Monday, January 19, 2009

Managing Through a Crisis: The New Rules

What do Carnegie Steel and Hewlett-Packard (HPQ) have in common? Both were born at a time when people thought the world was falling apart. Andrew Carnegie launched his first steel mill during the Panic of 1873, the start of a long depression. He took advantage of low costs to build an industrial giant that made him the world's richest man. Bill Hewlett and Dave Packard showed similar courage when they launched HP from a Palo Alto (Calif.) garage toward the end of the Great Depression. History has shown that crisis breeds opportunity. Business leaders may have to cut costs to survive 2009, but the smart ones are also out there looking for prospects. They are willing to take the type of bold move that IBM (IBM) made during the recessionary days of 1981 when CEO John R. Opel aggressively rolled out the company's landmark personal computer just as PC demand soared. Even in the current downturn, there are companies like AT&T (T), which recently announced plans to buy two companies for a total of $1.2 billion. "A recession creates winners and losers just like a boom," observes Mauro F. Guillen, a professor of international management at the University of Pennsylvania's Wharton School. Managers are now dealing with everything from shattered consumer confidence to tighter credit, not to mention the likelihood of a tougher regulatory environment. Decisions that made sense two years ago may prove disastrous in this climate—from giving outsize rewards to those who take big risks to borrowing heavily just because interest rates are low. Years of excessive borrowing have taken a toll: An unprecedented two-thirds of nonfinancial American companies covered by Standard & Poor's have speculative-grade, or junk-rated, debt. (S&P, like BusinessWeek , is a unit of The McGraw-Hill Companies (MHP).) On the whole, U.S. businesses face a $238 billion wave of debt maturities that will come due by the end of 2009. "Many companies are questioning their survival," says Gerry Hansell, a senior partner at Boston Consulting Group. Executives have to lead "their people out of a psychological funk and at the same time tailor their business to focus on a new reality," says management consultant Ram Charan. That's good advice during any business cycle but especially important today. Here are some new rules for managing through a tough 2009—and beyond:

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