In “Roaring Out of Recession” (Harvard Business Review, March 2010), Gulati et al. discussed that despite mixed feelings that either we are coming out of the recession, or we need to be prepared for a “double dip recession”, that the current crises marks an inflection point: “The world after it is unlikely to resemble the one before it.” Leaders need to remake their organizations to cope with the “new normal”.
I thought of this “new normal” as Peter Kaprielyan, Vice President of Organizational Improvement and Philanthropy, took me on a tour of Underwood-Memorial Hospital (NJ). I saw cross-functional employee teams sticking post-it notes on fishbone diagrams, discussing processes, and coming up with new more efficient ways of improving care. There was a high level of energy, as employees were not focused solely on cutting costs, but on improving processes using a combination of Lean, Six Sigma, and “Theory of Constraints” to create efficiencies, eliminate waste, and remove limiting factors.
Peter then walked me through the renovated Emergency Department. I saw how Underwood increased the ED footprint, access points, and available rooms. The goal was to expand resources to allow more patients to come in through the ED…to improve patient throughput, and to create satisfied patients in a very competitive market. Peter shared with me satisfaction scores that increased significantly in the facility.
Gulati reviewed companies responses to prior recessions based on the moves that they made. In terms of promotion-focused moves, companies could engage in “market development” and/or “asset investment”. In terms of prevention focused moves, they could reduce their employee head count, and/or engage in operational efficiency.
Underwood’s response would be categorized as one of hybrid approaches that Gulati saw as most efficient. In Gulati’s analysis, the companies that performed the best focused on operational efficiency (as a prevention-focused strategy), and market development and asset investment as promotion focused moves. Following a recession, Gulati saw companies that approached their market this way as having a 13% CAGR for sales and 12.2% for EBITDA over a three year period following the recession. For comparison, companies that focused more on employee reduction (and not operational efficiency), with both market development and asset investment saw sales increase only 3.3% and EBITDA drop 5.2% over the same three year post-recession period.
Gulati simply explains that companies that respond to a slow down by reexamining aspects of their business model are poised to have their profits grow faster than those of competitors when demand returns. From my view, Underwood looks poised to be prepared for the “new normal.”
