Companies that are successfully navigating the global economic downturn are finding ways to grow despite a headwind of negativity -- and it has everything to do with their planning mindset. These companies have reinvented their planning processes and analytical capabilities to drive a frequent and detailed review of the business that provides early insight into developing trends and growth indicators within their portfolio and markets.
On Sept. 14, 2008, Alan Greenspan commented on credit markets and general financial instability, labeling the then-developing situation a "once in a century crisis" -- the type of market dynamic that occurs once in one hundred years. What followed was a cascading set of retrenchment events that forced executives to respond to abrupt declines in revenues by implementing quick and aggressive cost-cutting programs and execution-focused initiatives. Despite these moves, very few executives, if any, abandoned speaking about growth -- many emphasizing goals of returning their company's performance to a growth trajectory.
For many executives, the question remains, when is the right time to shift the planning mindset from execution-focused to planning for growth?
Cost-Cutting Programs That Emphasize 'The Here and Now'
The tremors of the past 18 months forced many companies to retreat from aspirations of growth and quickly turn their attention to aggressive cost-cutting methods. From a manufacturing perspective, those companies closest to the automotive and industrial sector were hit the hardest with revenue declines exceeding 20%-30% in many cases. Companies with portfolios dominated by premium offerings also suffered, as consumers moved to value line offerings.
Without question, drastic cost-cutting measures were required to address rapidly declining cash flows and limited access to credit that challenged the very survival of a company. However, once a company's cost structure has been addressed to align with the new realities of revenue, it becomes critical for leadership to drive a renewed focus on growth, or risk pessimism and short-term thinking dominating the planning mindset where results begin to follow a path of compounding negativity.
Planning for Growth Requires a Different Mindset
In 2001, A.G. Lafley of Procter & Gamble provided a view into this mindset in an interview that followed an announcement of the company's cost-cutting programs.
"The cost benefits of strengthened competitiveness and improved productivity are significant, but this is not just a cost-cutting program. No one ever cost-saves their way to sustainable growth. We will invest these savings in getting our consumer value and pricing right, continuing to invest in innovation on core businesses and the most promising new businesses, and continuing to provide strong marketing and sales support for our brands. All of these actions are necessary to deliver P&G's long-term financial goals."
-- A.G. Lafley, CEO, Procter & Gamble
In other words, the right time to switch from an execution-focused mindset to a planning for growth mindset is right away.
Church & Dwight is a great example of a company that has experienced growth despite the economic downturn and has nurtured a balance of planning and execution. The company has a well-positioned portfolio that is complemented by effective planning and execution processes. Church & Dwight's portfolio of household and personal products includes iconic brands such as Arm & Hammer and represents a healthy mix of value and premium brands that are positioned for the times.
With constant attention to the details of the business, Church & Dwight continues to drive efficiency gains that provide working capital for development of new products and advertising to build a base of consumers and retailer relationships for the future. As a testament to their strategy and performance, Church & Dwight has seen their stock price rise from $55.29 on Jan. 7, 2008 to $69.25 on March 22, 2010.
But not all companies were as well-positioned going into the economic downturn. With rapidly declining revenues in key business segments, these companies needed to quickly restructure costs.
Effective companies routinely investigate the details of their diversified markets to find growth, including a mix of customers in variety of industry and geographic segments. With an effective planning structure and analytical capability, these companies have been able to identify operational trends that help align resources on growth opportunities without incurring excessive costs in the process of servicing customers. So what makes a planning structure effective?
An effective planning structure balances a top-down perspective with a bottom-up perspective of the business. Through this structure, planning resources can quickly identify growth opportunities that accumulate bottom-up and capitalize on macro and micro-economic trends that are apparent at aggregate levels of the business.
Still other companies remain execution focused.
Execution-focused companies have difficulty identifying growth opportunities because their planning structure is either too aggregate to develop operational insights, or at such a low level that everyone is lost in the weeds and missing a view into trends within products, markets, and geographies. These extreme perspectives foster execution-focused behaviors because the planning process does not facilitate a smooth transition from strategy to calling the operational game plan of execution. Often priorities are decided at the last minute by execution resources without visibility to growth strategies and business priorities.
Identify and Address Behaviors That Inhibit Growth
An easy way to identify if a company is overly focused on execution is to observe the practices of planning resources and the dialogue that takes place in monthly planning meetings. If planners or the dialog of planning meetings have become entrenched in the daily routine of solving problems of the moment or focusing on transactional activities, then ask yourself, who is developing operational plans that detail growth opportunities over the next 18-24 months?
Some specific behaviors that we have observed include:
- People that have planning responsibility spend majority of time chasing down transactions.
- Planners chasing down and adjusting shipments due to arrive in a few days, to the day before, in order to service customers.
- Customer service, marketing and sales contacting planning resources to identify when production batches will be finished for a specific customer, and after the question is answered, another group calls with the same question for a different customer.
- In an attempt to close a revenue gap, marketing and sales increases the scope of a targeted marketing program to include any customer that is willing to participate, resulting in an "everything to everybody" go-to-market approach and chaotic order patterns that are difficult to support.
- As year-end approaches, production is slowed and safety stock is reduced across the portfolio of products without a detailed review of marketing and sales priorities linked to growth plans.
As a result of these behaviors, the company finds itself constantly chasing individual events. When transactional execution dominates the daily schedule, planning gets pushed into the background, and strong leadership is required to create a renewed focus on planning for growth. Without this leadership, execution behaviors will continue to inhibit growth.
To truly drive a return to a growth trajectory and prepare for growth, the message is simple: leadership required.
"It is easier to stay the course, cut expenses incrementally every quarter and hope the economy comes back and all ships will rise again. But hope is the lazy-man's driver for growth: Hope that things can't get worse, that competitors have it just as bad and things will start picking up again any minute now. Working toward a growth target requires new ideas, new products, and new ways of collaboration."
-- Rick Moran, Partner, Venrock Venture Capital
Paul Strzelec is CEO ofDigital Tempus, a consulting firm that provides the process expertise, strategic insight and talent development to help global companies improve strategic and operational planning capabilities.
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