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.

Preparing for the Upturn: Part I

Strange as it may sound, preparing for the upturn actually begins in the downturn. Yes, that’s right! Most of the strategies that I’ve described in earlier posts, which help manage the downturn, are double edged strategies that also help organizations prepare for the recovery. And that is why I’ve been at pains to emphasise that while managing a downturn, it is imperative to keep a longer term focus and not resort to knee jerk reactions that may have short term benefits that are superficial in nature, but may simultaneously chip away at the long term competitiveness of the organization by depriving it of resources and competences that will be required once the recovery sets in.

Preparing for the upturn is all about ensuring that processes and resources within the organization are in place to exploit opportunities that will begin to present themselves once the recovery begins. And, as we all know, rigorous preparation can never be done in a day. It takes time, patience and planning. Which is why the downturn itself is a good enough time as any to start. If an organization decides to wait out the downturn, in order to conserve resources, reduce costs and manage profits during the downturn, it may find itself lagging behind competition once recovery sets in, and it may miss the bus when opportunities present themselves. And this will happen precisely for the reasons the organization has waited so long. Since it has conserved resources, it will not have the time to begin building up the resources in time to seize the advantage; its cost reduction measures would have become hardwired in the system and difficult (and costly, ironically!) to reverse, proving to be the proverbial millstone.

What does this mean for the leadership of the organization? The implications will be the subject of the next few posts.

Managing in a downturn: Mistakes CEOs make

I've never understood this. Whenever there is an economic downturn, organisations go into "survival mode". They begin slashing costs, retrenching employees, restructuring the organisation, cutting marketing budgets...in sum, a host of "priorities" take over. I can't help comparing it to a kind of preparation for hibernation, where the metabolism begins to slow, the body tries to conserve energy and in general, the organism becomes sluggish and sleepy.

Does this analogy extend to the world of business? In today's competitive scenario, I believe it does. The impact of all these strategies for survival is to stifle opportunities which the organisation would have otherwise aggressively pursued in its endeavour to grow profitably. It reduces the inclination to be innovative and experiment with new business strategies, especially those that are the most innovative and, therefore, appear to carry the greatest risk. The net result of these measures may well turn out to be the equivalent of commercial hibernation; stagnation or even reduction of revenues and profits, and it may be difficult to recover in the long term.

While I do not for a minute believe that organisations should not attempt to protect their bottomlines when the market for their products or services is shrinking--and I would not like to generalise, since there are organisations who have genuine cashflow problems which can only be tackled through drastic measures--I would like to argue that organisations should not adopt a blinkered approach or ignore opportunities for growth.

The purpose for the existence of any firm is to grow through acquisition of new customers, increasing the business, profitably, from existing customers and retaining their existing customer base. I believe that organisations would be better served if their managements were to focus on these three key areas in a downturn; strategies to achieve these objectives would be more effective in at least maintaining revenues and profits in a downturn, as well as ensure that the organisation is well prepared for the upturn when it happens.

The next few blogs will dwell on some of the issues I have outlined in this blog, and explain:
a) how an organisation in survival mode can harm its long term prospects and weaken itself when the upturn arrives
b) what are the strategies organisations can and should adopt in order to protect themselves from the downturn, without any adverse side effects
c) how these strategies will benefit organisations during the downturn and when the upturn finally arrives