Companies have tried to maximize profits using a 'lean and mean' business strategy. It blew up in their faces during the pandemic.

  • A "lean and mean" business strategy emphasizes a skinny supply chain to maximize profit in expense of other areas of business, such as employee development.
  • These short-order supply chains led to product shortages and disasters during the pandemic.
  • Instead of trying to maximize profit in the short run, companies should invest in their employees and adapt to technological changes so emergencies don't cause a similar disaster.
  • Dr. Art Langer is the Academic Director at the Columbia University Executive Masters in Technology Management.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider's homepage for more stories.

It's been months since the pandemic began and the effects on everyday Americans are still plain to see. Supermarket shelves have reduced choice and we're facing new shortages of PPE.

These shortages have the same root cause as other issues we've seen for years, from under-skilled workers to difficulty adapting to changing technology. That problem is "Lean and Mean Economics." 

"Lean and Mean" describes a business strategy of making operating costs as "lean" as possible, in order to maximize profits at the cost of long-term investments. You see this strategy as companies push to reduce long-term investments in areas such as crisis preparation in favor of streamlined, just-in-time supply chains. It also manifests in cuts to employee development budgets. This "Lean and Mean" strategy has substantially worsened the current crisis for businesses across America. 

Businesses across the country — and across the globe — were not prepared for a crisis of this magnitude. The world was left without critical supplies and everything from providing medical care to feeding people has become more difficult. To survive in the "new normal" and make sure a supply chain disaster like the coronavirus crisis doesn't happen again, businesses will need to invest in human capital and preparedness for technological change.

Supply chain messes

The consequences of "Lean and Mean" were most visible to consumers in the form of empty shelves at grocery stores. The shortages for key food items may even last for the next year and a half. The cause of this mess is just-in-time supply chains — tight turnaround supplying that leaves little room for errors. 

It works like this: businesses can make their storage budget leaner if all supplies arrived where they were needed just in time and no sooner. But they cannot be flexible in unexpected times of crisis.

Take for instance, Target, who said in January that their supply chain had evolved from ordering a case of shampoo, to ordering shampoo one bottle at a time — delivered in a "mixed bag" of exactly what was needed to restock and no more. This saved the cost of storage space in back rooms, but left them and other outlets vulnerable to the widespread disruption in delivery caused by COVID-19.

More dangerous than supermarkets, other vital businesses also deliberately put themselves on shoestring budgets in order to maximize returns. We saw huge shortages of PPE in medical businesses across the country as the pandemic began, and we're seeing new shortages happening again now. Some shortages may have been inevitable, but private hospitals cutting costs by using just-in-time supply chains for PPE is a self-inflicted wound, which we are not yet healing. 

Businesses must pivot to "just-in-case" business strategies — keeping enough stock in storage that shortages will not happen even if supply chains are disrupted. To be sure, it may not be as cost-effective as just-in-time, but it's better than losing business due to shortages. In addition, businesses should also consider how their supply chains are constructed, and where they can be made more local. 

Businesses need to invest in employees

Beyond investing inadequately in disaster preparedness, lean and mean economics leaves little room or resources to invest in human capital. This is a grave mistake.

Companies using the pandemic as an excuse to shed jobs are acting against their own long-term self-interest. Employers should hold on to talent like you hold on to stock. Retained and valued employees are invested in the company, and a highly engaged workforce can increase innovation, productivity, and bottom-line performance -—especially during a crisis

In fact, 71% of business leaders agree that employee engagement is very important to achieving overall organizational success. But in a "Lean and Mean" business strategy, they don't always act on it.

The best move for employers is to invest in their employees' skills, knowledge and development, so they can be most valuable to the business. Employees whose organizations have supported them through the Executive Masters in Technology Management program at Columbia have returned to work with increased technical knowledge, better interpersonal skills and heightened awareness of potential business disruptions by technological advances. 

Increased investment in talent should go hand-in-hand with spending on new technology. Just 63% of Fortune 500 CEOs said COVID-19 would "accelerate" digital transformation,  while only 6% said it would "slow." Clearly, the post-pandemic world is likely to move quickly in its technological evolution. Business owners from the Fortune 500 down to the smallest businesses must get on board.

Investing in technological preparedness comes in two parts: updating the technology required in your business, whether that includes hardware and software or new types of machinery, and investing in employees who understand new technology and are able to adapt as it continues to evolve.

While investing in new technology and labor are expenses businesses may be wary of in this financial climate, lean and mean economics has shown us that now is not the time to pinch pennies.

Businesses are going to have to come around to the fact that "Lean and Mean" and just-in-time models are fatally flawed as they build their businesses in the new reality. Those who rebuild by adopting just-in-case strategies, investing in their human capital and preparing for technological change, even if this reduces short-term profitability, are those who will thrive long-term in the post-COVID-19 world.

Dr Art Langer is the Academic Director at the Columbia University Executive Masters in Technology Management.

This is an opinion column. The thoughts expressed are those of the author(s).

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