As it seems we are slowly going to come awake after the close-down, it is timely to consider the steps we need to take to ensure that we survive the revival. Over 45 years of working with all sorts of businesses, in all sorts of situations, there are a number of common lessons that may be useful for you to consider.
Lesson 1. Cash availability.
You need cash to rebuild. During the downturn in activity, hopefully you have ruthlessly husbanded your cash, sold unnecessary assets, reduced inventory, reduced your cash conversion time, and cut out the ‘fat’ that accumulates when times are not so tough. Having cash on hand offers you the agility to be opportunistic.
The best way to preserve cash is to stop doing the things that lose it.
Generating cash by increasing debt can be attractive at a time of low interest rates, but debt driven cash also works against you if the plans you have do not work out as expected. Leverage works both ways.
Lesson 2. Have a plan.
This is generic advice, but you must have a plan. In the absence of a plan that is the framework for the allocation of limited resources, you will end up chasing your tail. In summary, you actually need several ‘nested’ plans that cover the key activities, each level driven by the others, but contributing to the achievement of the overall objective.
- Strategic plan: identifies the key overall objectives for the enterprise, defining broadly which markets, customers, technologies, geographies and channels that will be the priority.
- Revenue generation plan: identifies in more detail where and how the revenue will be generated, and the resources necessary to achieve the revenue.
- Financial plan: Projects the detail of the costs and returns generated by the activity. Usually these will be expressed as an annual budget, but given the uncertainty of the future, I strongly favour a rolling three month financial plan that acts as a go/no go trigger to other activity. This provides management information on an ongoing basis that enables the people in the organisation to learn, and make better decisions as a result.
- Operational plan. For manufacturing enterprises, planning your operations is essential, as they can be significant consumers of cash. Managing inventory and the optimisation of process flows through a factory will be an ongoing challenge. Operational planning is also essential in service enterprises, but is less obvious, as the key operating assets walk in and out of the building every day, or at least they used to, now they may just log on and off.
- People plan. An enterprise cannot function without people, they are the glue that holds everything together. Therefore deep consideration of the people and capabilities they bring, and that you can help them develop, is essential to success. For SME’s, finding and keeping good people is a significant challenge, and a huge cost burden when mistakes are made. As general Eisenhower observed: ‘Plans never work, but planning is essential’
Lesson 3. Ensure everyone is aware of the ‘Money in Vs Money out’ equation. Every individual in an enterprise has some level of control over this money in/out equation. Often it will be just the recognition of the cost of their labour compared to the value of the output they generate. The greater the awareness of the equation in an enterprise, the greater the chance that cost savings that do not impact on revenue will be identified and acted upon. While you cannot save your way to prosperity, every person in an enterprise should be focussed meaningfully on the equation, and optimising the expenditure of the key resources: money and time.
Lesson 4. Continuous improvement. Every profitable enterprise is a collection of processes that deliver, in some way, value to a customer. The profitability challenge is to do so at a rate less than the cost to the enterprise to supply it. Simple. However, collections of processes inevitably generate waste in many forms, which when removed, save time and money, while maintaining enterprise margins. Every tiny improvement that can be made, should be, as improvement become cumulative, and over time delivers huge benefits.
Lesson 5. The inmates must run the asylum. The traditional model is top down by decree, but this no longer works well enough to be sustainably competitive. Part of the planning should be aimed at building the ‘engagement’ of every stakeholder at every level. We know enough about human psychology these days to know that crucial to this engagement is giving control of every individuals workspace to them, and manage by outcomes rather than by activity. The corona bug has accelerated the trend to remote working, the ultimate expression of this upending of the typical management pyramid, by a decade. The huge management challenge is to articulate the limitations of every individuals decision-making power, and for most businesses to completely throw away their existing personnel assessment processes. KPI systems are almost always based on activity, and need to be replaced with KPI’s based on outcomes linked to the overall strategy. This will be very hard for some large organisations where those that make these decisions to change owe their current position to being able to game the existing system. As a result, many will be reluctant, or indeed unable, to change themselves or the system.
It is easy to sit back and write a post such as this, based on 45 years of experience, but it is way, way harder to implement. It will take focus and determination, and some very tough choices to succeed. When you need some assistance, call me.
Header photo credit: Notre Dame rebuild. Diane Worland via Flikr.
