Gaining Strength in a Weak Economy
How CPAs can think opportunistically and lead embattled enterprises.
June 15, 2009
The first half of 2009 has proven to be challenging for all companies, regardless of industry or size. But perhaps the hardest hit — or at least the hardest to manage — has been the mid-market companies. Burdened by a growth company’s cost structure but without the robust revenues of a larger company, these mid-sized companies often get the hardest “squeeze.” If you lead one of these embattled enterprises, only a series of smart steps will help your company survive the remaining quarters until a sustained recovery materializes.
Understand Your Business’ Economics
Now is the time to become intimately acquainted with all of the numbers of your business. Some soul-searching questioning should also accompany this exercise — What is the service that you provide to the marketplace? Why do people value it? How does your price reflect your value? As you ask yourself these probing questions, consider the following:
Adjust Your HR Engine
While human capital is critically important, it is also expensive. Think creatively about how to manage through these times.
Employees and contractors will never forget that you stood by them through uncertain times when many others were getting pink slips. Do everything you can to earn loyalty by avoiding layoffs. There are many measures: shortened work weeks, unpaid vacations, wage and hiring freezes, pension and medical cuts and reduced or eliminated 401(K) contributions are some to consider. At a minimum, create flexible work schedules and assure those who you want to keep that down-sizing them will be your absolute final resort.
Keep core activities in house and outsource everything else.
Build and protect those “core” capabilities that differentiate you, while aggressively outsourcing anything noncore. You’ll get the benefit of service provider expertise and economies of scale, and pay only for services you need. The benefit of outsourcing is that it shifts your focus, resources and capital toward serving your clients’ higher value needs and building your competitive advantage.
Top-grade your talent.
Take a sharp eye to your organization structure and assess where you can become stronger. With so much talent on the street these days it is a great time to consider re-aligning and strengthening resources. Perhaps you can eliminate two lower level positions into one higher level position with a stronger performer hired in to take the new position? As you outsource noncore activities find ways to streamline, but improve, the remaining in-house functions.
Find the Right Voice
The single most important element of leadership in times of crisis is communication. Remember that all eyes look to you for guidance and information.
Increase the frequency of internal meetings.
Frequent and honest communication will go a long way toward maintaining a calm and motivated workforce. Create regularly scheduled forums to listen to concerns, and update employees on the state of the company and their roles in achieving new company objectives. Studies show that employees are motivated more by a sense of shared purpose than by compensation. Create that shared purpose and reinforce it daily. It’s key for your team to feel that with creativity, tenacity and hard work, both they and the company can be successful.
Communicate honestly and strategically to all external constituencies.
Identify your key constituencies and communicate about the tough times ahead, but also paint a picture of the favorable prospects your company will enjoy after you’ve weathered the current storm. This is a unique opportunity to review and renegotiate expectations with all stakeholders, including investors. By keeping targets realistic and communicating frequently, you’ll manage expectations and build critical trust.
Recessions reshape industries faster than good times do, creating opportunities for those with the vision and ability to seize them quickly. Studies have shown that companies have twice the opportunity to change their relative position in an industry during a recession compared to growth times (Recessions Call for More Creativity, Not Less, Kevin P. Coyne and Shawn T. Coyne, Harvard Business Publishing Online, January 2008.).
New opportunities may exist to gain new alliance partners, to move into adjacent markets, to adopt new pricing models, or to enter new channels. Some of these opportunities may be created by the failure of competitors, and some may be created by a new customer appetite for solutions that show measurable ROI or reduce risk. Either way, be aware and take advantage.
However, a word of caution — make sure elements of financial health and soundness are evaluated carefully before taking this step as it will surely bring management distraction and new costs.
Preparing for the Other Side
This too shall pass; recent market activity would suggest the worst may be behind us. As you emerge from the day-to-day triage that has been 2009 so far, begin to think about what lies beyond and prepare yourself for the next stage.
Rethink planning assumptions.
Any planning process in the second half of this year will require a new set of assumptions. Likewise, strategic plans — created and likely put on the shelf last year — will have to be reviewed and adjusted for slower growth, constrained capital and lower returns. Make sure you allow for extra time and research in preparing new plans for 2010 and beyond.
Have your key lenders, suppliers, customers and/or employees stood by you? Did it require an unusual level of sacrifice? Once business metrics seem headed in the right direction again, don’t miss this opportunity to reward and thank those who have survived with you. It can be a simple as a “thank you” phone call, or a spot bonus, or a preferred customer/supplier pricing program. Think creatively!
Cautiously start rebuilding.
Nothing rebounds in a straight line. A sustained recovery will still have periods of down-turn. This can add fear, uncertainty and volatility to the period of time when the broader economy is righting itself. Pay attention to key industry, econometric and market signals. Remain cautiously optimistic, but don’t jump back into spending in an unbridled way. An ounce of hesitation is wise as each recovery historically has looked a little different from those before it.
Putting It All Together
During the growth years you ran as fast as you could to grow and capture share. The coming months will require clear-eyed expectations, fearless contingency planning and intelligent risk taking. Leading with the right balance of frugality and innovation will ensure your survival through the downturn and your emergence stronger than ever.
Cynthia Jamison, national director of CFO Services for Tatum, LLC, has served as CFO of seven companies and currently chairs the audit committees of two publicly traded companies. Companies turn to Tatum when critical business challenges arise because we immediately deliver financial and technology operational expertise via solutions tailored to the Office of the CFO. Tatum leverages nearly 1,000 executives and consulting professionals nationwide to accelerate results and create more value ™.