Challenges are Opportunities

My second conclusion is that growth of revenues and profits in business are the result of a process, a process that can be learned and applied by any company. High performance is not merely a question of being in the right business in the right place at the right time. Luck may appear to be the cause of a short-term bonanza, but it cannot explain the sustained success of businesses that continue to grow and prosper year after year, decade after decade, in the face of wildly fluctuating business cycles and the constant threat of technological obsolescence. Bata, Coke, Delta, IBM, Marriot and Sears continued to grow and prosper right through the Great Depression. Amazon, Apple, Facebook, Google and many other companies took the 2008 financial crisis in stride. So did Walmart, General Electric Company, AT&T, HP, Toyota Motor, and Samsung.

During periods of economic boom, why is it that not all companies prosper? During periods of economic decline, why is it that some firms struggle or fail while others are able to thrive and grow? Some are able to leverage the difficult times as a sling shot or lever to bolster their performance.  Companies that succeed in both good times and bad are those with at least an intuitive semi-conscious knowledge of the process. The best of them know the secret of converting severe business challenges into unparalleled opportunities.

In 1922 Weimar Germany was in the midst of hyperinflation. Neighboring countries such as Czechoslovakia, which depended heavily on the German market, were in deep recession. Exports were down by 25% and unemployment soared. The association of Czech manufacturers convened an emergency meeting to evolve a national plan for business survival. A prominent group of business leaders presented a long list of pressing demands on government to cut taxes, provide cheap loans and raise import duties to protect domestic industry.  The government pleaded its inability to comply due to its own severe economic constraints. The meeting was at a standstill until the owner of a medium-sized shoe manufacturing company stood up and announced to a skeptical audience that he intended to take matters into his own hands, rather than depend on government for the survival of his business. He went back to his factory, announced a drastic cut in the price of shoes, cut salaries but guaranteed that no workers would be fired and introduced attractive incentives for higher performance. Within a month, his company’s sales skyrocketed and his factory was in full production. Over the next five years, employment in Bata factories more than doubled, production multiplied 15-fold. By 1932 the retail price of Bata shoes had fallen 82 percent, while wages in Bata factories rose by 200 percent. By 1928 the company had been transformed into the largest shoe company in the world.