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Uncommon Sense: Surviving the southbound market

Don Ewaldz

Here's the enigma du jour: Is this downturn in the business cycle just a bump in the economic road, or the harbinger of recession? Whatever you want to call it, many of our clients are less concerned with terminology than the fact that their revenues have gone south along with their profitability. A few are even wondering about survival. And the irony is that just a few short months ago most of these firms were desperately searching for additional resources to serve markets that had grown beyond their capacity to respond!

Business cycles come and go; little can be done to stop them. But some firms manage to handle both the tops and the bottoms profitably and rationally. Those that do have at least two characteristics in common: forward thinking and recognition that growth is not limitless.

The firms that are able to handle the ups and downs of the market base their business plans on looking forward three to five years, regardless of what's happening at the moment. They adjust their plans every year taking new technologies and markets into account, but the plan is always based on the future. They may appear to succumb to the fads of the day, but what really drives them is making sound business decisions and growing shareholder value.

Six Sigma may look like what Jack Welch is doing, but what really makes GE strong is buying those firms that are number one or two in their industries, making sure they stay that way, and getting rid of those that aren't or don't.

Most of the firms in dire financial straits in today's economy are those that tried to grow as fast as possible, believing that there was no limit to growth. Many are now involved in huge layoffs, in restructuring debt, and are operating in virtually a survival mode. Frantically adding capacity usually leads to just as frantically trying to unload it.

What do you need to do to emulate successful companies? The answers look pretty easy, and that's because they are.

Do what's right for the long term and it will also turn out right for the short term, no matter what the business conditions might be. Think in terms of optimums instead of maximums in the short term; the result will be averages that are well above average!

Invest in those products and processes you can make money at and let someone else take care of the things you can't do profitably. Forget the term "core competence." That's something consultants invented; there's nothing you can do that others can't do as well or maybe better. Please note, "core competence" is not the same as "core business."

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Be rational and even a bit cynical about acquisitions and investments. No business has ever been sold for less that it was worth, no matter how good it looked at the time! That's true with capital investments, too; remember, you have to carry them through downturns and nothing is less fun than to have a factory full of idle--and expensive--machines.

Finally, have a flexible plan that accommodates variations and includes recovery plans for unforeseen problems. Follow the plan; create internal production capability to serve the core business at low ebb in the business cycle, and develop a supplier network to meet higher levels of demand. In the end, you should be one of the happy guys that makes money at both ends of the business spectrum!

What's your opinion? Whether you agree or disagree, Don Ewaldz will welcome your comments. You can contact him via the Bourton Group's Web site. Just point your browser to www.bourtongroup.com and click on "Contact Us".