You did not choose this economy, but if you choose not to change your approach to it, you run the risk of succumbing to it. Effective leaders find creative ways to strengthen their companies in times of adversity. Rather than stray from the long-term vision you have for your company, why not proactively adjust your plan to deal with the existing conditions? Your long-term view of your organization and your desired accomplishments are likely still valid.
If the vision needs to be revisited, there must be careful deliberation rather than a knee-jerk reaction to a temporary, albeit serious downturn. The economic conditions may actually assist you in attaining your vision. If you handle it effectively, you can emerge from the weakened economy stronger.
Let’s explore a few focal points:
Market Dynamics: What segments are producing volume and/or margin? Do you need to spend energy and resources in areas that are not promising in the short term? However, carefully analyze these non-producing segments for long-term value, because it would be short sighted to trade the future for a near-term, ill-advised cost reduction. Craft a realistic but challenging forecast in each segment for 90 days, 180 days and one year; and update it monthly. Develop a strategy to achieve these milestones for each segment.
Inventories: If volume is down, what material goods categories can you reduce? Based on your analysis of the market, determine what raw materials can be drawn down or even returned to the vendor for an exchange of cash or credit toward other purchases. Similarly, evaluate your stock of work in process (WIP) and finished goods. Finish out the WIP and get it on the market; this is potential income that is soaking up costs. For items that are moving slowly, consider a price reduction, which may be more economical than paying interest and incurring inventory carrying costs.
Operational and Administrative Processes: Lean these out; at least the core processes. We all know we have cost-adding steps that unnecessarily consume resources. Before making reactive cuts in crewing, consider the optimal points in your organization to reduce and refocus. This can be accomplished through Value Stream Mapping (VSM) and critical analysis of the need-to-have versus the nice-to-have reports and information. Furthermore, this VSM effort will illuminate the opportunities to creatively combine processes, build efficiencies, and many other benefits.
Manage the Money: What receivables do you have out there, and what innovative attempts have you made to pull them in? Are you sending statements early? Have you offered discounts for early payment, even if this is not your standard practice? Are the largest and most frequent customers receiving your phone calls to keep them onboard?
On the payables side, it is tempting to delay your payments as long as possible. But this could cause you both long and short-term difficulties, as your suppliers might cut volume discounts and the level of service you need to charge your value streams. Rather, be upfront with vendors and proactively negotiate mutually acceptable terms. Sure, it is advisable to seek lower cost providers, but consider total value in terms of service, quality and other pertinent factors before doing so. You would only ask the same from your customers.
Inspire Your People: This is the most important action you can take — be a leader and inspire confidence in spite of all the gloom and doom you see in the media. If cuts must be made, be upfront about it. Do it decisively, swiftly, wisely, and judiciously. Tell your people when it is over so they are not waiting for the other shoe to drop.
Provide a focus for your employees’ efforts and give them a place to plug into the decision-making process. Form analysis teams around each focal point identified above and challenge their ingenuity. It is likely that you will be impressed with their recommendations. After all, you hired them.
Consider the organization that suffers from reduced volume and immediately cuts its sales force. While reductions may be necessary, it is possible that this company is crippling the resource it most desperately needs. Or, perhaps you have heard the knee-jerk reaction of the executive who says, “There will be no time off until the economy turns around.” If few customers are buying, perhaps it would be a good time to burn up some vacation in anticipation of a busier time in the future. Both short and long-term consequences must be considered before establishing a blanket policy.
It is tempting to cut deep in the first, most cost-intensive area you can think of. Come back off the ledge and take an unemotional, balanced approach. Your livelihood, both now and in the future, depends upon it. While a reactive effort might create short-term results, the balanced and deliberative approach will serve you more effectively both now and in the future. Avoid losing focus toward your vision; rather, strengthen it by implementing a comprehensive plan.
Paul Schmidt is director of Goodman & Co.’s Management Consulting Division. He can be reached at (757) 624-5155 or by e-mail at .
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