In an uncertain economy, management may decide to retrench, to maintain the status quo or to forge ahead.The financial position of the company will influence the course
chosen by management. The external challenges that face the company and the opportunities that exist in the marketplace will also play an important role.
For a weak company, survival may be the best possible
outcome. For a strong company, however, an uncertain economy can represent a unique opportunity to strengthen its position.
Assessing the Effects
Management must assess the specific effects that the
current economic conditions are having on its business. It must devise a plan to counter any potentially negative effects and identify the opportunities that exist.
A well-managed company should only have to
adapt to those circumstances in flux. Much like the coaching staff of a football team, which creates a play book with plays for different situations and then adapts its game plan as the game progresses -
management's strategic and business plan are its play book and game plan.
Management must strike a balance between being too slow to respond and too fast too react. This balance is necessary to
effectively handle unanticipated situations and changing events. This is accomplished by having an understanding of the company's business and the dynamics of the industry in which it operates.
Understanding the Impact of a Changing Economy
- Learn how past changes in the economy have affected the industry.
- Assess the impact that changes in the economy are having on the company's customers.
- Be aware of competitor's actions.
- Develop and monitor key relationships and financial ratios that help track the condition of the company.
Steering a Course - Tips for Weathering the Storm
- Develop a clear vision of the direction the company is headed and the expected results to be achieved.
- Keep in constant touch with customers and suppliers.
- Involve employees, customers and suppliers in the decision making process.
- Effectively control the company's working capital and debt positions.
- Re-evaluate all discretionary spending commitments.
- Track receivable and inventory turnover trends.
- Increase the cash position by selling assets that are not an integral part of the business.
- Do not incur any unnecessary debt.
- Resist the temptation to reduce costs by reducing quality, service or training.
- Whenever possible, layoffs should only be initiated as a result of productivity gains or a reduction in production demand.
- Resist the temptation of implementing a "quick fix" program.
A Time of Opportunity
An uncertain economy can be a time of opportunity.
- New marketing opportunities may arise as competitors retrench.
- Buying opportunities (inventory, equipment, real estate and businesses) may arise as competitors fail.
- New management and employee talent may become available as competitors initiate layoffs.
This is not the time to be sitting in a board room letting negative opinions rule the day. The goal of management in an uncertain economy is to minimize the negative effects and to capitalize on the
opportunities that are available.
Such a course of action will lay the foundation for the company's future prosperity.
