Preparing for the Upturn: Part V

Here’s how planning helps to prepare for the upturn. Apart from determining long term strategies, it is also important to identify the resources that will be required to implement them.

For a firm to rapidly expand during a recovery, financial resources will be required. These could be either internally generated or external sources of funding. To garner the levels of finance that are required to fund the expansion when it happens, the firm needs to ensure that certain pre-requisites are in place. These could pertain to building up the internal reserves of the firm or ensuring that the firm is credit worthy or attractive to external investors when the recovery starts. And this process must begin in the downturn, supported by short term strategies that enhance survival but do not have a negative impact on these factors in the long term.

A similar logic applies to human resources. I have dwelt at length on cost reduction through headcount management in earlier posts, so I will not go into details here. It will suffice to say that planned human resource management during the downturn will go a long way towards conserving them in the long term. This will enhance the firm’s ability to take advantage of the recovery.

Planning can also be applied to other resources. Infrastructure and support systems is another area. Once again, this process begins during the downturn itself. Very often, organizations cut down on infrastructure development or the implementation of support systems, citing cost reduction as a reason. This reasoning is myopic. Infrastructure never delivers results in the short term. Expecting it to produce immediate returns is unreasonable. And neglecting infrastructure or support systems essentially results in depriving the firm of long term resources, when they may be needed. There is a gap between the planning of infrastructure and its development. And there is a further gap between its development and utilization. So, by cutting down on infrastructure development during the downturn, the firm is substituting long term utilization of infrastructure with short term cost benefits, a trade off which can severely impair the ability of the firm to respond swiftly to market opportunities that may open up in the long term.

If a firm recognizes this, planning for infrastructure can be derived from the long term strategies that have been set, as described in an earlier post. If the strategies develop as planned, the infrastructure will be utilized in the time frame envisaged, and will deliver the return on investment that was planned. And, if the firm follows the scenario planning method I have mentioned in an earlier post, it is possible to tweak the infrastructure plans (though not significantly, as infrastructure is largely a sunk investment), to match the scenario that eventually develops and the strategy that is finally followed. The important thing to remember is that, irrespective of the scenario that unfolds and the environment that prevails, infrastructure and support systems will always be required in the long run. Compromising on these debilitates the firm in the long term, even if it delivers cost benefits in the short term.

In my next post, I will examine how the need to optimize efficiencies during a downturn can serve an organization well once the recovery sets in.

Preparing for the Upturn: Part IV

So, how does one prepare long term strategies when short term forecasting is difficult?

One answer is scenario planning.

This is how it works. When the future is uncertain, there could be a range of possibilities. While it is difficult to determine exactly which set of possibilities will eventually hold sway, it is possible to arrive at different scenarios with varying probabilities of occurring. Given that in this specific instance we are talking about scenario planning for a recovery, the upside risks will be significantly higher than the downside risks. Which makes it much easier to put together the scenarios, since one can usually anticipate the different opportunities that present themselves during an upturn.

Based on these scenarios, strategies to capitalize on the opportunities presented by each scenario can be prepared. Since each scenario has already been assigned a probability of occurrence, it is relatively easy to prioritise the strategies.

This is just one method of setting long term strategies. If anyone out there has any other suggestions, I’d be glad to hear them.

In my next post, I am going to talk a bit more about planning and how it can help prepare for the upturn.