Cul-de-sac

Tough economic situation leads people, organisations, governments to react. In my opinion, the danger is not only in the lack of expenditure or confidence in spending which causes the lower sales turnover with less gross profit, as far as a business is concerned, the much more recessive while fatal impact is that this is the time when death spiral will normally be triggered.

Death spiral is originally a finance term where convertible financing used to fund primarily small companies is used against it in the marketplace to cause the company’s stock to fall dramatically and can lead to the company’s ultimate downfall. In simpler terms, it is a vicious loop which eventually leads to the termination of a business due to initial actions taken to rectify negative visible results. What is contradicting here is that often these initial actions seem to be the correct and logic (re-)actions (if not the only choice) to take to improve the immediate circumstances.

Scenario A. The director of company Random decides to cut down cost in production, R&D, customer support, marketing to balance the poor order book and lower income. The initiative is to sustain the business with the means of running it at a lower level cost to accommodate its profit level. It seems to be the right and intuitive thing to do. However, if we take it to another level it is not too difficult to see the problem. To shrink the size of engineering, production, customer support, the direct effect is the output of product delivery, which will in turn immediately affect the future sales and profits, especially when existing products already prove to fail to attract orders under difficult economic situation. Cut down marketing budget will also lower the baseline of potential sales. Hence the sales will come down again to another level. The only hope here is to hit the balance point where the income meets outgoing, which is only possible when there were a significant portion of budget built in in the first place for expansion. Otherwise, such balance is highly unlikely to be achieved. On the other hand, reducing operational cost is absolutely necessary to any organisations to survive under difficult market situations. To achieve so, what we should really focus instead of budget or redundancy strategy, is the 'mis-spent' cost. Cost is not equivalent to budget. In another word, this type of cost should not exist if those what involved are running in a healthy condition, such as waste, overhead, duplicate efforts etc.

Scenario B. To speed up software project development, engineers are told to defer the test code to later stage until project momentum is caught up and tight deadline is met. This looks like that engineers are now spend all their working hours writing production code which builds up the confidence in stake holders. However, this assuring false confidence can be easily broken or to be used as a false baseline of team's capability to deliver in terms of time-quality-cost. This will come back to drive the development team in another circle where shortcuts is almost a necessity to hit any promises. Solution here is simple - write your test from the start, or formally known as test driven development.

In both scenarios, the intuitive choices of reaction are doomed to lead organisations to its end, cul-de-sac, regardless the good intentions in the beginning. Conscious effort in such decision making process is required, rather than following 'gut feeling'. Sometimes, choose the opposite direction to the rest of crowd could be an easier way.