Apocryphal story – The CFO and the Strategist are looking at a block of marble. The CEO has asked for a 20 percent reduction in the volume of the block. The CFO draws a line, pulls out a massive saw and gets ready to make one cut to achieve the goal. The strategist, on the other hand, steps back to draw a complex series of lines and then picks up a hammer and a chisel to rough out a statue.
Question – who has taken the right approach? (The answer is not as straightforward as you think. Let’s discuss…)
We’ve reached the point in the COVID-19 crisis where business leaders are coming to grips with the hard decisions around the economics of the recovery. It’s pretty clear that as painful as it was to stop and shelter, that process worked much more efficiently than any process we can use to restart a complex economy.
In the best case, massive pipelines have a multi-week gap, and in the worst case, new cultural behavior norms have removed demand almost entirely. Air travel is down to a mere trickle, restaurants are being reshaped into convenience stores and the appetite for a crowded venue is gone for a long time.
The business you left on March 15 will not be the same when you return to it. With only a handful of exceptions, demand will be less.
Which begs the question: how do we resize and reshape our businesses to find a fit in the emergent normal?
Here is the kicker – in the short term it will appear that everyone is doing the same thing. But the truth is that once demand returns, there will be massive differences. If history is a guide, some firms will bounce back significantly stronger, while many others will flatline or simply disappear.
The seeds of that massive performance difference are being sown right now (you’ll find articles outlining this contrast from past recessions here and here).
So, the question of the moment is this: how can you be on the right side of the line?
The Conventional Playbook
The Most Senior Executive (MSE) has a meeting with the senior sales leader and the CFO. The sales leader has developed his best forecast for sales and the CFO has a model that will create operating margin. These two are combined and a new set of high-level budgets are developed by function.
Functional leaders are asked to review their budgets and come back with a series of actions to meet the new targets. With the demand shifts we are seeing, these will include combinations of regular expenses and significant personnel reductions.
Side note: one of the hardest things to get right in this scenario is the “shared services.” These are functions like Quality, IT, and R&D that have a budget allocated from several operating teams. It is very common to see these take an outsized share of the cuts then become overwhelmed in recovery.
One or two rounds of interactive discussion is held among the divisional heads, and the plan is agreed and actions begin.
The results are predictable: the firm is able to operate, however it has removed operating capacity, while still largely retaining the internal structure and expectations of its former size, which leads to frustration and underperformance. When the market shifts come (as they always do) the firm struggles with being nimble enough to make the shifts that it’s more strategic peers have – and is left behind.
A new “growth” oriented leadership team is appointed and the firm goes through a second restructuring. This two-step transition will play out over the next 9-18 months in board rooms across the globe.
This “two-step” process of restructuring and growth is very painful and time consuming, and clearly we need to move forward both strategically and operationally.
So how do we do that?
Both/And Decision Making
The firms that accelerate out of this will not be taking the two-step path we outlined above. Instead, they will see each move as an opportunity to make both strategic and economic improvement.
There are two critical shifts in thinking that allow leaders in breakout firms to do this:
- They move from “vertical-functional” cost reduction to “horizontal-customer” value chain plans
- Instead of guiding to one “sales forecast,” they develop two – or possibly three – guiding scenarios
We need a fresh voice: the strategists in the firm need to step up and share their viewpoints clearly, practically, and make the case for differential investment. Many times strategists are viewed as the “head in clouds” team members by the op’s leaders, so this shift needs to be led by the Most Senior Executive (MSE). The MSE needs to draw out the best from both the operations leaders and the strategists and get to a high-quality decision.
Unless there was a remarkable amount of foresight in the strategy work prior to the crisis, the needed scenarios will not be in your planning documents. They instead will need to be rapidly developed for these exercises. This need not be lofty or lengthy – a few hours of strategy work with the right tools and strongly directed workflow can lead to powerful shared viewpoints that can move you to both/and decision making quickly.
Many times we lay out a “deep dig” for strategy development. Now is not the time for nuance, but for what I call your best “Sharpie” level strategic work – short punctuated sessions with clear outcomes. Key discussions are driven by a framework, captured in bullet points and co-developed by operations and strategic leaders.
Once completed, making the differential investment decisions will flow as you look at the required people, process and technology shifts that the scenarios demand. Leading these sessions falls to the MSE, and done well, will result in joint ownership that sets the stage for the firm pulling together to put in place the new normal.
So who took the right approach in our opening story? Well, it depends a great deal on your current circumstances, but in general, I’ve seen the best results when the most senior executive harnesses the objective drive of the CFO and the intuition of the strategist into a functional team. This is collaborative leadership of the highest order and sets the stage for strong post restructuring recoveries.
A Few Practical Points for MSE’s
- Set a crisp tone and collaborate. Look at infrastructure as well as human resources.
- Build your decision teams with a balance of leadership styles. Don’t let discussions be about opinions – drive relentlessly into the fact base.
- Tap your innovation team’s expertise to help you design small experiments to deal with highly uncertain contexts.
- Bias your plan for high upside/low downside trends like:
- High Digital
- High Local
- Balancing supply chain agility and resilience
- High-quality customer experiences
Help
This is no small thing, and if you are still reading, you know that. If you’d appreciate some outside support from a veteran of six recessions and strategic restructurings, please reach out to me on my direct line at 847-651-1014 or put a quick chat on the books using this link.
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