Strategy: 10 Steps Necessary for Operating through the Next Business Downturn

Strategy: 10 Steps Necessary for Operating through the Next Business Downturn

The great recession and the recent economic turmoil did its damage on businesses. So to be prepared, how should a manager be prepared for the next economic downturn?  Here are ten fundamental priorities that should be performed:

  1. Take a closer look. Before starting a retraction of business activities (i.e., cancelling projects, contracts, or executing a reduction-in-force), management should observe the overall situation. Taking hasty moves can result in loss opportunities and hurt the business in the long run.  Look at the drivers behind the economic downturn, which segments are affected, the impact on customers, and the company’s industry.  Management must be aware of the environment. It may not be business as usual, however this may be an opportunity to leverage its current business attributes.
  2. Act decisively.  Management should not live off its past, but act when it is necessary. During turbulent time, positioning the company to the new environment should set the company towards a proper direction.
  3. Cash is king. Having liquidity during hard times is the lifeblood for survival and provides the necessary working capital to act once “signs of recovery” appear.  Make sure that the company has access to sufficient lines of credit. Unfortunately, many companies were caught short when banks pulled lines of credit and banks retrenched. In fact, most of the commercial banks and large corporations hoard cash during times of crisis. Stabilize cash flow with active working capital management.
  4. Focus on the customers. During economic downturns, gaining customer loyalty is paramount. Management must focus on customer service and delivery. Remember that customers can switch at any time. Sales volumes are critical in driving the business through economic turmoil. Plan on how to mitigate it. Recognize which products and/or services are core to the business and think about how to exploit any competitive advantages.
  5. Manage Costs. Place an emphasis on knowing the business costs. Re-evaluate the relationship between costs and profits. Take a look at procurement of goods and services. Improve efficiencies and drive out waste. Reexamine overhead and especially how it is being allocated. Inefficient cost allocation can result in misleading profitability reporting as perceived profitable products and services are in fact losers, as other products and services may be cross-subsidizing costs. Determine true products and services profitability.
  6. Leverage Information. Especially during economic downturn reliable management information is vital in making informative decisions. Rapid change in the external environment may require new key performance indicators (KPI). Cash and liquidity indicators (cash management) are critical during this period. Additionally, good information can be used to ferret operational leakages and hidden gems.  Think of the benefits brought about by having excellent management information systems to Walmart.
  7. Plan for Different Scenarios. During economic turmoil, flexibility, anticipation, and reaction are a must in any rapidly changing business environment. Scenario planning is a useful tool for strategic planning. To ensure survival, management needs to rethink business operations and value creation for its customers. Stress testing risks should be done to ensure business continuity also exist. Plan for changes in customer taste. Make sure the business can effectively respond to competitive challenges.
  8. Open dialogue with stakeholders. Economic downturn creates “business challenges”, but also for the stakeholders. This calls for good stakeholder management that provides shareholders, lenders, and key suppliers with clear communications about management’s business strategies. You must keep in mind that stakeholders dislike nasty “surprises”.
  9. Leverage opportunities. Capitalize and exploit competitive advantages that the business may have in adverse conditions. Assess the company’s competitive advantages. Utilize management tools i.e., Michael Porter’s five competitive forces, etc. to determine the company’s position and opportunities that may create high rates of return on invested capital.
  10. Value your people. Too often, management loses sight of the business’ most important asset, its personnel. Begin by identifying talent that cannot be lost. Think about talent rather than headcount will enable the business to leverage this earning asset.  Have regular and open communications to assure employees that company will weather the storm. Being transparent can foster employee loyalty. Also make sure to articulate the company’s strategic plan. Employees cannot carry out what they do not know. Promote continuous improvement and performance matrices that:
  • Align the employee efforts with business needs
  • Engage true dialogue between the employees and the manager, not just processing a form
  • Create common frameworks and measurement criterion for all employees
  • Look at results and behaviors of people to deliver high performances, it is not about measuring personality trait
  • Enhance job fit and defining shared responsibilities
  • Focus employees’ current job requirements and expected results

Recognize that active steps are necessary during times of economic turmoil.

For free online accounting mini course “Cracking the Accounting Code” designed for entrepreneurs go to http://AccountingMiniCourse.com

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