In the current economic climate there is little-to-no credit to be found. The absence of credit need not be the end of the world if a business focuses on improving what it already has in hand.
It was the best of times. It was the worst of times.
- Charles Dickens
Right about now we all know more about collateralized debt obligations, structured investment vehicles, mortgage-based securities and credit default swaps than anyone without a Nobel Prize for Economics has any right to know. While most of us are not moving in circles where the structures of high finance have had much meaning to us, we have all recently discovered just how much these financial oddities affect our own success. The first order of business is to figure out what to do now that the ready access to credit has evaporated. Until those funds begin flowing we will all need to relearn lessons of old: Do more with less and make the most of what you have.
Where to start? Building clarity of purpose by addressing five key areas now can minimize the short-term damage of the credit crunch and position you for survival and growth.
1. Take Stock – if you haven’t already
With current economic conditions shrinking or even eliminating credit availability it is necessary to understand available value-creating “inventory.” This is not product or SKU inventory. Rather it is your available human, production, process, systems and infrastructure – the lifeblood of your organization and how you go to market and meet the needs of your customers. The reason this is so vital is you will no longer be able to “buy” you way to operational improvement through capital expenditure or capability acquisition. What you have is probably what you will have to work with in the near term to improve your cash position.
2. Prioritize – choose what not to do
If anything needs to be remembered at this time it is that all resources, now matter how abundant they may seem, are finite. In your organization discussion will likely cover a wide variety of projects. It is safe to say that no project or program will be seen as superfluous in any sense. The key step is to recognize that the process of prioritization at a time like this is not an inclusive one; it should be driven to exclude. Be certain you understand the timeframe available for your projects and programs and their impact.
Through the prioritization process, it will become apparent that the annual (repeating) capital and operational needs will be difficult to compare to the one-time stand alone projects required to drive strategic change. Some level of annual capital expenditure should have the first call on capital in order to maintain your value streams, operations, facilities and infrastructure for present business needs. Additional annual capital needs should be analyzed separately and prioritized should capital become available. Driving all this should be your strategic objectives. If you arrive at this point and find that your strategic objectives do not help you differentiate between areas of expense (which is not as uncommon as you might think) you may need to rapidly work on a “strategy for the times” to meet your present needs.
With your prioritization in hand the next order of business is to quite literally fix what is broken.
3. Fix it Fast – if it is broken or represents a high degree of risk
Credit is a system whereby a person who can’t pay gets another person who can’t pay to guarantee that he can pay.
- Charles Dickens
Based on your operational assessment, it should be readily evident what is working and what isn’t. Follow the money. Where are your cashflows not resulting in the expected return? Do you know why? If you do, what decision or decisions need to be made? Are there systems or processes, or even human performance issues at play? Are their decisions that you have been putting off because they were not easy, or not high enough a priority? These are exactly the kinds of decisions you should be making at this time. At a minimum you will be removing distractions and low-grade drains on energy. Better yet you will address issues that may have been festering for a while.
Realize value-added productivity per employee through closing capability gaps. In all cases spend your money wisely. Be clear about your objectives and share them with the organization so that everyone understands the concerns you are seeking to address. If you can stop wasteful expense today, you can begin to look for other ways to invest your money to capitalize on the opportunity resident in most downturns.
4. Look for potential – the unpolished gem, the hidden hazard
Often the swiftest response to times of economic uncertainty is to hunker down and hoard. Many organizations proceed to strangle themselves by turning off investment or cutting back so deeply they place their operations into virtual hibernation. Little do they realize that there is opportunity in the bleak news around them. At this time, the frustration of not being able to rely on past behaviors to drive business performance needs to be supplanted by forward thinking.
How have your clients’ needs shifted with the economic conditions? How have your suppliers’ needs shifted with the economic conditions? In both cases, with tightened credit coming into play, you can fully expect the joint conditions of shortened terms with your suppliers and increased aging of your Account Receivables. As the founders of Kepner-Tregoe, Drs. Charles Kepner and Ben Tregoe noted in their seminal work, The [New] Rational Manager, “The easiest and most economical time to solve a problem is before the problem has a chance to occur. This means that people must be free to look into the future and suggest actions for improving it or take the initiative to move ahead out of personal dedication and commitment.” Think of what you might do to strike agreements with your entire supply chain that meets the needs of all members. Get ahead of the painful lagging indicators – the ones that impact your bottom line. Being contrarian in this circumstance may pay large, long-term dividends.
5. People First, Processes Second, Purchase Last
This has essentially become the dark matter of the financial universe.
- Chris Wolf, co-manager of Cogo Wolf (a hedge fund of hedge funds)
As quoted in Fortune magazine, October 13, 2008
The key factor to capitalizing on the value that your people bring to this situation is to invite their participation in a way that recognizes that value and which they perceive is meaningful. With your people onboard, the next step is to tackle your business processes. Every process should be focused on improving your customer experience and improving your return on that experience. Finally, spend your limited funds with clarity of purpose. Who knows when your capital coffers might next be filled? Prioritize your capital decisions in such a way that you can leverage any spend in multiple areas.
At a time of financial turmoil the first impulse may be duck and cover. Resist that urge. Confirm your available resources and current circumstances. Take the time to think and act wisely, the returns may surprise you.
