Monday, January 3, 2011

Happy New Year - Do You Need a Fresh Approach?

(from Issues for Growth Vol. 19, No. 20)

Happy New Year? Yes, It Can Be!

As we come to the end of 2010, I have been reviewing a number of articles and listened to a number of speeches about what companies should do to succeed in this "long, slow economic slog." It occurred to me that many of the so-called experts may be providing advice that worked in previous recoveries but that this advice may actually prevent companies from taking the actions that will help them thrive in a slow-growth economy. While most of us prefer to be optimistic, as business leaders it is our job to be realistic - even if the outlook is less than crystal clear.

We have been observing a number of different planning strategies within companies. Here are some of the planning behaviors we are seeing:

1. Hunker down and continue to stay the course. Many organizations are still waiting for the economy to come back. They did all of the right things (expense cuts, program delays, reductions in force, etc.) that have worked before in previous recessions. The problem is, that, in the best scenarios, 75% or more of leading economists indicate that the output gap in the U.S. economy will not be filled to 2007 levels until 2015 - at the earliest. And if that is true, companies will have been in defensive mode for 7-8 years. It takes about three years to change a culture - will companies now become defensive and risk-averse as a cultural norm. What will that do to a company's competitive position and value?

2. Review your old plans from prior to the recession. We are seeing some retreads of old strategies. The problem with this approach is that the world really has fundamentally changed. Companies have learned to operate with fewer employees, improved supply chain management techniques have led to leaner inventory management, buying behavior has changed. What is also true is that in many industries the fundamental dynamics between buyer and seller have changed. It used to be the seller had an information advantage - this has changed with greater information flow to the buyer. Buyers now have access - at the click of a button - to competitive supplier pricing and, in many cases, to the underlying seller costs.

3. Sell your way out of it. This approach may have worked in previous recoveries when the increases to demand were very sharp. But this time things are different. There has been NO SIGNIFICANT UPTICK IN DEMAND. Using the old aggressive (market share stealing) sales techniques into slow-growth mature markets that have an overcapacity of supply can yield success - but only at the expense of lower price and lower margins. That success may be unsustainable, however. To assume that your sales people will all be superior and that competitors are going to let you steal precious market share without a fight is naive indeed. They will defend their turf, match your lower prices, and everyone will lose. It's a case of too much supply chasing too little demand. Also the trend from differentiation to commoditization has become so fast that the products and services that you were selling in 2007 are now likely undifferentiated commodities.

4. Shrink to smaller size. Many companies, faced with lower demand in their primary markets, have reluctantly decided that the way to survive is to become smaller companies. While this may indeed to be a healthier and more profitable approach, it generally results in companies that have a lower value and may be only a temporary strategy. In order to maximize value for future sale, companies need to have a growth strategy so that prospective buyers can see a potential return on investment.

Maybe It's Time to Change your Aim. What do you suppose would happen when everyone is aiming at the same target (a target that is not getting any bigger) and just blasting away...other than a shredded target with lots of holes. Perhaps it's time to change your aim - look for new targets.

There are companies that are growing during this downturn. Companies are entering new markets with new products and services. There are new business models and new approaches being tested and proven. Many of these models have dramatically different cost structures and value propositions than those of the high-ranking incumbent competitors. Others have taken innovative approached to differentiating their products and services. There are changes in competitive standing that are occurring. These changes may not be recognizable to the incumbent competitors, until it's late in the game.

It's Time for New Thinking, New Approaches.

There is no rising tide that will float all boats ... coming anytime soon. These times call for new approaches to planning and execution. Planning needs to be more situation-based, more scenario-based, more fluid. Planning cannot be based on a fixed set of assumptions about the future environment. There needs to be more frequent monitoring and adjustment of the plans during execution. This environment calls for a different type of management aptitude and skill. Adaptability and the ability to rapidly react to market changes are leadership skills that are becoming far more important than traditional control and execution of a plan.

As you move from 2010 into 2011 ask yourself a question: How would I characterize my organization's approach to planning and execution? Are we taking the necessary steps to grow- or are we accepting something considerably less? Are we doing what's necessaty to have a Happy New Year?

Email us your comments or post on this blog.


Watch for the following upcoming series

1. From the Front Lines: Company Success Stories

Stories of Companies that are growing and breaking through despite the recession

2. The Coming Window for Selling Your Business: Are You Preparing to Sell During the 2012-14 Window?

Check out the archives of the last 10 years of Issues for Growth on our website

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