By Kathleen Brush
Dec. 16, 2010
If the President were to tackle the challenges in the economy in the same manner that a business person would handle a company turnaround, the nation would be much further along in its efforts to create jobs that are needed to drive economic growth.
In a business turnaround time is of the essence, because each day a business runs hobbled, expenses are exceeding revenue, which worsens the condition. Key to a successful turnaround is creating a sense of urgency. This requires strong leadership that can convince the management team and employees (for the President this is the Administration, Congress and all Americans) that the days of special interests are over and the path ahead requires making fair but tough choices, and for everyone to sacrifice and work hard. Failure is not an option.
In a turnaround, an organization is focused on achieving objectives that will minimally address a fast path to financial break even, objectives for growth and profitability and a timeline for restoring the company (country) brand.
Tackling expenses comes before driving revenue because it is the only way to quickly align revenues with expenses. Discretionary expenses are the first to cut. A close inspection of these expenses often reveals: expenses that are still being incurred when their purpose no longer exists; contracts that have not been renegotiated even though prices have decreased or the phase of the business cycle has made vendors more pliable on terms; spare space that can be sublet; neglected processes that can be streamlined and pet projects that have no purpose when money is constrained.
If these expense reductions are insufficient to permit break-even operations, the next place to look is staffing costs. It's not uncommon to find that 10 to 20 percent of positions are occupied redundantly or they no longer serve a useful role. This occurs because too many leaders abhor the thought, or the process, of letting underperforming or no-longer-useful employees go, and they are disinclined to mentor employees to develop new skills. Ironically, when non-essential employees depart, company productivity actually increases because they were demotivating to the other employees. This allows a company to increase productivity further.
Another staffing expense to examine is the competitiveness of wages and benefits, which have a tendency to become bloated during the good times, as if the business cycle was stuck in expansion mode. Managers love to dish out cash and benefits, which makes it easy for staffing expenses to become inflated and uncompetitive. They need to be dialed back to restore competitiveness and a crisis is the perfect time to do this. This is because employees are more accepting when their options are fewer, particularly when employers can replace them with younger, lower wage employees here or abroad.
When cutting expenses, it's important not to cut those that are needed to meet the revenue growth objective. Innovation is a common sacrificial lamb that can debilitate the generation of future revenue by leaving companies/countries uncompetitive. When undertaking measures to drive revenue it's important to remember that there are rarely quick fixes. These have already been exhausted. Laying a firm foundation that will prevent a recurrence of financial frailty does take time, but building a foundation for growth is time well spent.
The greatest challenge in driving revenue is increasing demand for goods/services. This task involves a close look at why demand has decreased in the first place. Today the common culprit is slow U.S. economic growth. To determine the best solution for driving demand a company needs to examine: (1) opportunities to take market share from domestic or international competitors; (2) ways to inspire customers to buy products rather than save; (3) opportunities to sell current or modified products to higher-growth economies, such as, China, India, Brazil, Chile, Turkey, Russia and Indonesia; and (4) no-cost, or pay-for-performance options to motivate employees to increase productivity, while the foundation is being laid for greater growth.
With answers in hand a strategic plan can be developed to guide all of the company's employees in the successful achievement of the key objectives. Strong leadership will be playing its role to make sure that communications keep everyone up-to-date on progress, to make sure setbacks are given extra attention, and to make sure that there are no lapses back to: unaligned objectives, caring for special interests, bloated payrolls and turning a blind eye to departmental conflict, unchecked spending, myopic geographical focus, and products that can't compete due to price, innovation, or governmental hindrances.
Strong leadership will also carry the day for making sure that growth is not sacrificed by excessive risk aversion that does not permit investing in productivity enhancers, innovation, inventory and staffing that are essential to meeting increased demands that can fuel economic growth and job creation.
Kathleen Brush has a Ph.D. in management and international studies. She has been a corporate turnaround executive and international business consultant for 15 years. Her latest book is Leadership=Motivation=Innovation+Productivity: get ready for the latest global challenges. Her website is kathleenbrush.com.