New Economic Thinking Required: Successful Companies Will be Proactive

Jan. 29, 2009
Virtually any company can survive the hardship of a recession. In fact, while competitors dither, lean times are periods of opportunity.

The signs are everywhere that the U.S. and much of the rest of the world have entered into a deep recession which will require governments and companies to make unprecedented changes in policies and execution.

The emerging political consensus for an economic stimulus package approaching a trillion dollars over two years reinforces the government's controlling influences on the near term path of the economy. A major part of this stimulus bill will focus on a broad range of infrastructure programs that are not only overdue in many instances, but also could be crucial to a recovery in manufacturing. We are looking at a new economy with government policy and the public sector taking on a larger role.

The current economic environment also requires new management thinking with respect to product markets and how to smooth the ride over the business cycle. At the same time, fundamentals of cost cutting, cash flow, balance sheet management and productivity improvement must be kept front and center. We have entered a new economic environment that will require a higher level of innovation and productivity.

When a deer steps into path of an oncoming vehicle, it either freezes or takes action by jumping out of harm's way. Those that do not take action face an unpleasant fate. Much like the deer in the headlights, the worst action leadership can take in the current economic environment is to do nothing.

Successful companies will move to improve performance on four fronts:

For starters, a CEO's pet project should be placed on the back burner so that company resources can be relegated to those initiatives that positively affect the bottom line the fastest -- unless of course, the pet project IS that initiative.

Secondly, restructuring that includes employee staff cuts, facility consolidation, product review and diversification should be vigorously pursued. Many companies are quick to add employees and resources during periods of growth, but are reluctant to downsize proportionally during an economic downturn.

A wise man recently said "Inventory is caused by a supply chain issue; it isn't the cause of one." If you have an inventory building up, this is an obvious sign that you are either producing more than is being purchased/consumed, or more than your supply chain can handle. Neither event is positive to the company's bottom line.

During a period of downsizing, leadership needs to be more visible as well as effectively communicate what changes are taking place and why. This will cut down or rumor and speculation. Those workers who are not in the firing line need to be informed of this. Although many of these workers may already know -- in their hearts -- that their positions are safe, communicating this to them will help to keep worker morale high.

Thirdly, the negative impact of the downturn on the top line can be reduced by changing geographic coverage, streamlining supply chains, altering product designs, modifying pricing and introducing new services. Successful leaders and companies adapt to current economic conditions.

Finally, the downturn offers organizations a chance to implement changes that can improve long term profitability. Pushing ahead with a range of productivity improvements should be front and center, including internal Lean and Six Sigma programs. Many times, the positive effects of these internal programs alone are often short-lived high performance workforce improvements and a more flexible process.

In order to effectively make sustainable change, companies should seek out an operating consulting firm to maximize the results from an internal initiative, as well as ensure that these initiatives enjoy long term sustainability. The long term benefits drastically outweigh the costs.

Virtually any company can survive the hardship of a recession. In fact, while competitors dither, lean times are periods of opportunity. All it takes is a proactive approach, proper planning and a strong battle plan. Companies that properly adapt to current conditions will see an even brighter future when the economy shifts upward.

Jerry Jasinowski is the Sr. Advisor for Manufacturing for Proudfoot Consulting. Proudfoot specializes in implementing change to achieve measurable and sustainable performance improvement. Proudfoot is a part of Management Consulting Group PLC.

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