Whether we want to call this a recession or just unfortunate circumstances, I think that we can all agree that business is being disrupted yet again by external factors beyond management’s control. Interest rates are up, sales are down and inflation is above 8%. Amazon, Tesla, Wells Fargo, Coinbase, Salesforce, Meta and Netflix are a few of the more well-known companies announcing layoffs. Financial indicators are predicting a recession and we have two quarters of contraction which is a usual indictor.
Companies are already struggling with supply chain disruptions, difficulty in hiring people and a generally toxic environment. Management teams are generally exhausted and employee attitudes are toxic as well. Everyone is struggling with whatever this “New Normal” is.
Is your business ready to deal with the coming recession after the brutality of the pandemic recession just 2 years ago? Perhaps you are in better shape now to weather a downturn than ever before, so bully for you. Most companies do not have a recession plan, but they need one, because just like the pandemic, we really do not know how far or deep this is going to go. Group50 is ready to help our clients navigate these waters. We have identified the following eight item checklist for recession planning that should be part of your strategic and tactical playbooks for the balance of 2023 and beyond.
1. Scenario Planning
Scenario planning is about creating a series of scenarios based on probable events. Companies plan on the set of activities they will do based on trigger points. In the case of a recession, we work with companies to identify what they should do if the downturn is 5%, 10%, 15%, 20%, etc. Our discussions with senior leaders indicates estimates of 10-25% downturns in sales during this recession.
2. Reassess your strategic plan
Most companies have a strategic plan, but are not great at implementing it. Strategic plans for 2022 and beyond need to anticipate the recession and focus on the core business as defined by your value proposition. Activities, products, and markets that are not core to that value proposition should be re-evaluated and jettisoned if they don’t meet strategic priorities. Core activities need to be kept to prepare the company for emerging out of the recession in a much stronger position.
3. Cost takeout – Development of a working capital reduction plan (Think inventory)
Cost takeout is a core activity that should be done as part of every company’s strategy. We have created a cost takeout methodology for our clients that is focused on every element of cost in a business (Overhead, operational costs, working capital, etc.) and the evaluation of its necessity to support a company’s strategic objectives.
4. Managing the supply chain and its resiliency
For manufacturing and distribution, the supply chain has the largest impact on a company’s cost structure and its profitability. There are multiple elements that need to be considered. They include but are not limited to working capital, supplier performance, component cost, quality, supplier risk and other items. Your suppliers are just as concerned about your business and the recession as you are. Working closely with them regarding future business, forecast, and cost reductions yields significant benefit. We have created a supply chain effectiveness workshop for companies to evaluate the performance of their supply chains relative to performance and resiliency.
5. Profitability reviews – Customers and products
I am always surprised at how few companies make the analysis of customer and product profitability a core part of management review. As stated in item 4, your customers are just as concerned about your ability to continue to support them as you are. I personally have done 11 restructurings and have worked through 8 recessions and in every case, customers are willing to consider pricing actions that are critical to your success and their continued supply. They are willing to talk about your strategy and thiers to make sure there is alignment (Note: It is amazing how much competitive information you can find out during these discussions!). You are guaranteed not to get improved profitability if you don’t engage your customers in the conversation about cost, and forecast.
6. Leadership and human capital strategies
In times of a downturn, leadership is a critical part of the equation. You can never plan and communicate enough to your team. In Group50’s video, I talk about how the Business Hierarchy of Needs® is a critical part of a company’s change management process for implementing strategy, especially those related to recession planning.
7. Leveraging technology
How much money have you invested in technology and how effectively are you suing it? Digital technology is a strategic asset. yet most companies do a poor job of utilizing that investment. Think about how proficient you are at using Excel and then think about the percentage of its capabilities you actually use. All companies only use a small portion of the technologies they have invested in because they want the technology to automate what they do rather than leverage the best practices that are in the technology. We believe that companies should organize themselves and their business processes around technology. Give me a call and we can discuss that radical thought.
8. Business transformation – Process Re-engineering
In 2015, I wrote an article about how business processes are like old laws, a fun read. They are never removed from the books. Business processes are much the same way. They were created to deal with a business issue which often doesn’t exist anymore. Business processes need to be redesigned around the technologies that the company has invested in. This is part of business transformation and during a downturn, transforming your business should be part of the plan.
Group50 has developed a Recession Planning Workshop, (which is part of our Company Physical (50+ different assessments and workshops in finance, leadership and operations), that is designed to help senior leadership define what needs to be done to address scenario planning and set the appropriate trigger points. Plans need to be building blocks leading up to each trigger point and they all need to be focused on the end game which is to be prepared for when the economy comes back to its normal state and every business will be faced with satisfying the pent up demand from this current disruption.
We have put together recession planning teams who have experienced many economic cycles during their corporate careers and know recession planning best practices and Do’s and Don’ts.
It is important that you make the right choices now so that you can weather the storm and come back stronger than ever.
About the Author: Jim Gitney, CEO and Founder, started Group50® Consulting in 2004 with the focus of working with companies to significantly improve their performance by leveraging people, process and technology as part of developing a company’s strategic plan 5.0. In 2013, he created Group50’s Business Hierarchy of Needs® change management framework, a fundamental strategic planning and strategic execution guide to senior leadership teams, and was granted a trademark in 2015. This framework eliminates the existence of Anti-Strategy.
Jim has held C-suite and Board positions in large and small companies (GE, Black & Decker, Sunbeam, Rain Bird, Pankl Aerospace and others) both privately and publicly held. He is considered a subject matter expert in strategic planning, strategic execution, operations, supply chain and restructuring. He has taken best practices from around the world, worked closely with clients and other Group50® consultants to create Group50’s full suite of strategic planning and execution tools. Group50® consulting consists of consultants from every functional discipline who have spent their careers in corporate America developing strategic plans and rolling up their shirt sleeves to get it done.
Strategy Realized – The Business Hierarchy of Needs
- Group50® Consulting in Manufacturing and Distribution
- Group50® Supply Chain Consultants: Empowering Businesses through Expertise
- Strategic Planning Consultants: Your Complete Guide
- 10 Elements of an Effective Supply Chain
- Optimizing Operations: The Role and Benefits of Supply Chain Consulting
- Managing the Productivity Cycle
- The Engagement Dilemma with a Remote Workforce
- Exploring Strategic Intent with Craig Smith
- Strategy and Its Implementation Presentation – International Association of Strategic Planners
- Manage Self – Lead Others Podcast with Nina Sunday and Jim Gitney