3 steps to manage your company during economic uncertainty
The global coronavirus pandemic is affecting every business differently, but there is no question that it is affecting every business. It’s difficult to project how long it will last or how deep the impact will be.
Some companies are mobilizing to meet increased demand or pivoting their business models to better serve the changing needs of their customers. Others are facing much more difficult scenarios as their revenue streams evaporate. These challenges are exacerbated by the speed at which conditions are changing. Businesses must adapt rapidly, and the time for decisive action is now. Companies that operate well through this downturn may be able to leapfrog competitors.
Clearly, the safety of stakeholders (employees, suppliers, customers, community, etc.) is paramount, and businesses must take all the steps necessary to ensure their protection. The next step is to reassess the company’s financial health and create a clear action plan that reduces risk and fortifies the business for the long term.
1. Align leadership. That's always crucial, but especially in times of rapid change. All areas of the business require strong leadership rowing in the same direction. Leading in a down cycle is different from leading when everything is up and running right.
2. Perform a strategic review. Your business has changed. Assess the degree to which the macro operating environment has been altered and understand how power dynamics may have shifted within your industry. Ask yourself these difficult but unavoidable questions:
- Are these changes incremental or fundamental? Long-term or short-term?
- Can you deliver the same value proposition given the new environment and your established resource capabilities?
- Ultimately, what strategic changes are required in order to best meet organizational and financial goals?
3. Strengthen your sales and operations planning process. Use the strategic review to guide your sales and ops planning. This is likely already a core part of your business management routine, but now is an opportunity to increase the frequency of planning with a time horizon that reflects today’s uncertainty. Translate your strategy into a detailed operational plan that meshes new P&L expectations and balance sheet supports and restrictions, including:
- Revenue: Recognize demand changes and secure your customer base through product and service changes. Rethink how flexible you can be for your customers. Closely monitor individual project ROI and prioritize those projects that can produce in the near term. Where should we be increasing investment to meet new opportunities?
- Optimize for productivity: Every dollar spent is an investment in your future. Perform a detailed spend analysis, and:
- Stay nimble — Avoid “spend inertia” by scrutinizing repetitive and semi-variable expenses, sole-supplier situations, monthly subscriptions, etc.
- Increase productivity — Flush out inefficiencies by streamlining manual processes and leveraging systems and automation for labor-intensive, routine tasks.
- Involve everyone — Enlist all employees in a collaborative effort to identify cost savings and deferrals and stabilize the top line. Drive commitment and follow-through.
- Strengthen working capital: Focus on what can be done now to reduce immediate risks. Extend payables? Increase cash cushion? Reduce inventories? Collect receivables faster? Improve credit terms?
- Sensitivity scenarios: Run multiple scenarios to not only determine the best path but also prepare for inevitable future adjustments.
Once you have established a new operating plan that’s consistent with your strategic goals, communicate the plan widely — then update and roll it out as needed (frequently, in times like these). Operational execution and measurement are crucial.
With most teams now working remotely, it's critical to monitor spending as it happens with live analytics. In an uncertain economy, waiting for the month-end is not good enough.
Clearly, this outline only scratches the surface of these topics. Nevertheless, I hope this helps in planning how your business will weather this period of uncertainty and position it for success once the crisis has passed.