High Bank balances, scenarios for companies survival

Summary

What can you do if you are being shaved. What do you do if you are in a hole? Well; that’s easy; if you get a shave you better sit still, and if you are in a hole you don’t dig any deeper. A large number of entrepreneurs think that that is what they should be doing, sit still and don’t move. Then we will wait until it’s over. And the situation from the year 2007 and the first three quarters of 2008 returns. And then we can continue where we left it. Forget what we are going through today. We think there is more to be done. Think about scenario’s, cost cutting to a new lower level, optimize your sales effort through your online business, make absolutely sure you get high scores in search engines (SEO driven by commercial excellence) and apply new organizational techniques to further increase your peoples support.

High bank balances; scenarios for companies survival

General

The first thing we should do is think about the question whether 2007 and the first three quarter of 2008 results will return so easily. We also ask ourselves some questions.
Say, current developments remain, or even get a little worse over the next three to four years. How will our competitive position develop? Do we have the same competitors or did some of them not survive. If we think our company does survive what did we do to ensure that. Maybe we used our excellent resources better than competition and if so; how did we do that.

Better management? Management that asks better questions and finds better answers? And then provide us with the competitive edge? A better way to do business, a better strategy, better people. Maybe the answer is a lot less complicated; it could very well be that the organization with the highest bank balances is the survivor.
If we are in a position in which we need banks in any way, we are in trouble. If we need them the coming two or three years we are in trouble too. If we think they will give us money because our balance sheets are so strong and up till now we didn’t need any money……, we may be wrong because a bank will never finance losses. If we don’t need anything because our bank balances are high enough, we might belong to the survivors.

Surprising? No, why would a bank give us money now. A risk which is difficult to calculate, a tremendous drop in demand mostly running between 20 and 40 % and a future credit position which is extremely difficult to calculate. Banks took a hell of a beating, their balance sheets are hit strongly, and there might still be a lot of pain in some of those balance sheets. Those balance sheets will have to be corrected and there is only one way to do that; if your shareholders are not overly enthusiastic to provide you with the funding. You will have to make money and forget about spending. That is also what our banks will do and have to do.

We all feel the pain and if the old economy is not going to return easily, a number of companies will simply not survive.
Your task as a manager or entrepreneur is to think about that future, think about possible scenario’s which can occur, and be pro-active in coping with the challenges to ensure you are going to be a survivor.

Scenario 1

Let assume that indeed things will return to normal (2007/Q1-3, 2008) in maybe 0,5 till 1,5 years. If you assume that that is going to happen you will have to be able to make clear why that is going to be the case. What will drive growth by that time. And you will have to be specific. It’s not enough to say; there is always something which will drive growth after a recession. Sure, but old recipies are never a guarantee for the future.
If you are confident, tell your people why. If in the coming year you think you are not going to be right be sure to be prepared for a different scenario.

Depending upon the relationship with your banker you might still have time. If you’re convinced  you will be one of the survivors, tell yourself why and don’t forget hard facts and arguments.

Scenario 2

Assume your markets will level out at 20, 30 or even 40% below the levels you experienced in 2007/Q1-3 2008.
And then assume that from that level on; a further growth is limited to 2 to 3 percent a year in most markets. Those percentages are not a coincidence. If the stock market reflects what the economy will do then developments in the stock markets are a clear indicator of what the value of all underlying businesses is. And that again, is based on what will happen in the underlying markets. If that is so, all markets and companies, also the smaller ones, will have to take a much lower development as a given. Obviously, and that is exactly what is happening; those percentages will also reflect in housing prices, industrial estate, etc.

Assume traditional values will gradually loose their importance. Threatening, because obviously those values will be replaced with others. Most probably, future values will be more people oriented. Human contact, caring for each other in a community, smaller scale, organized around networks, and more regional. Current technology enables it all.

In that type of scenario; asses your competitive edge, your chances for survival, and your arguments upon which you base your judgement. How will your organization survive and what can you do now to ensure that.
Determine which role you and your organization can play in the future and the arguments to underpin that. Where will you add value with regard to those new values.
Think again about customer value and how to sell that value to your customer. There is going to be a number of people who can do it, but it is not going to be easy.
Under the paradigm shift you will have to do everything to sell new customer value.
And: If you will only sit still when you being shaven, or: if you will only stay in the hole, a good change you might not belong to the survivors.

How about another round of cost cutting

We are sure you already went a long way to cut costs. But, we can still go quite a lot further. Challenge your creativity just a little bit more. A provocative way of digging deeper for answers is to ask yourself a question a couple of times; let say five times over. Answer seriously and you will find that you will be more detailed every time, and you will probably be more accurate.
One of those questions a manager should be prepared to answer is: is our spending adding to customer value or not. And if it does not add customer value, do we think it is essential? Obviously there are a few types of costs which might not be adding customer value: excessive luxury, status, prestige, excessive safety (if you earn a lot less, you might be less interesting for criminals).
Do you need it all on the longer term. And then think about your office buildings, available for 24 hours, used for 8 hours (maybe), the way you organize your offices (you might still have secretaries), company cars, planes, business hotels, unnecessary trips, and then there still are bonuses…..

And another question you can ask yourself five times: is my commercial process effectively and efficiently organized in marketing and sales. Are there other opportunities, can we do better?

Conclusion

You may have top sales people, but one thing is for sure, aggressive targets and redefining reality might not help to solve your issues this time. Those issues are yours; no escape, management is the owner of the problem.

How about another boost of your online commercial process? Work on the most cost-effective sales channel that is available; your online business.

Don’t leave your online business to ICT only; be prepared to spend quality time on it as a management team. Take care about your commercial content management, content writing and SEO (Search Engine Optimization); it should be managed where your expertise in the commercial process is anchored.

Intersumma would like to talk to you about:

•    Your future scenario’s
•    Creativity in another round of cost cutting
•    SEO, driven by commercial excellence
•    Use of Holacracy to be dynamic, agile and nimble
Drs Robert J. (Bob) Fetter, consultants in commercial control, April 2009