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Published: February 26, 2008

 
 

Upturn Thinking in a Downturn Year

Cummins responded with a set of near- and long-term planning initiatives. It entered into supply agreements with key customers that were designed to moderate volume swings in future cycles. In addition, CEO Tim Solso put in place a set of strategic principles that focused the company on its core business and competencies, with the aim of minimizing the impact of future downturns. In 2005, the company further expanded its long-term planning by designing a strategy process that married best practices from all of its business units, and balanced the requirements for midterm cycle planning with prospecting for long-term growth opportunities.

This planning process has served the company well. In 2007, for example, Cummins faced the threat of another downturn due to another tightening of diesel emissions standards in the United States and the resulting impact on the market for trucks. Despite this challenge, the company was on track in December to report record revenues and earnings for the year, and the stock price was near an all-time high. Cummins is coming out of a difficult market in a position of strength, with numerous joint ventures in emerging countries, such as China and India, and new businesses in natural gas engines, marine engines, and alternative fuel technologies.

Some companies have managed downturns by building long-term thinking into their restructuring processes. A good example is Visteon, a manufacturer of vehicle components. Facing a North American automotive market in which sales are approaching 15-year lows, Visteon is streamlining operations; at least 30 production facilities will be fixed, sold, or closed before too long. But in the midst of this deep restructuring, the strategic planning process continues to focus Visteon’s business units on growth opportunities as well. This process requires each business unit to forecast the size and growth of its underlying market, to identify differentiated products, and to make focused investments in key technologies.

At the corporate level, Visteon evaluates long-term economic and demographic “mega-trends” that will shape the transportation industry in the future, including consumer concerns about climate change. Accordingly, Visteon’s climate product group has begun to emphasize development of alternative refrigerants that reduce greenhouse gas emissions. Another mega-trend is that traffic accidents are on their way to becoming the second-leading cause of preventable death; Visteon’s electronics product group is developing driver information systems that improve awareness while minimizing distraction. Finally, the growth of the automotive industry in Asia has led to a strategic initiative aimed at effectively building business with the new automakers of that continent.

In these ways and others, while completing its turnaround, Visteon can maintain at least a partial focus on the longer-term prospects beyond the immediate crisis. If it does not plan for the nearly inevitable upturn in the automobile industry, Visteon will not realize the full benefit from the sweat and tears of its restructuring.

All industrial corporations face downturns and periods of retrenchment. Successful strategists promote upturn thinking even during the deepest downturns. Techniques such as crafting an upturn SWAT team, implementing long-term strategic planning, and requiring upturn thinking during restructuring help companies develop their own Marshall Plan to stay one step ahead of competitors when better times return.

Author Profile:


Asaf Farashuddin (afarashu@visteon.com) is vice president of corporate strategy for Visteon Corporation. Previously he was executive director and global leader of corporate strategy for Cummins Inc., and director of corporate strategy for Lucent Inc.
 
 
 
 
 
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