Economic Recession – Short Term Pain, But Long Term Opportunity PDF Print E-mail

Lessons Learned From the Avionics Industry

By Larry Allgood, President, Avionyx.

Even if the economy is in a severe recession, we all understand that this is just another business cycle and good times will return. We just don’t know how soon or how fast they will come back.  What we do know is that we have to make sure we are still in business when the economy comes back and most all of us will eventually need to cut expenses in order to maintain profitability..

Another recession, already!

As with the 2002 recession, the avionics industry is getting hit much harder than most other industries.  While the terrorist attack on 9/11 made people afraid to fly because of their own safety, this time the press and our elected officials have declared that it’s politically incorrect for companies to own a corporate jet.  The end effect is the same: sales and profits projections have been drastically revised downward.

Realizing the similarities in these two recessions, what lessons can the avionics and other industries learn from and use to better weather the current storm? Are we going to make the same knee-jerk reactions to make the shareholders happy in the short term like we always have or are we going to think long term and consider the decisions made last time to see if they were correct and applicable today?

Capitalism – the negative side effects

Many say that greed drove us into the current recession, although few can argue that our society has become one with an insatiable need for instant gratification and results.  Asian(companies have 100-year strategic plans, yet US companies seldom look out more than 5 years and most would drop their 5-year plans in a heartbeat to make the “numbers” in any given year simply to please shareholders.  Overcoming this apparent weakness of our capitalistic society may be impossible, but it may also be essential to the survival of our companies, if not our country.

Case Study – How did the Avionics industry react last time?

As an example of where an industry could have reacted differently after the last economic recession, let’s look at the avionics industry.  First of all, the largest companies (the ones most susceptible to shareholder retribution) had a knee-jerk reaction, terminating 30% of their engineering departments.  The smaller companies, many of which were dependant on those larger companies, followed suit in the coming months.  New development projects were put on hold then eventually cancelled altogether.  More layoffs came and new development virtually came to a halt, resulting in a talent drain across the industry of thousands of engineers, many of whom vowed never to risk their careers again by returning.

…and when the economy came back?

When the industry came roaring back, even faster than it had fallen, the competitive strength of those companies that had cut their engineering staffs to the bone was weakened.  No longer were they in a position to support the new demand having spent nearly two years with skeleton crews providing maintenance support for products that had been on the market for years.  And, to make matters worse, since the talent had migrated to other more “stable” industries, many companies were forced to seek talent offshore in India and other distant countries in desperation, not to save a buck but to simply get the work done.

As a result, those companies found themselves behind, in many cases, almost 2 years behind in the race to compete in their product lines.  Ironically, investment should have been higher than ever as the industry was undergoing a massive technological revolution in an effort to move to highly integrated computing networks behind glass cockpits.

Ok, so what can be done differently this time?

No doubt, most all of us are once again faced with the problem of deciding how to cut costs. But, if we want to do it in a responsible way that protects our past investments without diminishing our competitive position when the economy comes back, we must think long term and convince our shareholders to do the same.  By doing so, a recession can actually become an opportunity to emerge stronger than ever, as opposed to being crippled when the economy comes back.

…going offshore? Maybe, maybe not

Certainly plenty of functions can be outsourced either domestically or offshore, such as accounting, customer support and marketing as well as engineering development and testing.  But choosing the offshore alternative is a risky proposition. The offshore solution should be incorporated as a long-term strategy to maintain low cost, and the outsourcing partners should be brought on incrementally as they prove their competencies and trustworthiness, particularly if they are involved in core competencies.

…think long-term

Of course business owners will have some resources that aren’t contributing to immediate profits, but shareholders must be persuaded to understand that a certain level of investment in the future is essential to the long-term survival of any company, regardless of which part of the economic cycle we are in.  Think of a recession as a unique opportunity to take advantage of the time available to take care of the many things that have been placed on the back burner due to the lack of available resources.

Don’t forget that engineers are smart.  They may be able to do things that you never expected and this could be the time to find out which ones have multiple talents.  Small companies are well aware of the need to multi-task in order to compete with larger companies with greater economies of scale, but whether large or small, all companies bear a high price if they have to replace their engineers.  So, find the keepers and get them busy on all those things that haven’t been given the attention deserved.

Furthermore, now is the time to analyze and streamline internal processes, such as making fixes and long-needed feature enhancements to automation tools that will reduce future costs.  Train your engineers and develop expertise in critical areas now when there is finally time to do it.  Now is also the time to get the marketing engine roaring like never before, and you’ll most likely need to create some technical content that your engineers can write. And while they are at it, they can also help develop training courses and documentation for your new hires so they can be ramped up quickly when the time comes.

But by all means, do not stop development on your new secret weapon. The future depends on it.  In the end, we may still need to lay off people, but remember the cost to lay off each engineer compared to the cost to recruit, hire, train and develop each new replacement may be much higher than what we save during the down cycle.  Long-term analysis is essential and recessions are opportunities to position your company to increase market share when the economy returns.

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