Why Weathering The Storm Might Not Be The Best Strategy

Business Strategy in a downturn

 

Why reducing costs and “weathering the storm” may not always be the best business strategy.

 

Businesses are facing a perfect storm. High and persistent inflation. Input costs are rising twice as fast as selling prices are rising. Margins are being squeezed. Human talent is scarce, expensive and increasingly demanding. Consumer demand is falling from cost-of-living pressures and slowing economic growth. Lastly, global supply chain challenges.

Defensively cutting back on discretionary spend may not always the best solution. The actions taken at start of contractionary periods are critical to how the business will exit these periods. Gartner research show that the companies that made the correct  decisions in the 2007-2009 downturn outperformed their peers for the next decade.

FOUR KEY AREAS TO FOCUS ON

 

COSTS

• Meaningful costs reductions will generally have an adverse operational effect. Impact on the long term business plans must be considered. If costs must be cut, understand the trade-offs involved, and prioritise the cost reductions to minimise the long term impact within your strategy.
• Challenge workflows and processes, not only to reduce costs, but make the business more nimble.
• Accelerate movement to cloud to reduce IT asset spend and improve cashflows.

 

TALENT

Ensure your organisation is one that talented staff would like to work for, e.g., work practices, culture, challenges and opportunities. Ensure your Employee Value Proposition is attractive and clearly communicated. Make sure that key digital talent is secured. See below.

 

DIGITAL

A clear digital strategy is essential. Ensure you attract and retain staff who can analyse,  decide, enable and execute these strategies.  Digital transformation can improve resource management, lower costs, enhance supply chain, improve customer experience, and gain insight into customer trends.

 

EXPANSION

• A slowdown may well be the best time to secure that scarce digital talent, when other companies are reducing costs and laying off staff.
• It may also be an opportune time to buy businesses and assets at attractive prices
• It may present opportunities to gain customers and sales when your competitors are bunkering down

 

SUMMARY

The current business environment is challenging and uncertain, and likely to stay that way for quite a period. Weathering the storm may well be the best strategy for some businesses.

But for well-resourced companies, with good products/services and growth aspirations, risk also represents opportunities. The winners emerging from these times will be better positioned to capitalise on the growth that invariably follows.

Gary Campbell is an experienced “on demand” CFO consultant, based in Victoria, working for The CFO Centre Australia. He is particularly successful at profit improvement, financial turnarounds, risk management within manufacturing and distribution sectors. He can be contacted here or call us on 1300 447 740