What Managers Can Learn From the Experience of Recession

By Ken Makovsky

It's been a tough couple of years for most public relations agencies, and as we're seeing early signs of a thaw in marketing budgets, it's tempting to view the "Great Recession" as a very bad winter that's being forgotten as soon as possible.

Of course, that would be a mistake. Few managers want to relive the storm and stress of recession, especially the impact on employees of salary cuts or layoffs.  But it would also be wrong to ignore that many of the management actions mandated by tough times contain hard but important lessons for managing in a "normal" business climate.  

In this article I want to review these lessons from my 30-year perspective, which encompasses several recessions, as an agency founder and principal. 

Recessions teach us four fundamental management lessons. 

The first is financial.  Cost cutting, always hard and frequently destructive, can provide direct, real-world lessons about operating efficiency—in other words, what resources, in what measure, in what order of priority are truly necessary to meet client expectations. Recession forces managers, through harsh necessity, to push the limits, to experience in ways it normally wouldn't dare what happens if it streamlines, reduces or eliminates this or that procedure, service or policy.

One public relations agency, for example, informed clients with some trepidation that it was streamlining its time-consuming and expensive invoicing and reporting process as a recessionary move, only to discover that clients were perfectly contented with the more focused reporting. A New York agency recommended ending quarterly in-person meetings with a major West Coast client, something mandated in the engagement contract; fearing a hostile reaction it found the client ultimately preferred video conferencing as an alternative.

Jack Welch, the legendary former CEO of General Electric, once famously advised managers to "change before you have to." Not all of us have the foresight or courage to do this. That is why recession can have a silver lining for public relations managers—to force the changes that should have happened anyway and were probably long overdue.

The second recession insight concerns risk management. Recession is like a tremor that reveals structural weaknesses in an agency's business model. For example, is the revenue mix overly dependent on a particular client or industry sector? Does the agency need to move into new sectors? Does it need new or different channels for new business development? How does it go about doing this?

My own experience illuminates this point. When Makovsky + Company was founded in 1979, I wanted to specialize the agency because I saw this as a way for a young, unknown firm to build a market niche. But the early 80s was a time of a challenging economy, and I saw first hand the risks of building the firm on a narrow base. Working with consultants, I hammered out an answer: a multi-specialized approach focused on counter-cyclical industries, so that weakness in one sector could be buoyed by strength in another. 

One of the key lessons for me is that this vision must be constantly revisited and renewed. We emerged from the dot.com bust, which devastated our flagship technology practice, with a commitment to build our health care business. In the current recession, our financial services practice was slightly affected, but we were compensated by the decision made in 2007 to launch a branding and interactive media specialty, where demand remained solid. 

The third lesson is cultural. It could be argued that management values are meaningless until they are tested by adversity. Walking the talk is never more inspiring, impactful and important than during hard times - and the recovery that follows. On the other hand, if during hard times management has acted (or continues to act) in ways that betray the agency's employee credo or its own strategic vision, the damage can be multi-dimensional. It can undermine its reputation in the marketplace and affect employee morale, and more fundamentally, damage its own return to growth.

Probably no company today is more closely identified today with innovation than Apple. But it is worth remembering that throughout the 1990s Apple was a company in deep trouble. One of Steve Jobs' great achievements, when he took over in the darkest hour in 1997, was to refocus Apple on its founding values. He famously told employees in words that resonate today, "the cure for Apple is not cost-cutting, but to get busy on the next great thing"—which, of course, turned out to be the products that transformed the company: iPod, iPhone and iPad.

At our own firm, we have worked hard throughout the recession to adhere to our employee values of collaboration and education. We not only maintained our educational program, MAK University, as well as popular employee programs like tuition reimbursement and our "We Achieve" peer recognition program, but we enhanced our offerings by developing a new advanced training program for the firm's rising stars, launching our "Young Leadership" award, which rewarded our junior staff for best original thinking for current clients, and charging our employee lifestyle committee to develop "Makovsky Happy Hours."   

Remember this: Companies that stay true to their values in hard times typically carry a lot less baggage when economic conditions improve and the agency needs to be mobilized for growth.

Finally, recessions remind us of a fourth lesson: management's all-the-time leadership imperatives. BusinessWeek recently quoted Frank Jaehnert, the CEO of a mid-sized manufacturing company hit hard by the recession. Jaehnert related that, "You cannot motivate your employees if all you talk about and do is reduce costs and close facilities. You have to provide a vision for the future and demonstrate it with investments. That way, you shift the focus and the minds of employees from doom and gloom to how great the company will be."

It's an important observation. In fact, my experience is that many managers recognize this; they tend to snap into crisis mode when times are tough and work to point the way forward.  But this orientation changes for most managers once the fire bells stop ringing. The best managers at all levels of the agency inspire all the time, regardless of the times.

Clearly, nobody wants to re-experience recession. But as with many of life's unpleasant episodes, it is here where valuable seeds of learning lay. Managers would be wise to pause and reflect here before moving on to what are hopefully better times ahead.

Ken Makovsky is founder, president and CEO of Makovsky + Company, the New York-based PR agency. He can be reached at kmakovsky@makovsky.com, and read his blog, "My Three Cents."

March 16, 2010