How did your organization cope with the Financial Crisis in 2008? If the answer to that question is “not as well as we should have” then ask yourself the following question:
- How are we going to manage a future crisis that will be twice as deep and twice as long?
- Will we even survive?
The World has Changed
The world of business is in the midst of a paradigm shift that is changing the economic reality profoundly. Consequently, the global economy has entered the Age of Volatility; a faster pace commercial environment that shifts gears suddenly and unexpectedly.
[The diagram above is a graph of global crude steel production over the course of the past century. Crude steel production, tied to industrialization and urbanization, is used as a global growth and GDP indicator. It reveals a succession of roughly 30 year growth patterns that have characterized the economy over time.]
What it Takes to Succeed Today
In a global economy as volatile as today’s standing still is not an option. The question is what steps should a leader take to ensure success?
Ultimately successful companies need to be more adaptive, resilient and strategic. However, this scale of organizational change doesn’t happen overnight. In the meanwhile there are some measures you can take immediately to prepare your organization for disruptive change, whatever its origin.
- Improve your Situational Awareness, most people today are finally starting to relax, they’ve come through the recession of 2008, business is returning to normal and, as far as they can see, no storm clouds are on the horizon. Don’t follow the complacent crowd, develop a High Altitude Mindset. In other words operate in what appears to be a normal world with the attitude that crisis could strike at any moment.
- Do not delay, develop options NOW. You have a plan, now is the time to stress test it and build in greater resiliency.
- For instance, rationalize your corporate finance, renegotiate terms on your debt if necessary to provide you the flexibility to manage through a sudden spike in interest rates sometime in the next five year interval.
- Strengthen your balance sheet, identify and sell non-essential assets, pay down debts prepare your organization for ‘heavy weather’.
- Raise awareness within your leadership teams and begin contingency planning. Revisit foundational assumptions; revise your strategy where necessary. Every departmental VP should have options laid out for a variety of futures, with tactical plans ready for implementation at short notice.
- Begin planning for the kinds of business you’ll be able to do profitably during and after a major correction; identify the necessary plant and machinery, core employees and supply partners that you’ll need.
- Prepare the board and shareholders, make them aware of the risks and brief them on your heightened level of preparedness.
- Where possible practice executing your options – remember fear and panic could cripple your organization’s ability to act in a crisis situation – it’s why we do fire drills.
Consider that you may not be able to survive on your own. Once you have examined your own situation and have a clear idea of the weaknesses and strengths, start having conversations up and down your supply chain. It is the entire supply chain that is potentially at risk, work with your partners to:
- Identify important areas of commercial interdependence, remember your customers tend to be adversarial in good times, but they would definitely not want to see their vital sources of supply disappear in a crisis.
- Be creative in your joint planning, even a deep downturn must end sometime – plan accordingly. For instance you could agree emergency business minimums with important suppliers, emergency sales volumes with important customers, all with terms agreed in advance to ensure your mutual survival.
Remember that volatility is not necessarily a bad thing; it’s really only a problem for the unprepared. With proper planning and appropriate timing you could gain significantly market share and competitive advantage if you are ready and your competitors are not.
Never forget the old adage, flexibility is priceless in a crisis