FIVE
things great leaders do in a crisis.
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
INTRODUCTION Call it what you want... At the risk of stating the obvious, the business world is in a constant state of change. Call it uncertainty, volatility or disruption, whatever the name, it can be difficult and a challenge to navigate. The frenetic pace of change, and the urgency required to respond, makes each challenge more significant from a leadership perspective. Developing a sustainable business over the long-term has never been more of a test. The scrutiny on investment and expenditure; the interrogation of risk assessments; the continual re-structuring of financial arrangements; the willingness of clients to chase the cheapest price; the continuing threat of substitutes in an increasingly competitive marketplace; the evolution of a technology-savvy and comfortably transient workforce. These are just a few of the factors boiling away in a much larger pressure cooker of operating variables. This environment requires business leaders to leave behind historical management practices. Leaders cannot simply demand action, they must inspire it. Leadership is invariably a ‘people’ game. It is ultimately about enabling and mobilising discretionary effort. The challenge is to assess the risk we accept by relying on our people and their information, and how we best manage that to meet our business performance criteria. Where can, and does, this successful leadership proposition get compromised? How do we miss the bend in the road and how do we get back on the straight and narrow? What are some of the strategies that we can quickly and easily deploy in order to stay in front of the game? On top of our day-to-day operational business as usual, here are five operationally-focused variables that great leaders turn to in a crisis.
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
01
ROCK SOLID NUMBERS
Let’s be clear, financial perspectives are the ultimate effect and people including our customers - are the ultimate cause. Yet how often do we hear about profit write-downs or adjusted forecasts due to unforeseen operational issues or external impacts? This could indeed be code for ‘I didn’t see it coming!’ Beware the overly detailed, difficult to comprehend, colorful spreadsheet.
We must not become a postbox collating reported operational numbers. We don’t have the time to drill into the minute detail, and we don’t want to disengage our direct reports by micro-managing their day to day, yet too often we see leaders ‘side-swiped’ by what turns out to be illogical forecasting and inaccurate reporting.
Establish your own dashboard of the fundamental high-level operational KPI’s so that you can gauge performance generally.
That is, having a sense of weekly or monthly revenue and cost metrics or productivity outcomes. This will enable you to accept, question or dig deeper into, for example, reported management account cashflows. It could be as simple as 5 ‘live’ numbers that are delivered to you electronically. The critical difference here is that you need to source the information yourself. Ask the questions without reliance on those colourful spreadsheets to gain the truly deep insights. Insist on pre-determined, consistently applied, cashflow risk sensitivities.
Not only does this continuously test your operational forecasts, it allows you to plan differently, ie: to have initiatives that respond to say 3 versions against the top 5 key risk and opportunity variables? We are not suggesting generating additional and confusingly concurrent strategies. More a trigger from which point interventions are deployed from your worst case, or perhaps the increasingly likely scenario?
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
02
TACTICAL RESPONSE Too often business leadership is paralysed by the strategic plan, and quite often blames the same document’s inflexibility or belated short-sightedness for whatever predicament the business may be in. What is most relevant here is that a 50-page document full of targets based on previous operational outcomes will not mobilise your people nor your customers. It does however play a relevant part in measuring the business’ success. It forms the measurements of the collective understanding of the why – the only initiative that will mobilise your people and customers.
Establish a succinct and relevant long-range Strategic Plan summarised to one or two pages, including no more than 6-8 business relevant (not generic) objectives with clear actions, measurements, accountabilities and timeframes.
In order to be enduring and sustainable, our long-range plan must be formulated from the customer and market perspective first and not our internal view of the measures required to achieve the ultimate financial outcome.
Outside of this strategic plan, formulate a one page Tactical Response Plan that outlines the perspectives, objectives and actions of the critical or urgent interventions that are required - through a 30 day, 60 day, 120 day cycle. This is not long-range, this is now.
Note: Should we be facing urgent intervention or turnaround for example, the Tactical Response Plan becomes first priority, ahead of the long-range plan.
Assuming a business as usual environment, measure the Tactical Response Plan performance weekly or fortnightly (or whatever is relevant to the size and scale of actions) as it is pointless re-assessing actions not achieved and 120 days overdue. Then it is hardly tactical?
In terms of the Tactical Response Plan the CEO or ultimate leader cannot do everything. Success comes from appointing a taskforce and specific taskforce leadership so that the bigger picture business direction, or redirection as it may be, remains firmly in your control. As opposed to juggling yet another day-to-day challenge.
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
03
ATTACKING THE COST BASE Whilst the uncertain economic environment in which we find ourselves more often these days requires a lean and mean approach, we need to ask - are we cost cutting to temporarily inflate the bottom line, or are we restructuring to regenerate the business? Either way, how do we know we are ‘restructuring’ the right areas, in the right sequence, with the right people, for the optimum outcome?
Before we press the restructure or cost-cutting button formulate a specific Tactical Response Plan referred to above.
Too often we start with the people first which is not always the right answer. Drill into the fixed costs first. Not only does it often generate quick wins, it also shows the business that it is not just people being restructured, and therefore the meaning and purpose of the restructure gains credibility.
Always keep business unit financial performance measures separate so that one is never contaminated by, nor propped up by, the performance of another. Each business unit or service or offering must remain accountable for its own existence.
Divesting under-performing assets is a no-brainer. Too often we hold on to the practices or operations or even the assets that are now irrelevant or under-performing, or of more value divested.
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
04
A RELEVANT HOW How relevant are your commercial disciplines? That is, the responsibility, authority and process by which we obligate the business to expenditure, or commit the business to contracted risk and opportunity, for example. Often we see either end of the scale. Excessively cumbersome, irrelevant, time-sapping antiquated risk metrics that promote risk aversion at the cost of commercial opportunity; or absolutely nothing in terms of commercial or contractual business standards (just sign here!) In terms of the what and the when, these are business-specific. However it is in terms of the why that we need to ensure commercial discipline so that the how is relevant:
Do you have a matrix that clearly outlines delegated responsibility and authority on behalf of the company? Is this responsibility and authority reviewed annually, and/or is it relevant today? And does everyone have access to the matrix?
What have been the major financial issues over the past 5 years that have negatively impacted the business, and could any of these have been mitigated through tighter disciplines? What have we committed the business to in the past, commercially or contractually, that we shouldn’t have?
What opportunities have we missed out on because we were unprepared, or slow to react, by virtue of the way we do things?
From a productivity perspective, what has been the most significant impediment in terms of operational roadblocks? And with these in mind, where can we optimise and maximise without compromise?
What impact does technology have on our commercial disciplines? Are we current and relevant in terms of this technology being efficient, accessible and auditable?
It’s no different to keeping your finger on the numbers pulse. As the business leader you will be across the external deals and their commercial obligations. You will know the what from an operational perspective, but is it effective?
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
05
FINANCE & RISK STRUCTURES When the screws are tightening, having all your financial and risk structures in one basket may deny you the opportunity of deploying ‘the other parachute’ if and when you may need it. Diversification or syndication of professional services creates options.
Long-term loyal and mutually successful relationships with more than one service provider will not only maintain ongoing, commercially competitive terms. It will also mitigate your reliance on one provider and perhaps only one option. We are not suggesting a scattergun approach, nor shopping around, however we are suggesting an expert pool relative to the size and scale of your business.
Even if right now you think you don’t need it, if you can afford a debt facility you may want to consider getting one.
If and when the macro economic screws have tightened and downturn becomes decline, an operating cash buffer or diversification initiative, for example, may not be available. That is, you may not get it when you need it! Consider alternate capital structures.
In addition to traditional bank debt, you can achieve complementary financial support and business stability from the bond or equity markets (for example). This flexibility provides another relief valve for when the pressure is mounting. Again, having it doesn’t mean you have to use it. It just means you’ve got it if you need it.
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au
CONCLUSION Ultimately you need to ask yourself “How will I reliably and continuously feel or sense the business’ operational pulse?” These suggested quick-wins are the tip of the organisational vital signs ‘iceberg’. What touching the edges of these 5 initiatives intends to do is provide guidance so that if something comes out of left field :
In terms of accuracy you will know the critical numbers and you will know your options;
In terms of adaptability, the business will be streamlined in terms of systems and processes and agile in terms of our cost structure; and
You will have depth in your finance and risk stakeholders and access to diversity if you need it.
The message here is that preparedness and urgency is not only the key to any re-direction or intervention, it needs to become your business as usual. Maintaining an almost subconscious, up-to-date and realistic picture of your key financial metrics (the effect) provides you the best opportunity for informed, urgent and accurate decision-making ahead of time (in relation to the causes). Amongst day-to-day operational challenges escalated by technology, some of this ‘common sense’ gets obliterated. Relying on the capable, highly-paid people that support you often wont change this! As a leader you will not know everything and that’s ok. However you need to get yourself into this level of detail because you want to gain credibility through delivering predictable and reliable results. Too often we see people ‘holding on’ for things to improve, or shifting that line they drew in the sand last year, or last month. Be ready so that as the leader, you are aligned with the business in terms of being accurate, adaptable and agile. This is how you generate adequate access to, or deep insights into, your most important stakeholders - your people and your customers.
+61 419 394 653 brian@xec.com.au PO Box 542, Kew VIC 3101 www.xec.com.au