Archive for November, 2008

Creating and sustaining a good long term strategy for growth isn’t easy even when times are good. But what do you do when things are looking worse than your worst case scenario? Conventional Wall Street wisdom says you should abandon your strategy, cut staff to the bone, and focus on the short term — getting through this quarter. What’s the problem with that approach?

First, studies show that layoffs tend to result in an exodus of valuable employees. Second, making cuts across the board compromises your organization’s competitiveness in the longer run. And third, abandoning your growth strategy will leave you unable to take advantage of the inevitable upturn when it comes.

So, what are we to do? Difficult times require extra effort and creativity devoted to strategy. Your strategy needs to be much more than a plan for growth. It needs to address all the issues that a downturn brings, be robust against a range of possible downturn scenarios, and prepare the organization for growth as the economy recovers. Here is a top 10 list of guidelines to consider:

1. Explicitly address economic scenarios. Look at a wide variety of economic scenarios (demand, growth rates, interest rates, competitors, etc.) and map them out. Determine the likelihood of each scenario occurring. Consider what would happen when multiple scenarios interact. Test out what will happen to your business in each scenario. Finally, devise strategies that will work best in each scenario.

2. Take measures to cut costs and improve efficiency. Take this opportunity to weed out less successful products from your product lines. Cut corporate “luxury” items, like entertainment, travel, and conferences. Be careful not to cut costs that are core to the business and might compromise its competitiveness. And be careful not to over-react to the downturn as well. Rather than cut costs across the board, perform “surgical” cost cutting that removes the expenses that are the least productive.

3. Generate and conserve as much cash as possible. Balance sheet flexibility is critical in an environment like we have today. Prioritize projects and investments for their ability to generate cash in the near term. Extend payment terms where possible. Get accounts receivable up to date. Think about ways to turn assets into cash, such as selling plants or equipment and lease them back.

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