There is a lot of conflicting advice today on what businesses should and should not do to manage through uncertain economic times. Some say to cut costs and jobs while others talk of investing more in research and development, marketing, and attracting top talent. Some take a wholly financial look at a business with decisions made solely on “the numbers.” Others suggest approaches based on “pivoting” your business to new products, services, and markets and dogged attention to your customers.
In one of the few studies completed on how businesses successfully navigate through a recession, the Harvard Business Review’s 2010 study concluded, in part that, “According to our research, companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow do well after a recession.” In short, there is no one size fits all method for managing during these challenging economic times, there is only determining what is right for you.
So how do you do that? How do you determine when and where to cut costs, cut jobs, add staff, or invest? There are no easy answers, but the following process should give you the tools to help you make those decisions more effectively and may just help you sleep at night.
- Start with a clear direction or vision of the near future for your business. As Yogi Berra once famously said, “If you don’t know where you are going, you might wind up somewhere else.” Thus, a clear short-term business vision is the first and most important tool for guiding you through tough economic times. It gives everyone in the business the needed clarity (the “why”) so they can all be rowing the boat in the same direction. Click here for articles and tools to help you develop a clear and compelling business vision.
- Assess the need to Pivot. To pivot one’s business means to change your mission in some practical way. Since your mission defines what you do (your products and services), your target markets and ideal clients, and your unique value proposition, you need to start by assessing whether any of these things need to change based on current economic conditions. If you decide a change is needed, such as a new product to a new target market, this necessitates a change in your operational processes from marketing to delivery. Thus, you will know what processes are no longer valid (i.e., where you can immediately cut costs), what new things need to be developed, and where to make marketing and research and development investments.
- Assess current and develop new operational performance standards. Regardless what they are called, Key Performance Indicators (KPIs), Performance Metrics, or Performance Standards, these are the measures of performance for all functions within your organization and throughout your value chain processes. They are not just financial based, such as sales volume, costs, or profit. They include marketing efficiency, sales efficiency, product distribution, service delivery, client satisfaction, etc., along with the key performance measures of the individual teams and roles throughout the organization. Based on your short-term direction (vision) decisions and where and how to pivot, you need to assess your current performance standards and develop new ones that measure and drive this performance aligned to your new reality. In short, you need the measurement tools to determine when, where, and how staff is and is not performing, and when and if costs will need to be cut.
- Develop a contingency plan. Here you will determine the financial and other performance metrics that will determine when you will cut costs, cut staff, or both, from a macro level. That is, based on high-level performance metrics, you may need to make across the board type cuts irrespective of product, team, or individual performance. Generally, these guidelines will be based on a given percentage decrease in revenue (such as 20%) coupled with an estimate in a future decrease in revenue (such as an additional 10% decrease in the next quarter) and profit along with your current cash position or access to capital (such as through a PPP loan) to make up differences. The idea is to know where the hard lines are, where you MUST make the cuts you have outlined above, for the survival of the business.
- Develop and implement a communication plan. One of the most overlooked aspects of managing through challenging economic times is when, how, and what to communicate to staff and stakeholders regarding the status of the business and the likelihood of cuts to expenses and staff. But know this, staff and stakeholders either know or suspect, whether you communicate or not. By developing a plan on what, how, and how often you share expectations, performance, the impacts of how you pivot, and your contingency plan, you will develop greater trust, commitment, and teamwork from staff and stakeholders. Without a plan for honest communication, you create a situation rife for mistrust, dissention, and personal agendas.
With this short-term operational plan in place, you can now more effectively to determine where to cut costs and staff and know that you will be doing so strategically. By pivoting and being clear on your products, markets, and value proposition, your research and development, marketing, sales, and operations can be aligned and optimized. By communicating honestly, setting clear performance expectations, and setting clear metrics for when and how cuts will be made, you empower your team to control their own destiny, rather than having them feel they are victims to circumstance. And perhaps as importantly, you might just be able to sleep at night knowing you did all you could do today to keep your business moving in the right direction, and that you have a solid plan for tomorrow.
Look for additional articles in the next few weeks that will take a deeper dive into some of these concepts, and be sure to review my previous articles on taking control in uncertain times by clicking here.
As always, I stand ready to help you. Please click here to schedule a no-obligation consultation.