Effective Strategies In Declining Industries

Effective strategies in declining industries

20/3/2023

Churchill statue and houses of parliament

Chain of Command

When your industry is failing, changes are implemented that you disagree with and you realise your dream job won’t exist any more, it’s tough.

I know, because it happened to me in my early twenties.

Every industry experiences stages of growth, maturity and decline.

The transition to maturity or decline signals a new way of life in a companies history, which can be difficult for the founding entrepreneur and existing management.

In this blog post I discuss how some of the worlds most admired companies are making changes to continue to compete in mature and declining industries under the pressure and concern for survival.

When you transitioned from a start-up to a scale-up company, did you consider the impact the end of rapid growth would have on your company and the mental health of your people?

In mature markets there is slower growth, less creativity, and more systems and procedures such as tighter budgeting, stricter control of financial assets, and new reporting requirements.

The scaled down expectations for career advancement, also means you need to find new ways of motivating and rewarding your existing staff.

How are some of the worlds biggest global brands dealing with the realisation that the parties over?

Owning organisational design mistakes

In January 2023 McDonalds CEO Chris Kempczinski announced a company restructure and stated:

“Today, we’re divided into silos with a center, segments, and markets. This approach is outdated and self-limiting – we are trying to solve the same problems multiple times, aren’t always sharing ideas and can be slow to innovate.”

Innovation and fluidity can be stifled by a top down chain of command organisation structure coupled with an inappropriate span of control.

The chain of command is an organised structure whereby every employee is placed on a reporting relationship chart in accordance with their rank, authority, and job role.

It tightly controls information within a company and creates a structure of power, control and a flow of delegation from the top management straight through to the shop floor. With each employee in the chain of command reporting to the employee above them.

The span of control is the number of workers a manager can effectively supervise. However, the general consensus is that there is no single magic number for the span of control and chasing one can actually reduce effectiveness.

Finding the optimal span of control is a process of connecting upper management to work happening on the ground, and providing middle managers time to manage.

The reporting relationship chart should resemble a pyramid, with the most senior management (fewest in number) at the top. As the delegation moves down the chain of command, the level of decision making and power should naturally reduce.

A chain of command will work well where there is good reason to impose restrictions on employee decision making and employees speaking to managers other than their own.

Delayering to innovate and improve communication

Delayering is the process of removing one or more levels of the hierarchy (often middle management) from an organisational structure to create a flatter, more horizontal organisational structure.

The benefits of adopting a flatter organisational structure are cited as freeing an organisation from bureaucracy and helping to develop a more customer focused culture.

There are also the associated benefits of cost savings from a reduction in overheads.

In March 2023 Meta CEO Mark Zuckerberg announced a further 10,000 employees would be laid off and the instituting of a 'recruitment freeze' as part of the companies 'year of efficiency'.

Zuckerberg wrote “Over the next couple of months, org leaders will announce restructuring plans focused on flattening our orgs.” The end goal of the restructure is “to improve organizational efficiency, Zuckerberg said “a leaner org will execute its highest priorities faster, people will be more productive, and their work will be more fun and fulfilling".

Employees who may have previously thrived on the security of control and clear structures may now feel part of a ‘machine’ rather than a team. Such employees strongly believe a hierarchical organisational structure (with too many steps and barriers) delays the delivery of important information, and impedes on the companies need to adapt quickly depending on developments and changes within a competitive market.

Strengthen brand loyalty and customer retention

The softening economy, inflationary pressures and the interest rate environment is exposing weaknesses. As Warren Buffet famously said:

"Only when the tide goes out do you discover who's been swimming naked"

The Silicon Valley Bank (SVB) collapse is believed to be the first high-profile victim of higher interest rates.

It was the banking partner for nearly half of U.S. venture-backed technology and healthcare companies listed on the S&P 500.

The S&P 500 index is regarded as one of the best gauges of prominent American equities' performance, and the stock market overall.

At the time of writing, 27% of S&P 500 shares (almost double that of healthcare at 14%) are in the technology industry.

Apple and Microsoft shares make up a combined 13% of the 27% S&P 500 technology industry. Both companies dominate in brand loyalty.

I am writing this blog post on my Apple Mac, in Microsoft Word.

In a declining market Apple maintains a reputation as a premium product with high brand loyalty.

Despite YOY PC market losses of 25% in Q4 2022, Apple only experienced a 2.1% decline.

In Summary

The Tech industry is showing all the classic traits of a mature and declining industry.

TechCrunch's comprehensive list of monthly layoffs by tech companies has (so far this year) included: Google, Amazon, Microsoft, Yahoo and Zoom.

Key players are reducing costs, increasing efficiency, and growing revenues.

In 2022 Netflix made structural changes when faced with increased competition from rivals Disney+ and HBO Max.

Credit Suisse laid off 5,000 employees as part of a restructuring plan before being rescued from financial collapse by UBS in March 2023.

Twitter first announced a corporate restructure in December 2021, before new owner Elon Musk laid off half of Twitters workforce in a fundamental organisation restructuring in November 2022.

However, in the aftermath of layoffs the US Bureau of Labor Statistics reported a faster than expected 1.7% increase in US productivity from the third to the fourth quarter of 2022, when employee output rose 3.1% while hours worked increased 1.4%.

In March 2023, the BLS reported a further 311,000 jobs were created in one month (February 2023) in the US.

Although U.S. wage increases are slowing the U.S. labour market is reported to be stronger than it has been in 50 years. NOW is being hailed as the best time to find a new job!

About the Author

Naomi Clews

Naomi Clews, independent procurement consultant and owner of procurement training company Naomi Clews Consultancy Limited has over 20 years public procurement process knowledge, experience and skills. Find out more here.

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