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Business management in extreme environments

Posted July. 15, 2023 08:01,   

Updated July. 15, 2023 08:01


We're already halfway through the year, and for many companies, the focus is now on next year's business, not this year's. Major companies usually start planning for next year's business after the Chuseok holiday, but the real thinking starts around the end of the summer vacation.

Although the business environment is expected to improve next year compared to this year, global geopolitical uncertainties such as the U.S.-China conflict and the Russia-Ukraine war persist, while the domestic situation also poses challenges. Therefore, the business environment in 2024 is also anticipated to be difficult.

Although many companies feel defensive in the face of extreme uncertainty, management experts emphasize the importance of businesses actively seeking opportunities while cutting back on spending during the downturn to be winners in the recovery.

When U.S. airline passenger traffic plummeted by 96% year-over-year during the COVID-19 pandemic in early 2020, many airlines responded by cutting costs, including canceling aircraft orders. Alaska Airlines took similar measures, implementing hiring freezes and executive pay cuts. However, unlike other airlines, Alaska Airlines made a different move: instead of canceling aircraft orders, the company updated its existing fleet and placed additional orders. As a result, Alaska Airlines stood out as the only major U.S. airline to make significant plane orders in 2020.

"We wanted to respond aggressively to emerge from the pandemic," says Ben Minicucci, the former president and current CEO, "because in the airline business, growth is impossible without airplanes." This strategy of simultaneously playing offense and defense during the economic downturn yielded positive results earlier this year. Alaska Airlines has positioned itself as one of the most profitable airlines, with an expected annual revenue growth of 4 to 8 percent through 2025.

"When faced with an economic downturn, many leaders and companies instinctively focus on cutting costs to maintain their bottom line. However, leaders and companies like Alaska Airlines, as highlighted by Harvard Business School professor Ranjay Gulati in his article in HBR introducing the case of Alaska Airlines, identify and seize moments of uncertainty as opportunities. According to Gulati, “True resilience involves more than recovering from or resisting the effects of adversity.”

However, overcoming fear and taking proactive action in the face of uncertainty is no easy task. In fact, Professor Gulati's research analyzed nearly 5,000 companies that faced recessions in the 1890s, 1990s, and 2000s. The findings revealed that only 9% of these companies managed to achieve sales and profit growth through strategic investments.

Amidst uncertainty, major Korean companies are making significant investments in growth. LG Electronics, for instance, recently announced its plan to invest 50 trillion won in research and development (R&D), facilities, and strategic investments by 2030. This investment aims to explore future areas such as digital healthcare, electric vehicle chargers, and the metaverse. Similarly, POSCO Group has committed to allocating 46% of its total investment toward secondary battery materials by 2025.

Korea's economic growth is anticipated to remain in the low 1 percent range this year, primarily due to a decline in exports, which traditionally serve as the engine of economic growth. In order to assist more companies in overcoming their fears and adopting an aggressive approach, the government should provide support through labor reform, deregulation, and other measures.