Resilience Not Performance is the New Metric for Business

Ask any business professional in business for more than 20 years, the story is sure to include a part about surviving an economic recession.  Just as well established as business growth cycles, these periods of economic famine, panic, shake-out and even demise are a natural occurring event in commercial economic history.  However, if you ask that same confident, practiced business professional about the great recession and financial crisis of the current half decade, the response is sure to bewilderment, uncertainty and an outwardly, unspoken aura of “what’s next!”

Not limited to just micro and macro-economics, Americas businesses are facing challenges  arising from international economic calamity, geo political upheaval, increased global competition, a technological revolution, an ever more savvy consumer, an evolution in consumer buying habits, regulation, healthcare legislation and an unprecedented increase in the severity and frequency of natural disasters.  Simply said, the last 5 years has tested the resilience of every business across industry.

In a turbulent business environment, companies need resilience—the ability to bounce back when faced with adversity. One important part of this is operational resilience—recovering from threats to your day-to-day operations—by having the ability to respond quickly, and by building duplication and redundancy into your operations.

The solutions for resolving any of these challenges are numerous and vary depending upon the cause, effect and the businesses life cycle, but for many the best solution may lie in the challenge itself, like the technology revolution.  While many traditional and well established business models are in decline due to new products and processes brought on by the technology revolution, many of these same models have found solutions by embracing and incorporating innovation and change.  Not change for change sake, but change that will bring about growth and increased profitability.  The recent initiation of the make over at Nokia is an example of massive change, necessary to survive in an ever increasing competitive technology devise-driven world.  Once and still, as a percentage of phones shipped, the leading handset manufacturer, Nokia lost it way in the revolution of smart phone technology and had become “clogged with bureaucracy” making it impossible to affect change quickly enough to respond to a rapidly changing market and increasingly tech-driven consumer.  Jo Harlow, head of smart devices at Nokia, says, “Our ability to change from being device-led to being software-led as the industry changed hasn’t been fast enough. A lot of anger has come from the fact that we could have been in a different position if we had been able to make the transition more quickly.”

With the economy causing huge twists and turns in a consumer’s budget and spending power, major companies are trying to keep their brands inside the shopping carts of many families. Some companies have found success in on-line sales to boost their bottom line and keep their brand right in front of the nose of the buyer.  Home Improvement stores like Lowe’s and Home Depot have great websites that sell everything normally found in their in the stores and offer online tutorials on how to utilize their products in do yourself projects.  Supermarkets have tapped into in the on-line arena by offering weekly circulars, menu and recipe planning ideas and a way to shop from home.  Department stores like Macy’s and Kohl’s keep the customers happy with great coupon deals and free on-line shipping.

Here are a few rules of engagement that will help a business recast its fundamental business model to better respond in this new challenging business environment:

Evaluate and eliminate excessive debt.

It has often been coined, “Cash is King”, if true in good times, than in a challenging economy, “Cash is an all-powerful Emperor”.  As revenues drop, debt service must relative to revenues. Resiliency requires more cash to effectively respond to necessary change.

Resize operations to reflect the new reality.

Adjust the size of staff and work to cross train remaining employees.  Smoother production, greater productivity and happier customers mean a better bottom line.

Track, measure and control finances.

Install a key indicator system to track the business and have daily, weekly and monthly financial reports.  Use these indicators to focus on the most profitable products or services. Make nothing that does not bring in a profit.  Track and analyzing key indicators, financial reports and productivity. Get smaller first and more profitable; then grow slowly and carefully.

Reduce inventories and overhead.

Look for costly items that do not contribute to income and profitability.  Closely monitor and aggressively collect accounts receivables.  Too much cash invested in materials, labor, and receivables can be a real drain on an otherwise healthy business.

Develop an effective marketing strategy.

Review the marketing spend on traditional media and develop a marketing strategy that effectively utilizes the full menu of marketing collateral including digital, social, traditional and mobile media.

Avoid the impulse to give away the farm.

Resist profit-eating sales and discounting.  Don’t give away your product; instead, compete with service, quality and uniqueness. Create a niche and have a competitive advantage.  Look to the recognized leading competitor and implement a strategy to meet their performance and defeat them by exceeding your markets expectations.  Expand geographically and be willing to gravitate towards opportunity and create unique core competencies.

Focus on brand quality.

That’s what wins in the long run. Never forsake this principle. Never cheapen the product to increase profitability.  That will prove to be a real losing tactic.

A recent report from Boston Consulting Group indicates that large companies may have something to learn from smaller and family owned businesses when it comes to being resilient.  The conclusion reached in the report is that smaller or family owned businesses focus on resilience more than performance. They forgo the excess returns available during good times in order to increase their odds of survival during bad times. Executives of family businesses often invest with a 10 or 20-year horizon, concentrating on what they can do now to benefit the next generation. They also tend to manage their downside more than their upside.

The researchers also noted that executives at family-controlled firms realize they are missing opportunities by being overly prudent, but they hope to generate superior returns over time as business cycles turn from good to bad. It is evident that those cycles are speeding up. In an environment that seems to shift from crisis to crisis with alarming frequency, accepting a lower return in good times to ensure survival in bad times may be a trade-off that owners of all size businesses will be thrilled to make.

The history of economics will prove to be tale that the next generation of business leaders will learn about.  The real lessons learned will not be from text books but from those resilient business leaders who have weathered the storm.

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