Albu On Strategy

Five Steps to Manage a Downturn

We are facing some unprecedented challenging times right now, and the uncertainty of 2020 and beyond will make or break many companies. But in times like these, there are opportunities for the strong to get stronger. Successful CEOs/owners should be pursuing strategies that simultaneously address the short- and long-term. As Harvey Mackay said, “Companies that bend and change to deal with unforeseen problems will have resiliency to bounce back from adversity.”

Consider these strategies as you prepare to ride out the storm, and make sure you’re poised to take advantage of the recovery:

  1. Know your strengths and weaknesses – Understanding your core capabilities and areas of vulnerability is critical during a downturn. Capitalize on your strengths as an organization. Weaknesses in areas such as customer service, product quality, safety, or sales representation can be killers.  Fix weaknesses and leverage strengths so the organization is stronger when the economy begins to recover.
  2. Manage costs – During good times, companies tend to employ additional staff, carry higher inventories, and accept longer receivables. It’s time to bring your costs under control: identify areas of cost containment before sales go flat and margins go south. Organize cross-functional teams to identify and act on continuous improvement programs that will strengthen operations throughout the organization.
  3. Ensure your workforce is productive – Make sure you have the best possible team in place to get you through the toughest times. Divide your human resources into “A” performers (highly skilled and indispensable), “B” performers (less experienced but able and willing to learn and contribute), and “C” performers (can and will be a drag on the company’s performance during tough times). Strengthen your team by replacing “C” performers and making sure that “B” performers have opportunities to better themselves. Also, a downturn can be an opportunity to pouch “A” performers from competitors that are cutting back.
  4.  Prepare for the worst – During tough economic times, cash is king. Get a handle on cash flow needs, assuming worst-case sales declines. It’s best to understand what the worst could be and prepare contingency plans that address these potential challenges.
  5. Plan for the future –Companies with healthy balance sheets and strong cash flow need to position themselves to acquire market share at the expense of competitors. Now is the time to re-examine your long-term strategic plan and identify the revenue and profit growth opportunities you will pursue for the next three to five years. 

We are in uncharted water and it is still unclear where the light at the end of the tunnel will be.  Strong companies should capitalize on this environment to sharpen their skills and choose strategies that will strength, rather than weaken, their market position.

If you are interested in reading more about this topic, check out McKinsey’s recent article “Building Resilient Operations” in the face of uncertainty. 

We would like to hear how what you are doing to manage today’s challenges.  Please share this blog with others as you see fit.

Posted in Newsletter, Strategy Development, Strategy Management.