New Choices for New Challenges
Authors: Paul Nunes, Caroline Firstbrook, James Ellis www.accenture.com
operational imperatives for managing throughout a crisis
In January 2009, Accenture produced an interesting article in their Outlook magazine, a journal of high performance business which has relevance for all of us in business. They were looking at the impact of the global financial crisis the impact this was having on the strategic decision making options available to business in uncertain times of stability, profitability and growth.
In the article, the authors noted that “The economic downturn touched off by the implosion of the global credit markets continues to batter companies around the world. By almost any measure, …. what makes this crisis much more challenging for business leaders …. is not just its severity but the volatility and uncertainty which have accompanied it.”
Below is an abridged version of this article, with some additions relevant to the Small and Medium Sized Entreprizes (“SMEs”) in Australia.
The authors identified four operational imperatives will be critical to manage throughout the crisis.
#1 Rapid and sustained cost management
Costs, assets and investments must be scrutinised rigorously along the entire value chain, from Research & Development, through to the supply chain and customer service. Indiscriminate cutting of costs or jettisoning of assets will leave companies unprepared to rebound during the upturn.
#2 Customer acquisition and retention
Companies should focus on sustaining their customer bases; some may even be able to take share from weaker players in their home markets while building new markets elsewhere in the world.
#3 Operational excellence
Companies should determine what their model is, where it is weak, and how it can be manipulated to ensure operational excellence (in manufacturing, customer service, sales, distribution, marketing, innovation).
#4 Effective merger and acquisition (M&A)
A focus on M&A is actually even more important during tough times, when bargains suddenly become available. But, the noted, cheap, troubled companies are likely to come with demoralised employees, processes in disarray, and balance sheets in tatters.
MANAGING THE EXTRAORDINARY
From the recent and long running good times, businesses will find themselves in different positions depending upon how they have performed during these good times.
Where they sit now is a function of their current cashflow and their current balance sheet. Some may have strong balance sheets but due to investments in the good times, they are currently cash poor. Others with weaker balance sheets may not have been able to identify and/or afford acquisitions in the good times and may now have stronger balance sheets and cashflows.
THE STRATEGIC OPTIONS FOR BUSINESS OWNERS
Accenture’s article identified 3 generic strategies and some tactical responses to these strategies. The importance of their analysis is their observation that these strategies and tactics must be pursued at the same time as management is dealing with the day to day operational issues and ensuring the morale of the employees and management team is maintained so that the business comes out of the current crisis in a stronger position.
Some of the tactics identified by Accenture have been adapted to the SME environment in Australia where global sourcing issues are not always available or cost effective.
STRATEGY #1: SURVIVAL
The management team of a company in survival mode should focus primarily on short term actions to ensure the business continues to operate as an independent entity until better times return.”
Tactic #1: Reduce debt
Renegotiating debt is a priority to lower the costs to the business. This may mean moving out of principal and interest debt facilities to interest only debt facilities. It may mean moving financiers to obtain better interest rates or perhaps lock in at lower rates. For example, debt funded by a home loan is generally significantly cheaper than business debt.
Selling non-core assets may also assist or reducing working capital, particularly stock and debtors. This is not always easy but now is the time to ensure no slack assets’ are kept on the balance sheet.
Tactic #2: Cutting costs
Cutting costs in obvious areas such as executive perks not only conserves cash during survival but it also sends a clear message to employees that every cost needs to be watched carefully.
Many businesses can save money in more efficient purchasing, taking advantage of cash discounts to reduce costs and improve margins.
In these tough times, employees are expecting change so now can be a good time to change the mix of full time/part time workers as well as look at new and innovative ways of cost reduction such as job sharing, working from home offices etc.
Tactic # 3: Renegotiating employee obligations
This is an issue for those larger businesses which may have defined benefit pensions.
STRATEGY #2: REPOSITIONING
This applies to those companies which have strong balance sheets and healthy but perhaps reduced revenues.
Tactic #1: Embracing a new operating model
Many companies have the option of looking at where and how they can organise their business. For these companies, these questions are relevant:
– Where is the future growth coming from?
Tactic #2: Harnessing the power of the global economy
There are markets which are less impacted by the global slow down. It is now a good time to understand where you might be able to take your business into new markets and look at low cost options for sourcing labour and materials.
For example, an interesting but unusual example is the recent trend for some accounting firms are out-sourcing tax return work to Australian educated Asians who have returned to their home country.
Tactic #3: Invest in innovation
Even during a downturn, it is good to refresh products and services and the way things are done from the perspective of servicing the customer.
Tactic #4: Upgrading human capital
With many firms experiencing lay-offs, now is the time for some firms to upgrade the quality of their employees. By mapping their required skills against what they currently have in-house, a business can identify gaps and look to fill these from the greater pool of talent in the market place.
Tactic #5: Going green
Even in these tough times, companies shouldn’t abandon green goals as the focus on sustainability and reliability of supply of energy needs shall only increase, with higher prices being paid for energy over the coming years.
From innovative energy and resource efficiency concepts such as smart buildings and recycled water usage for industrial purposes to measuring suppliers on sustainability metrics, there are many options to start making the move towards green sustainability.
One thing is certain: the laggards in this area will be targeted and identified by their industry competitors so it is best to get in early and start the process of adaptation.
STRATEGY #3: GROWTH
The strongest companies will use the downturn to grow. Some will build market share through acquisitions and geographic expansion. Others will look to adding on customers in existing markets and building brand strength.
Tactic #1: Inorganic growth
Industry consolidation will still provide opportunities. The benefits of scale, broader geographic reach and access to scarce resources will continue to make acquisitions attractive.
There are also many opportunities at the smaller end of the scale where perhaps an offshoot has not performed at a level required by a much larger parent and rather than deal with the small businesses which distract management resources, they are put on the market or they are available for either a management or competitor buy-out.
Where debt has caused the problem, there may be businesses which have even gone into liquidation but which are fundamentally sound businesses.
Tactic #2: Organic growth
An increasing focus on customer-centricity will provide opportunities even in an era of eroding loyalty and declining product advantage. To do this successfully, companies need to incorporate the customer’s perspectives, values and actions across their own businesses in terms of both strategies and operations.
New technologies are also available which allow the design of products tailored to a particular customers needs.