KEY POINTS:
Managing business in recessionary times calls for a combination of robust management skills and a positive attitude in the face of adversity.
Building internal fitness can protect a business during a period when markets are shrinking, cash flow is scarce, and profit becomes elusive.
It's easy in tight times to fall into a siege mentality and withdraw into an uncreative state of lockdown where you are unable to see positive views of your situation.
Instead, what is needed is a course of flu shots to strengthen the business's resistance to 'recession flu' and to maintain peak performance by the business and its managers. We might think of this as a set of actions to strengthen business resilience.
Resilience enables positive adaptation to situations of significant adversity. Resilient companies and managers can achieve good outcomes regardless of high risk environments; they perform under stress and recover well from traumatic events. The factors that help companies and their managers to be resilient can be clustered into four groups:
1. The quality of the business strategies, objectives and results.
In a resilient company there is a constant monitoring and collection of market intelligence. Given changing market environments, resilient companies constantly evaluate their strengths, weaknesses, opportunities and threats (SWOT) so their strategies evolve at the speed of change.
The fitness of business results can be tested with a balanced scorecard reporting process that scores business performance in financial and non-financial areas such as the ones listed below:
Financial Ratios
* Current Ratio (to test cash flow)
* Gross Margin per cent (to test profit leverage)
* Asset Turns (to test asset leverage)
* Ownership Ratio (to test equity leverage) Operational Performance
* Cycle Time
* Productivity Rates
* Quality Measures
* Delivery Performance
Marketing Activities
* New Market Development
* New Product Development
* Customer Relationship Management
* Competitive Benchmarking Intangible Asset Development
* Knowledge Management Development
* R&D Activity
* Systemisation of Business Processes
* Development of the Brand Value
2. The effectiveness of the team
Resilient companies have leaders with vision and drive who can motivate others to engage with them to achieve great results for themselves and the company. Management development programmes typically will include 360o Leadership Feedback, the Team Management Index and Emotional Intelligence surveys.
3. The physical health and wellbeing of the owner and the senior managers.
Resilient companies are staffed by resilient people. There is always a danger, especially in owner-managed businesses, for the needs of the business to take priority over the physical needs of the person. The result is often over work and stress, lack of exercise, poor sleep habits, high blood pressure and high cholesterol. To run a resilient company the owner-manager and other senior managers must be 'sound of body and sharp of mind'. To survive difficult and challenging times you must be in top form get yourself medically tested and start a fitness regime today!
4. Robust management systems and controls
Speed of change, business complexity and dealing with the 'unknown' call for particular management skills and practices. Survival practices help companies navigate through the 'recession landscape'. Three areas, above all others, deserve your attention - customer relations, process speed and cost control.
* Stay close to your customers. As far as possible develop individual, intimate customer relationships and systemise them by using customer relationship management (CRM) processes.
* Redesign your business processes to take advantage of today's digital technologies. Eliminate waiting time and other non-value-adding activities so that you can compete effectively on speed and cost.
* Know and manage your costs. Indirect overhead costs are reported in detail so they are relatively easy to look after. However direct costs are often grouped under direct labour and materials, obscuring a multitude of contributing costs that are not captured (cost of movement, staff turnover, quality failures and rework, shrinkage, cycle time and lost capacity etc.)
Maybe it's time to get you and your business into a survival-ready and resilient state. A resilience audit will include a strategic evaluation of your SWOT score in the context of your market environment, and a 'warrant of fitness' test on your business performance
Finally, remember there is immense power in maintaining positive attitudes and optimistic views of your situation. Visualising success, believing you can have it, and taking the necessary steps to achieve it, will always be the foundations of a resilient business.
* Dr Leith Oliver is executive in residence at the Icehouse. The Icehouse is a business growth centre focused on making a difference for New Zealand.
