Tuesday, May 26, 2009

Hunkering Down and Competing

There's lot's of soul searching going on right now as businesses hunker down to make it through the downturn. Most CEO's seem to be coming to grips with the notion that a turn-around isn't imminent and more, stronger action is likely necessary in order survive/thrive.

If survival is the priority then cash flow and cost containment are imperatives.

Cash flow starts with getting receivables in fast and payables out carefully. For many that surely seems like a no-brainer. However, experience suggests many CEO's would be well-advised to sit down with their CFO's and make sure everyone is on the same page - that there is a daily effort to collect - and a clear, formal strategy around who, what and how fast to pay.

Cost containment starts with strategy. What are the operating priorities in the downturn (marketing? sales? people?) and how will those priorities be protected? From there, managers can identify spending that isn't currently consistent with the operating priorities and cuts can be made.

My observation on cost containment is that it's seldom done well. Frequently, strategy is lacking and some cuts hurt more than they help. Cuts that could be made but aren't hurt the most. Obvious misses send the wrong message on priorities. Finding and implementing process efficiency gains can sometimes have big upfront costs. Careful analysis is required if this is the case to understand the financial benefits and cash flow implications.

Lots has been written about the extended downside of laying off people to save money. I get it. To a point. Lay-offs aren't free and it would seem the cultural, expertise and overall disruptions to the business could be both significant and lingering.

In actual fact, I've seen few companies suffer extensively from downsizing. Creating fat and straying into luxuries is wide-spread in good times. Being forced to refocus on core priorities, businesses, people and customers isn't necessarily a bad thing. Laying off the wrong people and cutting into muscle is a mistake so knee-jerking into a lay-off strategy is dangerous. But a thoughtful, proactive and strategic approach is a good thing for lots of businesses.

Lots of companies are struggling to maintain sales momentum through this downturn. Decision and spending paralysis is widespread right now. With fierce competition for every deal, CEO's are getting a great opportunity to understand the true competitiveness of their organizations. How's your organization batting on competitive deals? .100? .250? .500? When this is over, will your organization have lost or gained market share?

I worry that many organizations will see an upturn in the economy before they fix the lessons from this downturn. High tides float all boats and survival for many will feel like success. Short term it is. But CEO's who merely hang on risk jeopardizing their businesses longer term. Question: what have you learned about your organization's ability to compete in this downturn and what do you need to do about it? Changes that increase success now will have significantly more impact when things turn. Is your organization just hanging on or are you taking advantage of the current situation to implement good long term changes?

Check out this YouTube video for more thoughts on managing through a downturn and succeeding long term.

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