Matching the Right People to the Right Jobs

Your workforce's skills change over time, and so does your business. Getting the right people into the right jobs is key to your company's growth

by Amy Barrett

Who's on the bus? To management guru and best-selling author Jim Collins, this is the most important question business owners need to ask themselves. The bus is your company, and getting the right people is crucial to success—more important, even, than your strategy.

So how would you answer? And what do you do if you've got the wrong people on the bus? Or the right people doing the wrong things? Kevin Rees, president of New York-based translation company LanguageWorks, had a great team on his bus—until he didn't. Rees started LanguageWorks in 1993 by hiring friends and acquaintances. "I was looking for anyone I could entice to stick with me," he says. "I was a first-time entrepreneur, had little in the way of credentials, and I was undercapitalized." But as LanguageWorks was growing into a $10 million, 45-person company, Rees worried his staff didn't have the management abilities he was looking for. Between 2001 and 2006, six people from the company's early days were let go or left. Those departures ended a few friendships. Says Rees: "It was incredibly traumatic."

There are a host of reasons a once-solid—or even star—employee may no longer be right for your company. A topflight salesperson who gets promoted to be head of sales might be a lousy manager. A jack-of-all-trades could get restless if asked to focus on one area. And employees who thrive in a startup environment may chafe when asked to follow the rules and procedures of a larger company.

However much you may dread doing so, these issues need to be tackled head on. Cornell University associate professor Christopher Collins, in a study with Bradenton (Fla.)-based human resources firm Gevity, found that managing employees is one of the top three things that keep business owners awake at night. And he says that while many entrepreneurs are visionaries or innovators, they can feel challenged managing talent.

Where Rees ended up—without a big chunk of his startup team—isn't always the best answer. You owe it to your company and your staff to try to find out exactly why a certain employee may not be up to par. Then you've got to decide how much you really want to keep the person and see if his performance problems can be fixed. You may be surprised by how willing employees are to work with you, and how open they'll be about which tasks suit them and which do not. Here are five strategies to get the right people into the right jobs.
TALK IT OUT

When Vickie Pullins and Jackie Frazier founded their Hurricane (W. Va.)-based speech pathology company, LinguaCare Associates, in 1990, they were confident they could work well together. They'd been friends since meeting in college almost 20 years earlier. But as the company grew, they started to feel overwhelmed. It wasn't until 2006 that they brought in S.K. Miller, a coach with Margate (N.J.)-based Collaborative Strategies, for some outside perspective.

Miller asked the partners four questions: What are you good at? What are you not good at? What do you love about your job? What do you really dislike about it? Soon Pullins and Frazier had hired an administrative assistant to pick up the paperwork that was weighing them down. Pullins now focuses on long-term strategy, while Frazier handles the bulk of the personnel and management issues. The two became so much more productive that they decided to extend the analysis to all the employees at their $1.3 million company. With a shortage of speech pathologists nationwide, particularly in West Virginia, Pullins says LinguaCare can ill afford to let a qualified person leave or to allow anyone in the company to be underemployed.

The results of those four simple questions were just as eye-opening the second time around. Kristy Stowers, who was working for LinguaCare in a rehabilitation center, had been consistently unable to hit her target of five hours of patient work a day. After the evaluation, Pullins and Frazier discovered that Stowers was up against some internal problems at that particular rehab center, including too few patients. Yet Stowers thought she had strong organizational skills and an ability to manage big projects.

So when Stowers moved on to the next contract, with a large medical center, Pullins and Frazier had her manage two other workers. Stowers has thrived, even initiating some new screening protocols. "She has become somewhat of a visionary leader," Pullins says. "We are so surprised." Stowers is pleased, too. "This facility is more fast-paced," she says. "I'm always busy and I feel more productive." Pullins says the company now plans to reevaluate the 18-person staff on a regular basis: "We need to ask every couple of years whether we are tapping into our people's gifts and interests."
BRING IN A PRO

Pullins and Frazier did fine by chatting with their employees themselves. But sometimes it takes a third party to lead these conversations, especially if you suspect workers will be reluctant to discuss their own or others' shortcomings with the boss.

Dan Kopman knew he needed help. Kopman is the co-founder and chief executive officer of Saint Louis Brewery in Missouri, which runs two breweries and two restaurants with 90 full-time and 60 part-time workers. Saint Louis' revenues have more than doubled since 2003, to about $8.5 million. But it has also had some growing pains. For about a year, the six workers at the main brewing operation had been complaining about frequent last-minute schedule changes, and some clients were confused about how much lead time was needed for orders. Things were running "fine when we were producing 10,000 barrels a year," says Kopman. But as the company hit the 20,000-barrel mark, "we needed to be more organized."

Part of the problem was that the head of brewery operations, Jim "Otto" Ottolini, had too much to do. "Otto has a degree in French literature, so he's the natural person to be head of engineering," jokes Kopman. But after joining the company in 1992, Ottolini learned quickly, overseeing the construction of the new brewing facility from 2001 to 2003, managing it once it came online and taking a course at the University of Wisconsin at Madison to improve his technical knowledge of beermaking. Kopman had been trying to get Ottolini to delegate more effectively for two years, but it hadn't happened. And Kopman didn't want to install another layer of management.

Last fall, Kopman asked Marvis Meyers, vice-president of training at the nonprofit AAIM Management Assn., of which Kopman is a member, for help. Meyers spent a few days interviewing the brewery employees, including Ottolini. "She allowed people to speak their minds and they felt comfortable talking to her in part because she was from the outside," says Kopman. During those conversations, everyone agreed that Ottolini needed to delegate more, and, unlike Kopman, none of the brewery staff had a problem with establishing another layer of management. They said they wouldn't mind if some from their ranks were promoted to assist Ottolini. Says Ottolini: "Dan involved me in this process. I was a partner in figuring out [what had to change]. I didn't feel like I was being scrutinized, but that our process was being scrutinized."

So Kopman created two new positions, both reporting to Ottolini. One person oversees production planning; the other manages packaging. The brewery team was unanimous in choosing who should be promoted to those jobs. "We didn't want to break up the cohesiveness of the group by creating some rigid structure," Kopman says. "But we found the change didn't bother the group the way we thought it would." And while there are still issues that need to be worked out, Kopman says, "We are producing and shipping more beer with fewer mistakes. I see light at the end of the tunnel."
TAKE A TEST

When an employee issue stems from a clash in work styles, personality tests can help bridge the gap. Rees of LanguageWorks realized early in 2007 that while his right-hand manager, vice-president Christine Muller, was extremely talented, her work performance wasn't all that he wanted. Rees arranged for the two to take an assessment called the Predictive Index. He and Muller spent about 15 minutes taking the test online. They each went through a long list of adjectives—descriptors such as "dynamic," "demanding," and "persevering"—and checked off those that applied to them. A consultant then helped interpret the results. The test showed that Rees often makes decisions even with incomplete information, and that he's perfectly comfortable doing so. Muller, on the other hand, wants clear and concrete directions before acting. That knowledge makes Rees a better manager and Muller a better co-worker. Rees says he gives Muller clearer direction, and that her work is much better and her morale higher as a result. For her part, Muller says, "The way we work together is much more natural. I can read him much better now."
BE A MENTOR

Sometimes it's not the company that changes—it's the industry. Such was the case when Leon "Chip" Marrano III took over the $50 million, 27-person Marson Contracting in Bronx, N.Y., from his father.

Marrano says general contractors such as his used to control all aspects of a job, including the hiring of subcontractors. Now many developers prefer to pay construction firms a straight management fee, then collaborate on everything from design to subcontractor selection. Financial information, once closely guarded by the construction company, is now shared openly with developers. But Marson's chief estimator, Anthony Bochichio, had been with the company since 1960 and was well-schooled in the old ways of doing things, including keeping financial information confidential.

Marrano took advantage of the good relationship he'd built with Bochichio. He let him know that everyone had to change how they operated, and he made it clear he valued Bochichio's experience and wanted him to stay with the company. Then Marrano began bringing Bochichio to preconstruction meetings with architects and developers to familiarize him with the new rules of the game. Together, Marrano and Bochichio would contribute their suggestions for bringing costs down without sacrificing quality. It's worked: Marrano says Bochichio has been "great at adapting." Bochichio says he always had a good relationship with Marrano, but that "things are even better now and more open between us." And Marson found that clients really appreciated Bochichio's expertise, so Bochichio is now a regular participant in preconstruction planning.
MAKE A TOUGH CALL

Coaching isn't always as successful as it was for Marson. In such cases, business owners face some tough decisions.

Kenny Sayes, owner of Sayes Office Supplies, based in Alexandria, La., didn't realize he had issues with any of his employees until clients started to complain. Some of his customers were putting in requests for photocopier repairs but were not getting responses. When Sayes looked more closely at his copier operation, he saw weak cash flow. He soon found that some bills weren't being put through, which was Daniel Littleton's responsibility.

In 2007, after sales at Sayes' 34-person, $7 million company jumped 25%, Sayes had promoted Littleton. Littleton had been hired to link customers' copiers to their computer equipment; now he would also be dispatching other technicians and handling invoicing. When clients began to complain, Sayes asked Littleton to keep a notebook recording exactly what he had to do each day, what he got done, and what was still outstanding.

Sayes checked the notebook every few days and sat down with Littleton and other employees when there were problems. Within a month it became clear Littleton was not following through on some required tasks. "It was like baby-sitting," Sayes recalls of the fact-finding. "But I had to do it."

Sayes says he worked closely with Littleton to improve his performance and made it clear the bills needed to be up to date in two weeks. Littleton says he told Sayes repeatedly that he was overworked. And he says some of his time was still taken up going out on service calls. Littleton says: "There were not enough hours in the day for a single person to do what he wanted." Sayes says Littleton was going out on just a few calls and that the workload was not excessive.

A month went by, and the backlog remained. Eventually Sayes demoted Littleton back to his original position. Littleton quit shortly thereafter and says his replacement doesn't have as many job responsibilities as he did, a claim Sayes disputes. But things are now running smoothly. "She knows the job better than I do," Littleton says of the new hire. A sure sign that he matched the right person to the right job.

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Implementing Innovation in New Ventures

By Roy Serpa

At the conclusion of the CE Roundtable, ”Building a Better Innovation Model Roundtable” summarized by Jennifer Pellet (March 2008) she posed a crucial and provocative question to the participants: "So how can companies connect people and their ideas with processes that will vet, refine, and develop these ideas effectively." An even more profound question for chief executives is how to move the ideas to successful new ventures. Moving these ideas to profitable business ventures confront many challenges within large corporations.

The frequently occurring challenges to innovation and new ventures in large corporations are:

1. the lack of vision at the executive level
2. the initial magnitude of the opportunity
3. the internal competition
4. the availability of resources
5. the isolation of the innovative function.

These impediments have been experienced in three large global corporations and observed in several others over the past three decades. They are typical of the obstacles that exist but are not insurmountable. The following are actual examples of such situations and strategies that can be employed to deal with them successfully.

The Lack of Vision

Many senior executives lack the vision of future opportunities from the convergence of new and existing technologies along with emerging market trends. Unfortunately due to their hubris they are not receptive to the vision of creative and insightful subordinates who yearn to contribute to the growth of their firms.

I recall a flight with the top executives of a Fortune 500 company who were returning to their corporate headquarters from their semi-annual visit to their research facility to review the current research projects. During this flight they questioned the direction of the research and its potential value to the growth of their business. It was perplexing since they never raised these questions during the day long meeting with the research director and his research team. It occurred to me that these executives were reluctant to approach these issues during the meeting with the research team because they were not prepared to provide the guidance and advice that would necessarily be expected to follow.

Another example of how this lack of vision can occur was demonstrated during the evolution of the one quart plastic oil container which became ubiquitous in the late 1980's. The pioneer of this new package was a major oil company yet it was unable to take economic and strategic advantage of this innovation by the lack of vision of one of its senior executives.

During the 1970s the one quart oil container was constructed of fiberboard which had replaced metal. At that time a team of engineers from the plastic division of the oil company started experimenting with forming the oil container from plastic sheet made of resin that they produced. The resultant container was tested and found acceptable providing that it could be produced using a higher volume production process and filled on the current filling lines in refineries. Two years of design and process development followed resulting in a blow molded plastic container with a wide mouth top that could accommodate the existing filling lines.

The plastics division moved ahead to commercialize the new container. It produced a significant quantity for part of the parent company's requirements and supplied a small number of private label motor oil package. As the business grew it came under the direction of a new business manager and was considered a viable new business venture.

The business manager could foresee the further evolution to an all plastic oil container replacing the standard fiberboard package based upon the plastic container's convenience, recyclability, faster filling speeds and lower cost. As a first mover the venture had the advantages of proven product performance, demonstrated production capability, developed graphics on plastic and an initial distribution capability. The venture offered a profitable revenue stream and the ability to consume substantial quantities of the plastic division's resin. A business plan was prepared to expand the venture and provide significant production and marketing resources. In spite of the attractive financial projections and the proven performance to date a senior executive blocked the project because he did not accept the strong probability that plastic would replace fiberboard. Five years later the plastic motor oil container became the preferred package. This outcome was a clear example of a lack of vision and the reluctance to accept guidance that occurs all too often among executives of large firms.

The Initial Magnitude of the Opportunity

It is unlikely that a new venture will result in hundreds of millions of dollars of revenue in the initial five years of operation. Due to this fact senior executives perceive little impact on the firm's financial performance and thus tend to display little interest and support for such activities.

At the outset new innovation opportunities for revenue and profit seem miniscule when compared to the existing businesses of billion dollar corporations. All too often large corporations seek the elephants that may offer immediate sizeable revenues and profit through acquisition strategies. They lack the foresight to realize that the lion cub can become part of a pride of kings of the jungle.

If DuPont executives had it to do over again would they have sponsored Bill Gore in his new venture rather than have him leave to start W.L. Gore on his own? He left DuPont in 1958 started a business in his garage and created a company recently estimated to have billions of dollars of revenue and to extremely extremely profitable.

The Internal Competition

In spite of all that has been written in the past decade about the need for teamwork especially at the executive level many senior divisional and functional executives continue to compete internally. This internecine competition can serve as a serious challenge to new innovations when either marketing executives sense a potential threat to their position at a major customer or research executives resent the licensing or acquisition of emerging technology. So often marketing focuses on existing business and its potential loss rather than how a new innovation can bring synergies to their existing customer relationships. Research executives on the other hand may try to convince senior executives that they are capable of developing better technology than can be acquired externally.

An example of this internal competitive challenge from marketing occurred when a major supplier prepared to enter a rapidly growing and extremely profitable market served by a large customer. The marketing executive convinced senior management that such a move would result in the loss of their supply position. Based upon this perceived threat the new venture was aborted. Shortly after, this supplier's major competitor entered this market directly and due to their strategic position and size continued to supply the customer. More than two decades later the aforementioned supplier entered the market by acquisition and became a minor factor in this now exploited downstream market. More recently the major competitor acquired the major distribution outlets for the business.

An example of this challenge from research concerned a new venture that was blocked by a research executive in an emerging area of technology. The corporation in this case was a major supplier to the food packaging area. For several years the research department had tried unsuccessfully to develop new technology that would produce a revolutionary new product to add to the firm's line. A Japanese company became successful in this area of technology and was searching for a joint venture partner to exploit it in the United States. This opportunity appeared to provide an excellent strategic fit for the above mentioned companies. During the period of preparation for launching the joint venture it was terminated when the research executive convinced the senior executive that they were on the verge of completing the development of a more economical technological approach to producing the product. The Japanese company found another partner, moved ahead with the venture and built a large extremely profitable proprietary business. The original potential partner stopped their research two years later due to the lack of progress and never pursued that area of technology again.

The Availability of Resources

In many large firms the availability of funding is the least of the resource challenges to the new innovative activity at the outset. The greatest challenge in this area is the availability of talented, entrepreneurial personnel with a balance of technical and commercial knowledge and experience. These same individuals are much sought after by the established departments and divisions in spite of their interest in pursuing their intrapreneurial desires.

I recall a young, extremely capable individual who was anxious to leave an existing departmental function to join the new venture department but was held back by the functional department head because this individual was extremely talented. It was not until he had resigned and accepted a position in another firm that the department head allowed him to be considered for the new venture function the day before he was scheduled to leave. Fortunately, he reconsidered and remained with the large firm in the new venture department.

Often those assigned to the new venture effort are past their prime and have lost their entrepreneurial enthusiasm and are caste off from the existing businesses. At the same time there is a reluctance to recruit leaders for new ventures externally since they may not fit the caretaker cultures that exist in many firms. In addition, their aggressive leadership style may pose a threat to the existing executive group.

The Isolation of the Function

There have been many proponents of the need to isolate a new venture function in order to avoid the interference and cost that a large corporate bureaucracy can impose upon it. This isolation can be political suicide since it allows a definite lack of understanding, interest and support from the existing corporate function of executives. It can result in the latter influencing senior executives to question the value of the new ventures and lose patience with the slow progress that may occur.

One such situation took place when a major corporation formed and funded a highly talented intrapreneurial team that was isolated from the divisions and began to evaluate new business opportunities outside the direct sphere of corporate interest. With no exposure to the existing divisions it was considered by the division executives as a renegade activity that was consuming valuable financial and human resources. The division executives convinced the senior executives that this effort was wasteful and that it should be terminated. They prevailed and the new venture function was disbanded and the personnel were transfered to the divisions.

Overcoming the Challenges

Creating The Vision

Peter Drucker has characterized different kinds of managerial "work" within an organization and among them are:

1. The operating task, which is responsible for producing results from today's business
2. The innovative task, which creates the company's tomorrow and directs, gives vision and sets the course for both today and tomorrow.

The innovative executive performs the innovative task as well as assists top management develop the vision and set the course for tomorrow. To do so he/she must become extremely well informed about market trends of the existing and related technologies to the firm's business. In addition, he/she searches for potential technological and market synergies. With this knowledge guidance and advice can be provided to senior management and to research colleagues as they explore new technology or the modification of existing technology. This guidance and advice will aid in rapidly transferring applicable technology to the market place. As the relationship with the research function develops senior research executives will aid in assisting senior corporate executives create the vision of the company's tomorrow.

Enhancing the Magnitude of the Opportunity

Initially new venture revenue and profit potential may be forecasted to be modest when compared with the firm's current size. It can be enhanced by convincing senior executives that there are related opportunities that can be expected to evolve. The selection of the new venture should allow for the "Corridor Principle" to apply. That is, the new venture should readily lead to other new ventures as entering a new corridor will lead to other corridors and doors of business opportunity. During the past ten years many firms have moved from an initial product position to distribution and then to installation and repair service. The magnitude of the opportunity can grow substantially as the awareness of new corridors become evident.

An example of the Corridor Principal occurred at the Bayer Corp. when a new venture that introduced the returnable plastic milk container led to a larger business in the five gallon water bottle.

Avoiding Internal Competition

Since most internal competition is likely to come from marketing and research, relationships with both of these functions must be developed and nurtured. If the collaboration with research to assist senior management in creating the technological vision is successful a similar outreach effort should be made with senior marketing management. In this case the latter function should be requested to provide guidance and advice on the potential new business opportunities that compete with existing customers but are vulnerable to competitors and those that are in related markets.

An example of how internal competition can be avoided was the entry of a major raw material supplier to the conventional pipe market. This large corporation chose to start a new venture in the specialty pipe segment that had not been pursued by its customers. Later as the specialty pipe business grew the supplier took a major step forward by acquiring the largest remaining non-captive conventional pipe manufacturer. The initial venture laid the foundation for the acquisition.

Accessing Resources

Capable individuals from within and outside large firms are the critical resource needed for successful new ventures. In order to attract them, the visionary executives must build both internal and external networks. Once the vision of the new venture function is developed it must be communicated through the internal network. Experience has shown that promising candidates will come forward as evidenced by the example in the section on the lack of resources. Enlightened functional and divisional managers will encourage prospects to consider new ventures as part of their career path in such a culture. To facilitate this effort the visionary executive must establish linkages to these managers.

To overcome the reluctance to recruit externally requires the careful identification of the need as well as the selection of such individuals. Special technological and/or market knowledge along with entrepreneurial talent are the requisits. On this basis internal candidates and their supporters must be convinced that external recruiting is needed and in the firm's best interests. Here the visionary executive may use an external network as a means of identifying candidates that have special experience and skills for specific new venture projects.

Avoiding Isolation

Several years ago the Boston Consulting Group contended that the improvement in corporate performance is possible in four areas:

1. Within existing divisions
2. Through new divisions created either by acquisition or by in-house research and development
3. By collaborative effort between divisions, and\
4. Through divestment.

It is in areas two and three that the new ventures function can contribute to improved performance, growth and profitability. Two organizational approaches may be taken to avoid isolation while facilitating understanding, communication and even support from existing divisions and functions.

One approach that was the most successful from my experience with both is to establish a subsidiary of the major firm to pursue new ventures. This approach was taken by the Gulf Oil Corp. when it formed Gulf Plastic Fabricated Plastic Products Co. The board of directors of this subsidiary had representatives from an existing division, the legal, research and finance functions and was chaired by the innovation executive. New venture managers were to be added to the board from within and without the parent firm as new ventures proliferated. This structure would allow the existing divisions and departments to have a stake in the new subsidiary, provide guidance and support as well as keep communication flowing to and from their respective areas. This subsidiary had the option to contract for support services from within or from without the parent firm and avoided bureaucratic involvement and cost.

Another approach to avoiding isolation was tried with moderate success by Gulf Oil Chemicals Co. It involved the creation of a new ventures function at headquarters reporting to the President of a large firm. This function was linked to the new venture functions within its divisions and shared the funding of new ventures with the divisional executives. In this arrangement the divisional new venture managers reported to the leader of the innovative function as well as to the divisional executives. Essentially the divisional executives were partners with the head of the headquarters new venture function in building new business opportunities for the divisions while they could concentrate on their existing business activities. This matrix organization although challenging insured that isolation could be avoided.

The Bottom Line

In a Business Week-Boston Consulting Group survey published by the former in 2006 focused on the major obstacles to innovation confronting executives. Of the 1070 surveyed 72% indicated that innovation was one of their top three priorities. Almost half said they were dissatisfied with the returns on their investments in that area.

Chief executives have placed strong emphasis upon creating corporate cultures that encourage innovative ideas however, the struggle to move these ideas to successful new ventures has been inadequately addressed. Although there are many innovative ideas that originate in large corporations these executives must become more knowledgeable of the challenges that confront moving them to successful commercialization that exist within their organizations. These challenges have been clearly identified during the past thirty years and strategies have been developed to overcome them.The commitment to implement these strategies rests with these executives if they intend to have their corporations survive and grow in the global environment of the twenty-first century.

Roy Serpa served as CEO of Permian Research Corp. and EnviroGuard Corp. Earlier in his career he was manager of new business ventures of the Bayer Corp., director of commercial development of Borg-Warner Chemicals and chairman of the Gulf Plastic Fabricated Products Co., a subsidiary of the Gulf Oil. Since retirement he has been a volunteer consultant with the Executive Service Corps of Houston providing free assistance to non profit organizations. He can be reached by e-mail at luzo03@yahoo.com.

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Taking advantage of a downturn

Harvard Management Update 03/01/08
by Sarabjit Singh Baveja, Steve Ellis, Darrell Rigby

Description: Call it a trial by fire, but a recession may in fact be good for your company.

Recessions are famous for breaking companies. But what few people realize is that recessions are in fact more likely to make a company's reputation.

A recent study by Bain & Company found that twice as many companies made the leap from laggards to leaders during the last recession as during surrounding periods of economic calm.

Case in point: Walgreens, the Chicago-based drugstore chain. In the midst of this last recession, the company focused on expanding its lower cost, generic drug business. Earnings and sales for the fourth quarter of 2001 grew by 10.7% compared with the same period in 2000. Not only has Walgreens gained market share on its key competitors, but at a time when many drug retailers face capital constraints and a shortage of pharmacists, it plans to build 475 new stores and two new distribution centers this year.

Walgreens' success is not unique. The Bain study, which analyzed more than 700 firms over a six-year period that included the recession of 1990-1991, offers insight into how companies can take advantage of downturns. But first, you have to understand the strategic impact of a recession.

1 Recessions "shuffle the deck" more than boom times do.
The Bain study found more than a fifth of companies in the bottom quartile in their industries jumped to the top quartile during the last recession. Meanwhile, more than a fifth of all "leadership companies"-those in the top quartile of financial performance in their industry-fell to the bottom quartile. Only half as many companies made such dramatic gains or losses before or after the recession. Arrow Electronics (Melville, N.Y.) offers a striking example of trading places when times are tough. During an industry downturn in the late 1980s, the financially troubled distributor of electronic components and computer products launched a series of audacious but smart acquisitions that allowed it to increase sales by more than 500%, turn operating losses into profits, and seize market leadership from competitor Avnet (Phoenix, Ariz.), which was once twice Arrow's size. During the recent recession, Arrow has been acquiring again and widening its industry lead.

2 Gains or losses show up early.
Many managers tolerate sub par results during a recession, believing that their firms will accelerate past competitors once the economy recovers. This rarely happens. More than two-thirds of the companies that made major gains in our study period did so during a recession, not before or after.

In 2001, Dell Computer grew unit sales by 11% even as industry sales declined 12%. Realizing that price elasticity sometimes increases during a recession, Dell used sensible price cuts to gain more than six points in U.S. market share and, in the toughest period of all-the fourth quarter of 2001-to capture more than 90% of the profits in its industry. Such opportunities always exist for strong companies, but the impact of exercising them is much higher during a recession, when many competitors are either distracted or hibernating.

3 Gains or losses made during recessions tend to endure.
Of the firms that made major gains in revenue or profitability during the last recession, more than 70% sustained those gains through the next boom cycle. The corollary was also true: fewer than 30% of those that lost ground were able to regain their positions. After losing significant ground during the retail downturns of 1987 and 1991, Kmart continued to slide downhill from there-all the way to a Chapter 11 bankruptcy filing earlier this year. Meanwhile, Wal-Mart continued to invest in service infrastructure during these periods; rolling back prices, it gained an estimated 2% to 4% in comparable-store sales over Kmart and Target.

These findings show that recessions are not so much "slowdowns" as they are intense crucibles of opportunity. Why is this so? Good times can cushion the hard truths of company performance, whereas tough times reveal true strengths and weaknesses. Then, too, the number of strategic opportunities to make deals or to take advantage of weaker players increases during a recession. Many companies either hunker down or stray outside their core business in a desperate bid for growth, creating openings for companies willing to pursue thoughtful and balanced recession strategies. Judging from the experiences of the best performers of the last recession, the key is to stay focused.

Know your starting point. The biggest failures from the last recession were companies that misunderstood their starting point and invested inappropriately. Example: Borden Milk Products (Dallas), which diversified from its core in dairy products and lost market leadership. Winning firms undertake careful internal and external diagnostic inquiries at the beginning of a downturn. Identifying their key strengths and weaknesses, they develop a watertight definition of their core business and strategy. This provides a reliable yardstick by which to measure new strategic options.

Maintain strategic discipline. If the data says your core business is weak, don't try to invest through the downturn until you've fixed the problem. During the last recession, Mattel maintained a clear picture of its business needs. It reduced capacity, eliminated costs, and refocused manufacturing and management resources on its core brands: Barbie and Hot Wheels. It also forged a strategic alliance with Disney. By tending to its core, Mattel was able to grow despite the turbulence; in fact, it achieved double-digit annual growth in sales and income during the boom that followed.

In the late '90s, Mattel seemed to forget the importance of strategic discipline with its ill-advised acquisition of The Learning Company. But since divesting itself of The Learning Company, Mattel has gone "back to Barbie."

Correct your wrong turns promptly. Companies that fared poorly during the last recession exhibited a common response: they overreacted, then "stayed the course" even when rougher seas lay ahead. The lesson? If your strategy isn't showing results, reevaluate it. Don't expect it to start paying dividends just because the economy is recovering. Winning firms react to trouble early, scrapping ideas that aren't working and turbo charging those that are. Firms that hunker down can miss opportunities and create even bigger problems down the road.

In the recession of the late '80s, Kmart diversified to hedge its bet on a struggling core discount retail business. But the acquisition of a slew of unrelated retail businesses sapped much needed resources and attention from Kmart's core. As the company struggled to manage and later unload these unrelated businesses, Wal-Mart and Target were able to make sizable inroads in many of Kmart's key markets and customer segments.

Even the deepest recessions have bright spots. Housing and some consumer goods segments, for instance, held up reasonably well in 2001. Conversely, boom times have dark spots: nearly 20% of U.S. industries will be battling downturns any given year. For companies hoping to get ahead during down times, the good news is that you may not have to wait long: your sector may experience some turbulence-well before the next recession.

Sarabjit Singh Baveja is a vice president in Bain's San Francisco office, where Steve Ellis is managing director. Darrell K. Rigby, a director in Bain's Boston office, is the author of the study Winning in Turbulence. They can be reached at MUOpinion@hbsp.harvard.edu

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