Economy

What Do You Do After You Cut Costs? Two Things!

After one or two or three rounds of cutting costs, now what do you do?

Cutting costs as a method to achieving profitability rarely works, but this is especially true in the current recession.  The falloff in September 2008 was so precipitous that there was no way for companies to “trim the fat” in order to be profitable.  

Several companies I’ve worked with on organizational restructuring efforts over the past 15 months lost 30%, 40% and 50% of their revenues. In the most extreme case, one company that asked me to help them ended up losing 68% of their revenues.

There is no way to cut enough costs to make a company profitable in these circumstances.  So, what do you do?  The only option is to reinvent the company.  

It’s about taking a leadership team through a 5 month strategic planning process in 5 days.  In essence, it’s about asking “based on these new realities, what are the market opportunities that we are uniquely qualified (compared to our competitors) to take advantage of?” This process is hard to do while the ship is still on fire and sinking.

What’s the secret to successfully navigating these treacherous seas?  It’s two things. Use an effective planning tool that bubbles the best opportunities to the top quickly. And, it’s about understanding how humans behave in high stress situations and still being able to capture their attention and creativity while they are in shock and bailing water.

Sure, it’s easier said then done, so proceed with caution.  But, it’s often the only way to restore an organization to profitability when cost cutting isn’t enough.

More Of The Same In 2010

Eariler this week two Federal Reserve governors delivered bad news and really bad news.  Both said that, while the economic recovery is underway, we are likely to experience a “jobless recovery.”  Worse, they said their analysis indicated that unemployment would recover over a period of years, not months. 

In light of these challenging reports, what are you doing to improve the current and future results for your company?  What we’re experiencing is not a pause between innings.  We’re now playing a different game.   

With the game now tennis instead of kickball, some business leaders still insist they still don’t want a tennis racket?  They’ve decided to kick the tennis ball.  Let us know how that works.

Maybe it’s time to think about making the changes you should have made five years ago in your company.  Today could be the day when you establish the plan that will lead your company out of the danger zone.  If you wan’t an outsider’s perspective, call on us for a free no-obligation consultation. 

More Trouble Ahead For Struggling Companies

Over the past four weeks, I’ve heard the same disturbing comment from at least six different people in different industries.  I’m hearing that companies that have been relying on their “rainy day fund” (i.e. savings and/or line of credit) to get them through the recession are reaching the end of the line with no end in sight for the recession.  Are you hearing the same thing?  Are you experiencing the same thing?

If this is true, we are in for another round of companies faced with dire options. 

I can’t effectively give consulting advice in a blog post, but if you are faced with this situation, I have three suggestions:

• Get help sooner rather than later.  You’ll need a proactive banker, a proactive CPA and a proactive business attorney.  If any of these three people have not been helping you proactively, replace them.  One client facing possible collapse was told by their CPA to make sure they got their statements out on time and to watch their accounts receivable balance.  That’s crap advice given by a so called professional only interested in collecting their hourly fee from a safe distance without any accountability for results!  Fire them as an advisor!
• If you’re faced with layoffs, cash flow problems or the prospect of closing the doors, get the help of an organizational restructuring or turnaround consultant.  But, be careful.  Find a person with the temperament that you are looking for.  Some aggressive turnaround consultants will come in and leave a wake of blood and broken glass that only makes the situation worse, not better.
• As much as you will focus on surviving day to day, focus on deciding which parts of the company are performing well.  What do you do well, provides the customer lots of value and is not easy for competitors to copy?  If something meets all three criteria, it’s called a strategic competency and it is the “secret sauce” that is unique to your company.  Maybe you’ll decide to discontinue products or services that don’t meet that criteria.  If that’s the case, at least you won’t be cutting the parts that can be a strong foundation for your company’s recovery.

These are very challenging times.  There are dire consequences and opportunities along the path.  All the best at negotiating the terrain ahead.

Personal Note: If I can be of assistance to any organization faced with this situation, please don’t hesitate to contact me for a confidential, no cost and no obligation phone call to discuss the challenges you’re facing.  

Jim Connolly
(309) 828-9060

The Real Challenge Comes After The Layoffs

You never considered that you’d be in the position to have to lay off employees.  With rare exception, your employees have been loyal and hardworking.  Some of them have been with you so long, you can’t recall when they weren’t there.  And now…now you have no choice.  You have to lay off some of them.  And, you know, that the words “lay off” are not really the right words, because you know that…they won’t be back.

You blame yourself for letting things get to this point.  “I should have fixed our problems when they first appeared,” you say.  That, coupled with this economic perfect storm, and there are no alternatives other than closing up altogether.  If the company is going to survive at all, you have to do this.  You’ve put names on a list and you’ve looked at that list a hundred times trying to find another way.  Now it’s time.  You’ve decided to have an all-employee meeting first to announce the layoffs and then meet with the affected employees.  You don’t know if that’s the right order for these steps, but it makes sense to you.

After the all-employee announcement, you meet with the affected employees one at a time.  You could have assigned this dreadful task to your supervisors, but you knew that wasn’t the right thing to do.  As you meet with each employee you are struck by the differences in their reactions.  Some are numb and in shock.  Some are angry.  One comes close to attacking you.  Some fight back tears.  Others cry.  One sobs.  And, shockingly, two of them apologize to you because they feel bad that you have to do this. 

It’s done.  Now what?  You haven’t given much thought to what to do after the layoffs because your entire focus has been on that dreadful day.  Now what?

After the layoffs the mood has changed significantly, but you find it difficult to describe.  You realize that some employees avoid eye contact with you hoping you won’t call them into your office next.  Others are still in shock.  A few more are angry.  All of them have unanswered questions.  “Wait a minute, that’s it!,” you exclaim.  They have unanswered questions and now you know what to do.  So you make a plan.  It’s called BLACX3 (pronounced Black X 3)

• First you realize that you need to help your remaining employees see the (B) big picture.  You talk about why the layoffs were necessary from a business and financial point of view.  You also help the remaining employees grieve losing their co-workers and friends.  You help them see the big picture.
• Second, by observing your employees you suddenly realize that they are…(L) lost.  They have lost their way because their predictable, stable world has been wrecked by a tornado.  Some of them also feel guilty for keeping their jobs.  The key is to focus them on what to do now.  They know all the things that need to be done, but they are lost and they don’t know what to do now.  Give them direction and guidance and help them find their way back.
• Next, help employees (A) adapt.  Help employees deal with all the changes.  Not only the changes made by laying off employees, but all the changes caused by the layoffs that are now rippling through the organization.  Procedures and processes are being changed because some of the people in the procedures and processes are gone.  Change is everywhere and it feels like a different rollercoaster ride every day.  Help them adapt by working side by side with them to make the changes that are necessary.
• Finally, CX3.  Communicate, Communicate and Communicate.  Employees will go through a predictable series of steps as they restore themselves to full productivity.  The key is to listen to the questions that are nagging at them.  Help them ask those questions and work to answer those questions one at a time.  When they finally accept your answer to that question, they’ll move on to other questions.  Be patient and stick with them, one step at a time. 

What you are dealing with is the predictable human psychology process of adapting to change.  If you, one day, in your frustration, snap at the 12th question on the same topic and yell, “Shut up and go back to work,” restoring the productivity of that employee will be almost impossible.  Your employee may become frozen and stuck in the change process.

The hope is that all employees will move through the change process and be restored to full productivity.  Honestly, it’s likely that not all of them will make it.  As time consuming and “touchy-feely” as this process sounds, it’s your best route to restoring the company’s financial performance. 

As incomprehensible as it may seem to think about layoffs and cut backs, don’t forget to give thought and preparation to the real challenges that lie ahead after the layoffs.  The future of your company depends on it.

2 Strategies To Reduce The Impact of Economic News on Business Decisions

The Dow Jones Industrials Average is down again.  Gas prices are up.  Unemployment is well above expectations yet again this month and layoffs keep coming.  It’s a wonder anyone can sleep.  And, the bad news keeps coming. 

How should we as business owners react?   The more alarming question is to ask how the bad news is impacting decisions that employees are making in your organization on your behalf.  There are many things you could do, but here are 2 high priority organizational behavior strategies to reduce the impact of bad economic news on employees and the business decisions that they are making on behalf of your company.

Expect The Economy To Get Really Bad

This is not just a psychological exercise to reduce stress.  Instead, if you really expect the economy to get really bad, then establish a plan for how you will react and the steps you will take as the economy gets worse.  Then, the news you hear daily simply reinforces the premise and the plan you’ve had all along.  Otherwise, this is a vicious downward cycle.  Break your own downward cycle and help your employees do the same.
 
When confronted with fearful news and/or events, the human brain may kick in the basal instincts of FIGHT or FLIGHT responses.  When that happens, the ability to reason and calculate a response is gone.  The FIGHT or FLIGHT response takes over and every piece of bad news just makes it worse.

Expect the economy to get really bad and, at some point, you’ll be wrong when things actually start getting better.

Resist Short Term Thinking

In short, don’t overreact.  While you may be faced with some really difficult decisions because economic conditions have changed the rules of your game, don’t think only short-term. 

For example, instead of laying off your customer service people, can they, for a period of time, be offered to your larger customers whom they serve every day?  Large companies may be laying off permanent employees, but they may welcome your already trained people under a contract arrangement.

Resist short term thinking and look for opportunities to preserve and proactively build your business.

In summary, apply these two strategies and you’ll achieve better results than would otherwise be possible in this economic recession.

Now Is The Time!

Economic uncertainty can present many challenges for the business leader.  These challenges include falling sales, increasing costs, lower productivity and a hesitation to proceed with plans for growth and expansion.  On the other hand, economic uncertainty may also be a great time to evaluate your operations and make the most of the opportunity to improve organizational performance.  Why is now the time?  There are thee reasons.

First, tough economic times often expose weaknesses that are present in an organization, but that are not as noticeable in good times.  There may even be issues that are undetected when times are good which are more clearly seen now.  For instance, if you have four product lines and the company is making good money in a period of solid growth, the company may not give much attention to the fact that one of those product lines is losing money.  Overall things are fine.  But, when times get more challenging, we often look more closely at the details.

The ebb of the tide may expose issues in your organization that need to be addressed.  Some of these challenges might include low productivity, poor service, inefficiencies, low morale, ineffective leadership or a cost structure that is too high.  When things are going great, these issues are easy to pretend away.  Now is a great time to address these issues and improve your organization’s performance.

Second, in more challenging economic times, high quality talent may be more readily available.  I’m not suggesting just hiring high quality people that other companies simply can’t afford anymore.  More than that, I’m suggesting that, if your company is in better shape than a competitor’s organization, you might be able to recruit away a star player for your team.  It happens in professional sports all the time.

Tough economic times are not always just a time to hunker down and wait out the storm.  There may be opportunities to build on to your company’s offerings, capacity and expertise.  Consider this possibility and you may advance your position in the marketplace.

Finally, challenging economic times are a great time to plan for market opportunities that lie ahead.  Take some time now to define market niches in your industry that might give you a good chance of dominating those niches.  Do you want 1% of a huge market where you are at risk of being squashed?  Or, do you want 70% of a niche in the overall market?  For example, do you want 1% of the PC market or 70% of the rugged built PC market?  Do you want 1% of the leisure travel business or 38% of private label tours sold through travel agents?

Spend some time analyzing key market opportunities and identify where your company could succeed while your competitors can’t succeed.  Here’s an example.  Can you provide smaller volumes of a highly customized version of a product or service while a competitor is only set up to do larger volumes of products or services that have no customization?  If you pursue that market niche opportunity, you could dominate that market while your competitor would have a hard time competing with you.  Think about where there might be those kinds of opportunities in your market.

If we were able to choose, we’d choose economic expansion over economic uncertainty.  However, economic uncertainty provides opportunities if we’re willing to investigate them and pursue them.  Be the company in your marketplace that takes advantage of those opportunities.

Delivering Results In Spite Of The Recession

The National Association for Business Economics (NABE) just released survey results that indicate what many of us seem to know, but haven’t said out loud; the economy is getting worse and won’t recover quickly.  According to their survey, completed November 7, the U.S. economy is contracting at a 2.6% annual rate in the 4th quarter of 2008 and will fall at a 1.3% pace in the 1st quarter of 2009. 

These results are a big change from the survey conducted in September, which forecasted slow growth for the same periods.  These are the experts and even they don’t know where the bottom is. 

How bad will it get?  Chris Varvares, NABE president said “There has been this perfect storm that has slammed the consumer sector.”  Not since the Great Depression have we encountered a housing bubble collapse, a credit crisis, skyrocketing energy costs, a plummeting stock market, a recession and increasing unemployment all at the same time.

So, if this new forecast is accurate, how are you preparing your organization for the recession?  Here are four steps that business leaders should take to weather this perfect storm:

First, cut 20%.  This is both a financial step and a mental exercise.  Let me explain. 

Financially, ensure that your company can weather the storm by increasing cash reserves and cutting expenses significantly.  If the economists can’t predict where the bottom is, we all have to be prepared to survive this recession. 

As a mental exercise, decide what you would actually cut if you had to reduce your budget 20%.  The value in the exercise is that it forces you to prioritize what you would keep and what you would cut.  It helps you narrow your focus and put your efforts into those activities that provide the best return.  So, this chapter of economic turmoil may actually help you improve your organizational performance and financial results.

Second, challenge the “It Can’t Be Dones.”  You already have a picture in your mind of one of your employees who frequently says that it can’t be done.  But, I’m also talking about the unwritten “rules” that drive your organization.  It takes five days to ship an order.  We’re not set up to do big jobs.  We have to follow the ten step project management process.  Our management team always meets for four hours.  That machine can’t be operated by less than three people.

This economic downturn is a perfect excuse.  Cancel your four-hour management team meeting and have your managers go challenge every “It Can’t Be Done” and every unwritten rule that operates in your organization without your permission.  If your managers have the “It Can’t Be Done” disease, start with them.  Use the economy as an excuse to improve productivity.

As you face the “It Can’t Be Dones,” you are also thinking of that employee whose issues go beyond “It Can’t Be Done.”   Everyone else has to work around them and their issues.  Others handle issues so that he doesn’t have to get involved.  You’ve moved her so that she has less customer contact.  He says he’ll get the job done, but he doesn’t.  As people come in they walk on eggshells to see if Dr. Jekyll or Mr. Hyde showed up today. 

This leads us to step three.  Work up the courage to have the conversation that should have taken place months ago. It may be messy.  It may be disruptive.   But, it will be less disruptive and less costly than to let it go on.  Besides, you’re losing credibility with your employees by letting it go on and on.  They’re more annoyed at you than at the problem employee.  Call your employment attorney or another trusted advisor and talk through how to address the issue at hand.  You and your employees will be more productive and you’ll enjoy coming to work again.

Finally, increase your marketing.  Yes, I did say to cut your expenses, but I didn’t say cut your marketing expenses.  In an economic recession, the pie gets smaller.  You have a decision to make.  Accept a smaller slice of a smaller pie…or, use this time to get stronger while your competitors get weaker.  Increase your marketing efforts and sell the benefits of your products or services like never before.  Reach out to old customers you haven’t done business with in a while.  Enter a related market niche in order to get a slice of more than one pie.  Advertise to your existing customers.  You’ll be amazed to find out how many existing customers don’t know what else you sell.

By all accounts, we are in a recession.  Will you be a victim of the recession or will you be victorious over it?