Managing on the Downside
It's a lot easier to look good when you're managing a growing firm than when you're running a shrinking business. But sometimes, faced with disappearing markets and dwindling cash accounts, there is no alternative to shrinking, no matter how able, creative and energetic you are.
I'll admit that I wasn't very good at shrinking a business and, frankly, most of you probably won't be either. Nevertheless, this advice to help you through those dark days is from one who learned the hard way.
It's all based on the product life cycle and, regardless of its length, the progression is always the same. Demand for the product grows, stabilizes, declines and ultimately goes to zero. When a product reaches the end of its life, the firm making it faces a challenge.
The unit volumes of products vary widely over their lives, so the most cost-effective manufacturing strategies also vary with product life. The most effective strategy at any one stage may not even be competitive at others. The firm that commands the market in the beginning may not be competitive when the product is in middle age. The firm that owns the market at its peak probably won't be very competitive--or at least very profitable--as the product nears the end of its life.
This is true for virtually all products. Not many years ago some firms made money making 5.25-inch floppy disks. Then came 3.5-inch floppies and after them, CDs. The common denominator is short and merry product lives! Unless you need the excitement, these are not markets to be in, nor places for a smart exec on his or her way up.
Clearly, there's a lot to be said for right places and right times, and the really successful execs look for both. However, let's say you find yourself about to be leading a downhill slide. There are some things you can do and you'd better do them quickly!
Get lean quick, and that doesn't mean lean in consultant talk. It means building up from a zero-base staffing level. Don't try to build down from today's organization chart. You'll miss a lot of fat. Start by doing a function analysis. What will it take to manage and operate the business "bare bones"? Sometimes there's an urge to continue R&D on a product going downhill. Looking for another use for the buggy whip? There isn't any, so stop doing R&D.
Make sure you know exactly how overhead is allocated, especially if the basis is direct hours. Make sure you know what makes money, and what doesn't. Be suspicious; it's not unusual to find no one really knows the cost determinants, and you have to get over that hurdle first!
Stop making products that don't make money. If marketing argues that loss leaders bring in customers for profitable products, take a look at what performance would be without the loss leaders. That's usually exciting enough to eliminate the argument. Look carefully at your make-or-buy strategies across all the traditional in-sourced jobs. Make pure dollars-and-cents decisions; you'll find instant shrinkage and a lot of money saved.
Don't overlook the possibility of local, state or even federal government assistance to keep the firm viable while you look for alternatives. Public money has risen many a Lazarus, sometimes even for full recovery. Look for a buyer; someone is always looking for an acquisition. You probably haven't made the firm immortal. But you have extended its life, and the cost reduction and streamlining will make it attractive as an acquisition.
Finally, don't forget to look for personal alternatives! I know the captain is supposed to be the last one off the ship, but it's more fun if there's room in the lifeboat!