Filed in Strategy

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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For a limited time, we are offering existing and potential clients a complimentary strategy audit. We will work with you to understand and evaluate:

• The quality and completeness of your existing vision and strategy
• The robustness of your existing strategy to various recession scenarios
• How well you are on track to achieve your desired goals

We then work with you to explore options for filling the gaps to improve your vision and strategy, and be better prepared for whatever this recession has in store.

For more information or to schedule an appointment, contact Konrad at 415-927-8070 or via the Contact Us page.

Try as we might, we can never accurately predict the timing or depth of a recession. The best we can hope for is a set of scenarios with probabilities associated with them. As the Nobel laureate Paul Samuelson once said, “Economists have correctly predicted nine of the last five recessions.”

One thing that seems clear about recessions is that they cause significant industry shakeups. Some companies that were leaders in their industry fall from their heights, and others rise to take their places. McKinsey compiled a data set on the last recession (2000-01), and found that nearly 40% of leading U.S. industrial companies toppled from the first quartile in their sectors during that recession. About a third of leading U.S. banks fell as well. During the same period, 15% of companies that had not been industry leaders prior to the recession vaulted into the top quartile during it.

The are many reasons why some companies lose leadership positions during recessions and others gain them, but it generally comes down to smart planning and decision-making. See my article Strategy in a Downturn for best practices companies can use to maintain or grab leadership positions in their industries.

I have often found myself in conversations with clients about the meaning and purpose of some of the most fundamental business terms — words like Mission, Vision, Strategy, and Values. It surprises me how often people on the same team have differing ideas about what these words mean, and how often I hear fuzzy thinking about these terms. The result can be significant mis-communication and mis-understandings about the direction of the organization. It is very hard to focus on what you cannot define.

I find that many leaders use mission and vision interchangeably, or think that the difference between them doesn’t matter much. Another related problem is mission and vision statements that are vague, lofty, or have little connection with the real work of the organization.

Let me suggest some definitions that have worked well and solve these problems. They are based on decades of strategy work with clients, as well as authors such as Collins & Porras (Built to Last), Steven Covey (Principle Centered Leadership), Peter Senge (The Fifth Discipline), and Kaplan & Norton (Strategy Maps). Even a dictionary can be amazingly helpful.

Mission: Enduring purpose. The fundamental reason for the organization’s existence beyond just making money. It is a direction, a general heading, a perpetual guiding star on the horizon. It does not change over time. It is generally abstract and can never be achieved, only pursued. For example, for NASA: “advancing man’s capability to explore the heavens”.

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It’s common knowledge that for a team or organization to be effective it must be aligned around its Mission, Vision, Strategy, and Values. But how many of us actually take the time to inquire into how aligned we really are?

Our first Practice of the Month is all about looking at the state of alignment in your team or organization with a curious and open mind. As you talk to people you work with this month, engage them in conversation on these topics:

• How would you define Mission, Vision, Strategy, and Values?
• How confident do you feel that you understand and can articulate the Mission, Vision, Strategy, and Values of your team or organization?
• What do you think the Mission, Vision, Strategy, and Values of your team or organization are?

Take notes as you discuss these question with people. When you get to the end of the month, look through your notes and see what themes you can identify. Are there basic differences in how people define these terms? How much variation is there in what people describe as the plans of the team or organization? How confident do people feel in their understanding?

You might consider sending out an email or memo summarizing your findings. It could be a valuable contribution to your organization to reflect the level of alignment that honestly exists today.

I’d love to hear your stories of what you learn!