twice the industry average."
These three strategies are a bit contrarian in today's world. Following them demands courage. Fear not. They work. Be brave, adopt them with enthusiasm, march confidently into the gloom, and smile.
This story is from the September 24, 2012 issue of Fortune.