How would you navigate through this crisis?
Here is a discussion topic on strategy.
Assuming you are the CEO, and leader, of a well-known corporation of your choice, what strategy would you use to lead your company through the current economic crisis?
Explain, using examples and references, and relate your comments to the Four Principles for Purposeful Action.
This post was written by Margaux Ellis-Hall, who will lead the discussion for the week starting on March 10.
The four essential ingredients to navigate through a recession
1. Stabilize The Business – If you haven’t already, stop or at least slow down any leaks to prevent your business from being inundated. Cut employee costs to match your current sales activity, eliminate unnecessary costs and look to reduce your remaining costs via a change of vendors or renegotiation of prices.
There is urgency here! So you should be hitting the big ticket items first. The more detailed and time consuming review of each expense account and vendor list can wait until later.
Review all of your on-going activities and revise them as necessary to contain risks and to ensure that you are managing your remaining resources wisely. You need a ‘steady as you go’ attitude that diligently protects your resources.
Cash is king! Track down and round up available sources of cash so you have it on hand for working capital as you put together your ‘moving forward’ plans. Business assets may need to be liquidated and/or your personal net worth may need to be tapped into.
2. Revise Your Value Proposition – How do you make money? Who buys from you? Why do they buy? Is it location, customer service, cheapest price, convenience, best value, unique offering, etc.? Pretty basic stuff, right? However, the power lies in the execution, not from its sophistication. It is surprising how many businesses take what they have for granted or are not really aware of the answers to these questions in the first place. Without fully understanding the answers to these questions, you will have a tough time putting together an effective customer service strategy that not only retains your existing customers but also attracts new ones.
Almost everyone is out shopping for greater value these days. If you don’t give it to them, your customers will find someone else that will. What once attracted them to your business may no longer be pertinent during these troubled times. You need to do more, bring greater value, and be more flexible in your sales offerings. Reevaluate your customer’s needs and change your value proposition accordingly.
3. Modify/Change Operations – During turbulent times, businesses need to be able to adapt quickly to the changing environment. There may not be time for long thought out deliberation. Review your existing management governance structure and make any necessary streamlining changes. Additionally, changes to improve day-to-day operations can not go through a slow ramp up process. A sense of urgency needs to be instilled through-out the organization.
Take a look at the four function areas of your day-to-day operations and see what changes need to be made to operate in the current environment.
1) Products and services – With sales at all time lows, all businesses should be looking at how they manage their inventory and make whatever adjustments they can based on current activity. Additionally, if you were developing and/or rolling out any new products or services, you may want to take a second look because of the added costs to launch and market the offering. This is especially true if you were targeting new customers as this is the riskiest of all business development activities and where it is untested, you may be wasting needed resources.
2) Marketing and sales – Marketing expense is usually one of the first price cutting targets on a businesses’ list. However, avoid the temptation to just slash this expense without a careful review. Some cut backs are most probably warranted, as they weren’t really effective in generating sales anyway. But a well directed, targeted campaign can be highly effective in getting people through your door. During a recession, sometimes you need to spend money to help improve the bottom line. Don’t make the mistake of trying to manage through the recession by just cutting expenses and then sitting back hoping customers will come through the door. It won’t happen!
Avoid the temptation to cut prices to get the sale. This is tough advice to follow I know and it doesn’t hold water if there is a serious cash crisis or an urgent need to liquidate inventory (i.e., retailers at Christmas). But what you are planning for is an on-going profitable business and cutting profit margins over the long-term will not allow your business to sustain itself; unless of course you have also changed your business model and lowered your operating costs accordingly. Instead, see if you can change your offering to reduce your cost structure to match the proposed price cuts. Also, look into what else you might be able to cost effectively bundle with your product or service which provides an additional benefit to your customers. Although it may lower your margins a little, it will increase the value they receive and will allow you to maintain your current pricing structure.
3) Systems and processes – This is the support structure that keeps all of the other parts of the business operating smoothly and efficiently. Review all of your customer facing activities. Brainstorm what can be done to make their experience with your company better and bring greater value. Meet with your employees and see what can be done to streamline internal procedures by updating or changing systems. Review your IT investment and look to spend money if it will increase customer service, increase productivity or reduce costs.
4) People (HR) – A business is nothing without good people. And in this time of uncertainty, good communication takes on much more significance to keep them from jumping ship and to keep them focused on the task at hand. Communicate regularly. Let them know how things are going and the plans for the future. They need to be concentrating on your customers and the critical success factors you identify in your ‘moving forward’ plan. That will be tough to do if they are continually looking over their shoulder for the next bad news surprise.
With personnel cuts, the remaining team will be asked to do more. Keep careful watch on how that affects customer service. Keeping expenses low is important, but not at the expense of lost customers. Look into temporary outsourcing or part time help in lieu of hiring full-timers.
Finally, to ensure you have adequate personnel, consider making across the board salary cuts instead of layoffs or letting people go. And although living costs have increased for your employees, look into instituting salary freezes. At the same time, look into offering performance bonuses to take away some of the ‘bad news’ sting.
4. Manage For Cash – The absolute priority is cash over profit until things have settled down and things start to turn around. What would normally be routine cash management is now an urgent need to optimize existing resources.
Make sure you get paid for your products or services rendered by reviewing and tightening up your credit policies. Get paid upfront, ask for a substantial payment that covers your costs and give terms on the balance, do not give credit to everyone, etc. It may cost you a sale, but a sale doesn’t do you any good if you can’t collect it.
Make sure you invoice and follow up with statements on a timely basis. I have seen a lot of small businesses that never follow up their initial invoicing with monthly statements and they just sit and wait for their money to come in. And always follow up late payments with telephone call reminders. It should go without saying that this should be done courteously and professionally. No one likes to make the calls and no one likes to receive them, but in these trying times it is absolutely necessary. If you need to, make arrangements to stop by and pick up the check.
Many businesses routinely pay for assets (computers) without any financing, but this draws away from cash flow. Instead, look to finance capital expenditures even though this may be a challenge in the present lending environment.
Implement spending policies and controls by setting authority levels. To maintain tight control, consider reducing the number of people who are authorized to place orders. Finally, maintain a culture of cost control and cash preservation.
Tough times and tough economics can be the impetus for improving your company. Is this a lot of work? It sure is. But working through a plan that will help you survive and prosper through the recession, calls for an in-depth and well thought out response. Keep in mind that there are talented consultants trained in these areas that can help you and possibly get you ramped up a lot quicker than you would otherwise do on your own, so don’t struggle with it. When the economy is on the rebound and you have a much more disciplined, streamlined and efficient operation, you’ll be glad you did.
http://www.capebusiness.net/article/1433.42?PHPSESSID=3d271bc5c297deea0d2be04218726f41
Excellent points sreesh and they are mentioned in the order of importance.
Especially the second and third points speak of exactly what needs to be done for a business to wade through. It is important to understand that spending decreases but doesnt stop and the business exists. These points highlight this and suggest that changes are necessary in the business strategy.
A good example for this is the new marketing stragtegy adopted by Hyundai where they are offering a buy back in case of a Layoff during the initial year of purchase. Such measures build confidence and goodwill among customers which is much needed in these times.
Excellet points sreesh.A number of general systems-based theoretical frameworks of organizations have been expanded and adapted to understand crisis. These views of crisis emphasize uncertainty, the novelty of the situation, and the potential threat to established routines and order. Theories of organizational crisis are most often grounded in systems perspectives, emphasizing the dynamic relationship between the organization and its larger social, technological, physical, legal, and cultural context. The theories discussed are organized around the basic assumption that crises are recurring events that play a critical role in the life cycle of the organizational structures of businesses, corporations, governments, and communities. They seek to understand the factors associated with the onset of crisis, how organizations and social structures respond to and make sense of a crisis, and the impact of crisis on stakeholders, social systems, and on larger understandings of threat and risk. From these perspectives, crisis is understood as a broad class of events that are disruptive, unanticipated, and threatening and that have the potential to lead to both positive and negative outcomes.
source:http://www.questia.com/PM.qst?a=o&d=106807300
As a relatively new homeowner I make frequent trips to Home Depot, a company that has been very effected by the current economic crisis, most notably as a result of the downturn in the housing market. It is important to note that CEO’s should have not only a strategy for surviving the current crisis but also a strategy or plan for prevention. Since the current economic crisis is, at least from an organizational perspective, centered on the financial aspect it is inevitable that layoffs will be necessary. If I were CEO of Home Depot I must realize that there are certain things that must be done, despite being unpleasant, in order to simply survive. It is simply a matter of the great good.
Many companies are relying on layoffs as a means to free up large amounts of cash because it is administratively “easy” and immediate. While I do agree that layoffs are inevitable I also believe that companies may be passing on an opportunity to re-examine their business models and the inherent value being offered by their products or services. Home Depot has been doing just that, by steamlining their operations and cutting aspects of their business that are no longer profitable, namely their EXPO home design services.
I believe that despite all the gloom and doom associated with the economic crisis one of the benefits is that it is forcing companies to take a closer look at their values, both what is inherent and what is being provided to the consumer. Likewise, the crisis has revealed an environment of corporate greed to the American public that perhaps they weren’t fully aware existed to the extent that is actually does. This puts companies in the position of being aware of just how dependent their reputations are on the values that they adopt and adhere to. This crisis perhaps represents a new paradigm of social responsibility.
http://www.bloggingstocks.com/2009/01/26/home-depot-backs-out-of-struggling-expo-business-slashes-7-000/
http://money.cnn.com/2009/01/26/news/companies/Home_depot/index.htm?postversion=2009012610
True Joshua. The greed has been a pivotal factor for this crisis we are facing. It could turn out to be a rude awakening that companies need to sort out their difficulties.
An economic crisis for a industry leader can actually be a boon. A CEO must be thinking how to not only survive, but thrive during slow economic times.
Below are three important steps which need to be taken
Grow business through acquisition — because a recession is a good time to acquire property and assets at very reasonable prices. Investment is likely to increase and your business can benefit from the growth and expansion.
An Internet presence is crucial — as Internet sales are likely to see a significant increase due to rising fuel costs and a desire by consumers to consolidate excess travel spending.
Consider taking business global — because businesses can receive assistance from the U.S. government to expand into foreign countries.
http://smallbiztrends.com/2008/06/recession-survival-strategies-business.html
Swathy
Three steps, that are really simple and that all CEO’s should utilize to make it thru this downturn
The three points you have mentioned are right. But in this crisis to have acquisitions might be a tough ask.
Yes Sreesh, you are right. But as I have mentioned these are more applicable for industry leaders who can afford to use this opportunity.
These are strange times indeed. “Hunker down” is what I see most in today’s society. We all know too well that layoffs are rampant. All this to try and keep the books looking good for the stockholder. But is this really necessary in this time of trouble? Shouldn’t we (as CEO) be looking for ways to prepare our company for when the market turns? Or reinvent ourselves to serve a need that is now more prominent? How can we cut internal waste to help support the set of people we have? Look at how to reinvent you r company. This could be the time to start thinking like a startup again. Also look at new acquisitions to expand your core business. Companies are cheap these days.
http://ezinearticles.com/?Ten-Great-Strategies-For-Todays-Climate&id=1997003
Costcutting is the name of the game nowadays in the market and among the companies. it’s very hard to see people losing their jobs to save the company’s soul and to keep their participation in the field nowadays. I agree Chris. it’s getting cheap at our expense too.
Chris
I believe your point about the stockholder is the major problem in large companies. The stockholders have probably already taken a loss because of the economy and will look for the CEO for a “quick” fix that generally means layoffs
Any leader leading a corporation during an economic downturn must have a clear understanding of his or her company’s current condition. Positioning the company to maintain market place presence is critical to preserving stakeholders’ confidence and consumer’s interest. Leaders should act with purpose when reviewing their vision to ensure it will achieve the desired future state. The core values of the organization should be examined to make certain all actions within the organization are ethically based. They will find success by recognizing what they can control and influence what’s in best interest of the company.
http://www.kilgorenewsherald.com/news/2009/0315/business/035.html
Agree Margaux. I guess leaders are tested the most now. Every day seems to be a D Day for them in order to keep up the interests of their company alive.
For any company in crisis, something is broken. As CEO, you have to determine what needs to be changed and a path to fix that problem fast. The job of CEO is about making dramatic change very quickly.
One of the best crisis managers I have spoken with was Suzanne M. Hopgood, President & CEO, The Hopgood Group, LLC. Her success as a leader for companies in crisis shows a path for success:
1) Fish rot from the head. Leaders need to understand that employees know how their CEO behaves and that his or her behavior is a model for the behavior of every employee in the company. They adjust their behavior accordingly. CEOs can’t tell people to behave differently than they behave. Your actions as CEO must clearly say to every employee that you’re not behaving unethically and that you won’t tolerate unethical behavior by others.
2) Establish clear goals and objectives. For a CEO at a company in crisis, a new mission statement, goals, and objectives must be developed immediately. All actions must be measured against achieving those new goals and directives.
3) Focus and prioritize. Once new goals and priorities are established, strong leaders only spend their time in areas where they can have the greatest impact. For companies in crisis, the only issues that should be considered are those that relate to the company’s survival. Situations must be sorted thru fast, priorities made, and people empowered to make decisions.
4) Make a top five list. Always have a list of the company’s top five priorities close by no matter what you are doing. Before starting any task, ask yourself, does this task fit within the context of these five items? If you allow yourself to get sucked into things that don’t keep the company from tanking or add value, you aren’t spending your time wisely.
5) Place a dollar value on your time. Consultants and attorneys determine a specific value for their time. Assigning this value helps decide priorities. If you as CEO or your senior management team get involved in a situation for a couple of hours, you know how much that activity is going to cost. There must be a reason why you or other managers spend time on any task.
6) Establish financial goals for 1 month, 3 months, 6 months, 12 months, 18 months. It is critical to be realistic. This allows everyone to measure progress.
7) Underpromise and over-deliver. It’ll be difficult in the beginning. You won’t have enough information, and too much optimism can lead to problems.
http://www.examiner.com/x-3916-DC-Business-Strategies-Examiner~y2009m3d4-Leading-a-company-through-a-financial-crisis
Wow - wonderful advice for anytime in a companies life. Most of us could benefit form this list. I think I’ll take it with me now
Great post!
Really man Mirek. Strong words. Excellent points.
Increasingly, crises are common parts of the social, psychological, political, economic, and organizational landscape of modern life. They affect more people than ever before, are more widely reported in the media, and have a wider impact on increasingly interconnected, dynamic, and complex social-technical systems. Crises are sources of profound human loss, tragedy, and agony and are also the precipitating factors in radical, rapid, and often positive social change. They are stories of shortsightedness, hubris, greed, indifference, ignorance, and stupidity. Yet they are also stories of heroes, selflessness, hope, benevolence, compassion, virtue, and renewal. Understanding the complex dynamics of crises is imperative for both researchers and practitioners as they seek to reduce the frequency of crises and the level of harm they cause
source:http://www.questia.com/PM.qst?a=o&d=106807300