Management Matters with Mike Myatt: Recognizing the Need for Change
- Jun 13, 2008
Since the title of today’s column is “Recognizing the Need for Change,” I’m going to switch things up a bit and ask you to answer a question posed by me. I first warned readers of the slowing economy more than a year ago, so my question is this: “In the last year what proactive changes have you made to ayour business to improve your ability to navigate the changing economic conditions that are presently vexing many a CEO?” In the text that follows I’ll give you a few places you might want to look at if you haven’t already.Savvy CEOs have likely already made many of the adjustments mentioned below, but it’s not too late to jump on the bandwagon if you’ve been slow on the trigger: 1. Cost Centers vs. Profit Centers: Slowing economic conditions require a greater emphasis on growth in revenue and profitability. Reallocate financial and non-financial resources to marketing and sales activities to prime the funnel. Look to reduce commitments to business units, departments, and headcount that don’t significantly impact contribution margin. 2. Go Shopping: Tough times create opportunities to acquire companies and/or other assets at discounts over normal pricing. The best deals are not made when multiples and trailing 12’s are at all-time highs, but rather when true value is unlocked as a result of recognizing market opportunity created by adversity. 3. The Talent Advantage: Weed out the lower echelons (the bottom 10 percent-20 percent) of your work force and seek to replace them with higher caliber talent looking for a better opportunity during tough times. This is an employer’s market with a dearth of talent available. The big plus is that said talent can now be acquired without having to pay the signing bonuses of old. 4. Get Help: Surround yourself with the best and the brightest. If you’re a younger CEO and this is your first economic downturn, get help…Find a coach or mentor who can help guide you through. As the old saying goes: “You don’t know what you don’t know.” Even if you possess a bit of grey-hair and have successfully operated through a variety of business cycles, don’t let your bravado get the better of you. There is no such thing as a person who cannot benefit from sound counsel. 5. Add to the War Chest: While the capital and credit markets have eased-off the frothy pace of the last few years, there is still an abundant supply of smart-money looking for a home. Underwriting and due diligence may be a bit more painful these days, but don’t let that stand in your way. Work every level of the capital structure and create as much operating leverage as possible at the lowest blended cost of capital. 6. Don’t Forget the Customer: This is a time to not only remain close to your key accounts, but to also aggressively go after your competitions key accounts. Remember that if you’re not talking to your customers someone else will be. At no time is customer centricity more important than in a waning economy. 7. Don’t Miss the Boat: Change, disrupt, innovate, disintermediate, and generally unleash havoc in the marketplace. More wealth is gained, and more dominant brands are established in declining markets than in advancing markets. Smart CEOs aren’t looking for safe harbors, rather they understand that slowing economic conditions create a significant window of market opportunities. 8. It’s Not About the Risk: Don’t manage risk, exploit opportunities. Forget incremental gains and process engineering as these types of initiatives won’t carry you through tough times. Cost cutting is not a business model and it alone (especially the wrong kind) won’t save you. Invest your precious resources now where you can create significant leverage, velocity, or economies of scale. Don’t trip over dollars to pick-up pennies.As the old saying goes, “it’s better late than never.” Only the most arrogant or the most foolhardy CEOs don’t recognize the need for rapid change in reacting to today’s slowing economic conditions.