I’ve fumed about the strategic errors that have got so many firms into the mess in which they now find themselves, but I guess you might like some idea how to get out of a hole? I just gave a short session on one approach to this with a class of 50 senior execs, and was reminded about a project I did to help a company dig itself out of trouble last time round, after the 2001/02 debacle. No guarantees, but this simple article on ‘Strategic Recovery‘ may be helpful – [not to be confused with the other kind of ‘recovery’ that the accounting firms’ insolvency practices are starting to feast on!] .
In summary, the principle is that – like Starbucks [see latest post] – management rushes into over-expansion in good times, chasing more of those high-spending customers, launching more products and services to sell them, and adding capacity and staff to make it possible. In the process, they add quantity to these four resources, but don’t notice the falling quality – especially lower-spending customers, and products that don’t add sufficient truly incremental sales and margin.
The end-result is a bloated business that just about stays in the air while market conditions are good. When things get tough though, the chickens come home – marginal customers and products collapse into loss-makers and you are left carrying the heavy staffing and capacity costs. How to dig out of the hole?
Well – not by across the board cost-cuts and sackings [a friend just told me of a star exec at HSBC fired at the cost of 18 months’ salary, when his expertise will be desperately needed within 9 months!]. You need to ‘re-architect’ the business back to a healthy core that is both profitable and capable of re-energising its growth. That’s what the article explains [only in simple terms of course – there’s much more detail to doing it in practice].
So it’s not a question of cutting back, so much as cutting out – gardeners amongst you might think in terms of ‘pruning’ – cutting out weak and diseased branches so the plant can put all its energy into its strongest limbs.
Kim,
I couldn’t agree more with your point about careful “pruning” required. We have just experienced a case where a CEO spent more than 1.2 million euro on a company wide communications campaign, then just before the launch he cancelled it because of the downturn in the economy, and began a series of across the board cost cuts. We all know that much of what he will eliminate will take out valuable pockets of know-how, and especially know-why related to customers, products and ways of working in the company.
Tom