As I meet again my customers in this starting of year, most of them does not succeed to keep cost words out of their lips. Either budgets were frozen in spite of no impact study on operations or budgets were already sized on the lowest possible line as pessimistic scenario. All was fuelling gossips about the questions : when will it stop ? how many people to shed ? How to get business ?
Was preventive downsizing the best to do in this context ? Should they do differently ?
I really don’t know. In some business sectors, I still wonder how to make a solid forecast for 2009. The current methods based on calculating industry multiplicators worked better for calculating growth. Shrinking is more tricky because it should account for events like giving up a buy out or stopping a strategic move due to lack of cash. Shrinking may go faster suddenly and be changed in an unexpected collapse of some parts of the economy.
Mankind usually thinks that it is best to be prepared to the worse even if it won’t come. But surviving in industry means also to be ready to start again when the time comes, at the pace of competitors otherwise they may be in situation of capturing all the market and you won’t survive either. This is exactly what it makes the downsizing decision difficult to take.
Then what to do ?
1/ Evaluate you strengths : cash, competence, team, your production resources. You are good, you need to know exactly were !
2/ Sort out your weaknesses. Are they coming from points you have not addressed ? It is time to fix them. Are they attached to structural points of your business ? Then you should be realistic in contemplating them.
3/ Assess your customer portfolio : meet your customers and identify the business you may get this year. If well done, this step may open unexpected business if you have in mind yours strengths and weaknesses because you will be concentrated on the business you are really able to win.
Meeting your customers brings you feedback on your competitors. Afterwards, you know if you are still in the market or not.
But, customers may be confusing too with economic situation and being preparing the worse should it happen. This means either they are on not very competitive sectors, then they are trying to get productivity gains, or they are on mature business sectors and all competitors are trying to get the best productivity gains they can.
When getting productivity gains in harsh times, you have risk to destroy value. Is it worse than when by good times your are not creating enough value ? Yes, because it is harder after to start again.
Finally the critical question to be sorted out remains to be prepared to start again… with a clear goal : being leader, being always in the market, change market. If you find that your customers are misunderstanding this issue, it is time to try to assess the changes that will probably occur in your market, and adapt your future customer portfolio strategy accordingly.
Even if uncertainty is still here – for example in France all industry sectors have declined in 2008 and for 2009, expectations are less declining for 8 of them. – probably you have not a customer portfolio which represent exactly the Market, you will find that you are on a specific segment and things may be better for you, or worse, than the others : when situation become hard, as long as your competitors make errors, you are able to extend your Market. Keep in mind that your position is always relative to your competitors in spite of economic context.
Then, postpone your downsizing decision for after a review of your customer portfolio with your customers and your business partners. You will feel more confident is you do this like a review of an existing strategic plan which change the way to account for new economic context, than to launch an urgent overhauling which may testify that you not manage the situation.
Finally times of crisis are good for good managers and for well managed companies.