LEADING THROUGH AN ECONOMIC DOWNTURN – THE IMPORTANCE OF COOPERATION. PART 2

PROCESSES

When talking about the business processes put in place by any company, the key word we need to have in mind when we handle an economic downturn is cooperation, just as we saw last week when we talked about People.

A downturn, especially in a case like the current one, which is not caused by a structural problem, but rather by an unforeseen event, is better handled if we accept the fact that we are all in a similar position, a similar need, so we better work together. Just as when we need to climb out of a deep well, cooperation is fundamental: leaning on each other′s back is the key to success, even to survival.

And that’s how we need to see it: we need to capitalize on our strengths, of course, but more important, we need to capitalize on our network of connections, such as customers, vendors, other business partners, and in general, all stakeholders of our business activity.

We want to illustrate the way ahead using the different flows we manage when we run our business:

• Money flow
• Information flow
• Material flow

 MONEY FLOW

The first stakeholder we find here, the one that should always be first in mind, is the customer. Working with customers always needs to be approached as a long-term relationship, more so in a dire situation brought up by an unforeseen event. Getting out of a difficult situation together, will bring new business when the storm is over. A too short sighted view of the relationship with the customer, only focusing on the short term, might mean that many customers won′t be able to survive, and there won′t be a market left when we are out of the crisis. Two different ways of working with customers during these hard times could be, either offering extended payment terms, or more flexible temporary price structures. If we can afford it, that extra month we allow our collection period to grow may represent the survival of some customers, and consequently, our own. And the same is applicable to our price ranges: if we all understand this is temporary, deciding to lower certain selected prices may become the key behind our success mid term

Next come our providers. Just as we lean on our customers, we also need to lean on our vendor base. We need to build mid to long term relationships with them, and we all need to understand we do this in mutual interest: the same way, as we saw before, we need to help customers come out from the crisis, because we want to continue selling to them in the future, we also need to provide support and get help from the providers. If we are in a tough spot, they will help us with flexible payment terms or a different price structure, and if we are strong, then we need to be generous and help them, because otherwise there won′t be anybody to buy from once the downturn is history. There are different ways this cooperation with providers can materialize, some examples being, as mentioned, more flexible payment conditions or different prices structures, but also setting up purchasing pools with peers to benefit from batch purchases, or agreements with those same peers to optimize the relationships with forwarders. In short, we need to look for a new, more sustainable business relationship with our partners.

And talking about the money flow, we can′t forget, of course, the financial institutions. Here we are not only talking about the obvious, the capability of borrowing money to weather the downturn, but, as in the case of customers and providers, looking for new ways to cooperate with these institutions. And here we need to look for the possibility of win-win situations, where they can help us and help our customers & providers at the same time. A good example would be to explore new ways of selling, where the financial institutions have the monetary resource, we have the product, but it′s the customer the one with the competence and experience to use those products to earn a profit

 INFORMATION FLOW

During a crisis, managing information within the company becomes crucial. In these difficult times, more than ever, it′s important that those who need to take decisions are able to take them without unnecessary delays, either because they can′t find the required information or because they only have access to a fraction of it. Thus, having a strong policy around information management is vital in these times. Even more important is the fact that information silos are a bitter enemy of an enterprise during a downturn. The Management needs to understand that a well-informed company will react faster and much better than a company where everybody is fighting to find out what′s going on. In order to achieve this, two things need to be in place: an information policy, and the right tool and process around it, to make sure information is shared in an effective way. In a nutshell: cooperation is also key in this area.

Together with the management of information, another important aspect in the Information Flow are the Management Reporting requirements. Handling a steep downturn is a new situation for many companies, it′s a critical situation which not every manager in an entity has experience with, so it′s important for everyone involved to be able to assess the situation in the right way. To achieve this, the Management of the company needs to review how they will measure whether the decisions they are taking are the right ones to get them on the right track again. There needs to be a complete review of the Management Reporting package, with a clear indication of what it is that needs to be monitored, and how, what new indicators (KPIs, ratios, etc.) will be put in place, and what dimensions will be used in the measurement. Maybe these new requirements will only be provisional, or maybe they will stay, depending on how practical and efficient they are deemed to be.

MATERIAL FLOW

When we mention ‘material flow’ we refer both to products and to services, as the downturn affects all kinds of companies. Of course, the reaction needs to be different, depending on what the company is dealing with, but in any case, as we have already mentioned before, the key is cooperation.

If we talk about companies which deal with products, the key area to focus on in the material flow is inventory: we need to establish a new cooperation with vendors and customers in order to optimize the process of goods coming in and out from our store and our books, a new cooperation which also makes sure we can reduce the amount of capital tied up in inventory. There are many ways of achieving this, we just need to have the right mindset, and consider not only what′s good for our company, but also, and especially, what's better for our partners. A good example could be a combination of buying smaller batches of products, but with shorter payment terms, as this would add agility to our and our vendors business, which is what we aim for.

For companies selling services, the situation is a bit more complex, maybe, but it offers a wider range of possibilities: adapting a service to a new situation or a new demand is quicker than adapting a product, and the benefits are clear: in a downturn, the demands from the market will undoubtedly change, and if we are fast to adapt to that change, we will have a competitive edge. And it′s a matter not only of adapting our current services, but of creating brand new ones. Here, the leitmotiv will also be cooperation: we will be more successful if we allow our customers to participate both in the definition of the service and in the service delivery itself. This is a process that started already some years ago, and it′s a trend we need to make sure we build on, as nothing is quite as efficient to achieve customer loyalty as integrating those same customers in the delivery process.