Lessons Learned In a Downturn

In 2009, the recession was technically over due to some modest growth. As the economy continues to become healthy, it is an excellent time to examine the companies that did more than survive during this recession.

During a recent Rocky Mountain Association for Corporate Growth (ACG) Corporate Executive Series breakfast meeting the subject was discussed by three senior executives that were able to improve their business results during this period, including one company managing through a Chapter 11. Panel participants included Anthony Carroll, CAO, Vicorp Restaurants (Village Inn and Bakers Square restaurants); J.D. Johnson, President, Nogren Americas; John Zimmerman, CFO, Tomkins plc. The panelists shared a great deal of information on specific initiatives to improve financial results during the recession, but there were five overriding strategies that each company employed:

Move quickly

Identify issues in your business and initiate changes quickly. Don’t get caught up in gathering and analyzing data, but rather make changes once trends start to appear. Those companies that react quickly in difficult situations (economy driven or self inflicted situations) are those that will have the best chance of emerging quickly and healthy. Moving quickly means there may be mistakes made, but most can be recovered from as long they are not catastrophic mistakes. A business that is not making mistakes is one that is not moving quickly enough and will most likely be left behind.

Communicate the situation to your employees

Provide your employees a real understanding of the situation and what the goal of the company needs to be in the recovery. Your employees are the most knowledgeable about the detail workings of your business, and they are your best resource in resolving problems.

One company that presented at the ACG meeting solicited input from the employees on how to reduce payroll costs. The employees were briefed on the situation and asked for their recommendation on headcount reductions, reduced work weeks, or reduction in salary. The company ultimately had to use a couple of the options, but the employee base was appraised of the decision and appreciated the opportunity to be a part of the decision process.

Increase frequency of reporting

During difficult times it is necessary to have as transparent an organization as possible. The reporting of key metrics becomes critical and each had reporting stepped up drastically. Once company described the increase in their business as “reporting that was done yearly was now monthly, monthly reporting was now weekly, weekly reporting was daily, and daily reporting was many times each day.” Focus your efforts on the important metrics of your business. It may not be possible to increase all reporting, but those that are drivers for your company need to be reviewed more frequently and by all management that can impact the results.

Communicate to your key customers

Your key customers need to be a part of your communication strategy. The communication needs to be more than just a letter from the president. Your key customers deserve face to face meetings to learn of your progress and in times of economic difficulty how you can partner with them to create a stronger relationship.

Initiate revenue enhancement programs

Even in a recession there are ways to increase revenue. Cost containment is a given, but not a cure-all in a poor economy. Companies that focus solely on cost reductions will lag their competitors and emerge from a recession a weaker company.

All the companies on the panel discussed price increases and promotions. Each had their own way of increasing sales, based on their specific industry. Norgren Americas had a strategy of telegraphing price increases well in advance to condition their customers prior to the increase. Tomkins took advantage of the downturn to exit unprofitable businesses and focus their marketing and sales efforts on industries and businesses with growth potential. Vicorp Restaurants refused to play in their industry’s love of coupons.

Summary

These five strategic actions are not new, and I find that they are reoccurring in many of my articles. It was interesting to hear these three senior executives from very diverse industries talk about the same things that I have experienced firsthand in companies I have run over the past 15 years.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

Boost Sales with Improved Customer Service

We have seen some improvement in the economy lately which means it is time differentiate yourself from your competitors, take some market share and begin to emerge a much stronger company. Customer service is an area that may have been cut during difficult times of recent days. As the economy continues to improve, begin to refocus on your customer service plan to create a differentiator from your competitors.

Many companies have cut customer service levels to a minimum or just below minimum acceptable level to save money over the past two years. This is actually an opportunity your company to stand out. Strong service delivery and customer service are opportunities to win more business from current customers and can be used as sales tools to win customers away from your competitors.

The Situation

A few years ago I accepted the position of President of an IT services business that provided on-site service for many of the large IT outsource and computer hardware companies. On my third day in this position, I attended a business review with our largest customer, Dell. During that meeting I heard that our business was:

1. “Worst of Breed” in every category – Dell stack ranked their service providers in six different areas, and our business was the worst in all six areas.
2. Lagging Customer Satisfaction – The business not only had the worst customer service ratings, but our ratings were bringing down the overall customer service scores.
3. Negatively Impacting Dell Management Bonuses – This was the kicker; not only were we bad, but we were hitting the Dell management in their pocket book!

While this was not the most up-beat meeting I have ever been to, but the Dell management was willing to give us a chance to improve our service.

The Actions

A lot of activity that went into our transformation, but the following areas were the basis of the business improvement plans that we implemented:

• Changed the focus of the business unit – A shift from running as many service calls as possible to a main focus on customer satisfaction along with optimizing their time.
  
• Communicated expectations – In the past, clear expectations were not communicated to all levels of employees. Working with my field delivery leaders, we made it very clear to all levels in the organization what was expected in their daily work and how we expected them to operate.
  
• Held employees accountable for meeting expectations – While there may have been some expectations in the past, no one was being held accountable for their actions and operation. This was one of the critical areas needed in changing the culture in the organization. The front line employees and all levels of management knew what was expected from them and how we would measure their results.
  
• Work with under-performing employees to improve or move them out – There were many employees that showed huge improvement in their activities, but there were some that did not/could not meet expectations. These employees ended up leaving the company on their own or with our help.

The Benefit

While the transformation was a lot of work, the most important question we asked was what was the benefit to our company? When I got to the business, Dell was in the process of pulling their business from the company, which represented about 40% of our revenues and 60% of our activities. It would have shut the business down.

We ultimately turned the situation around. Four months later, during the next quarterly business review we had moved to number two overall and “Best of Breed” in four of six categories. 15 months later, the business won Service Provider of the Year award.

The turnaround in service delivery was critical for our company to secure more business. In the months that followed the quarterly business review, our company was awarded additional business in two growing business units at Dell. This new business was critical to our next strategic direction of moving into higher level services and providing revenue growth with strong margins.

Conclusion

The story outlines a company with poor service delivery and customer service. Your business may not be in a situation where your clients are leaving you, but maybe a competitor has cut their costs too deep and is experiencing problems. Customer service can be a differentiator that your sales organization can use to steal clients from your competitor and secure your own customer base.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. For additional information visit www.RoundhouseAdvisors.com

Manage Change To Succeed In The New Economy

Change seems to be a way of life today, regardless of the economy. Changing regulations, competition and technological advances just to name a few have required businesses to transform their businesses in one way or another on what seems like a constant basis. The days where you could develop a business plan and run it for a number of years with only incremental modifications are long gone. Today’s business must manage change effectively.

The companies that can manage change more effectively are those that will thrive today and going forward. Identifying a need for change can be easy, while implementation can be more challenging. The inertia in a company is difficult to overcome, because you need to change the way people do their jobs. In many cases, change is seen as a threat to your employees because it is a shift in the status quo.

In August of 2001 I took over a business that was losing $6 million on $38 million in annual sales, the last two audits by our CPA firm were disasters, and a large portion of our business was in threat of being closed down by the government agency that regulated our industry. We needed change and we needed it fast! I started working with the management team immediately and set on a path to improve the business. The results included a company profit of $800,000 in the next calendar year, all audit findings by our CPA firm were cleaned up after three months, and we totally turned around our position with the government regulatory agency within six months.

How we did it:

Identify the current status quo and why it needs to be changed -- In my example above it was easy to identify why and what needed to be changed. In another business I ran it was a little more difficult; the company was a small manufacturing business that had fairly constant top line revenues, a respectable bottom line and was well respected in their industry. We found the company’s products and industry perception of their solutions where outdated and being passed by others in the industry. The problem was not an immediate issue, but one of long term consequence of not changing.

Create a vision of what the company can be after implementing change – Create a vision of how the company could look in the future and develop a roadmap to get there. Develop a long term ideal situation that has interim goals that need to be obtained. In my turnaround example, we created a vision of what the company would be over many years, how we would distribute product, how the company would be viewed by external organizations… really defining the direction of our systems, culture and brand. After we created the long term vision, the management team and I set about hitting the tactical items that needed to be addressed.

Communicate with your stakeholders – Communication with your key stakeholders is an important step in the early part of the process, as well as during the implementation. The key stakeholders may be the board of directors, your direct manager(s), your distribution channel, key vendors, your accounting firm, and in some cases regulatory agencies. You cannot over communicate with stakeholders.

Communicate with your employees – Employee communication is the most important part of a change management plan. This is where your discussion of the status quo and future vision of the company becomes very valuable. Regular all-employee meetings allow you to paint a picture of how the company will operate and how the employees will play a role in the transformation, as well as the new company going forward. Your employees are the resources necessary to implement your plan and it is best to communicate with them personally at least once per month in all-company meetings and interim meetings to discuss major changes or milestones. This may seem extreme, but I have found that this frequency of communication headed off larger problems.

Managing change is a difficult process, but can be made easier through these tactics. Keeping focus on the end-game is critical to keep your management team and employees headed in the right direction. I’m not sure there is every really an end to change, but as you transform your organization it is truly gratifying to see what can be done.

By: Larry Turner

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

Survive and Thrive in The Volatile Economy

The economy is certainly an issue when trying to run our businesses, but it is possible to implement programs that allow you not only to survive but more importantly thrive. Putting your head in the sand to ride out the recession is a normal response by many managers… Don’t do it! You can rise above your competitors by taking steps to build your business.

The following areas can become the cornerstone of your business strategy to thrive in the volatile economy and emerge a much stronger company than your competitors:

Customer Facing Activity
Customer facing activity is critical to maintaining and growing your revenue. Any initiatives that focus solely on cost cutting will result in continued cuts to match an ever declining revenue stream. During turnarounds and right sizing programs, it is critical to stabilize your revenues in order to build a healthy company.

It is easy to cut the sales and marketing departments in slow economic times, because “they are not closing any business anyway”. While this is true in companies that focus only on cost cutting, it is not true if you concentrate on stabilizing or increasing revenues as an integrated management approach.

The customer service department is another area that is an attractive cost cutting opportunity, but it is also a good place to differentiate from competitors. An example of how you can differentiate yourself with customer service in a downturn:

In November 2001, I received letters from two airlines that I flew on a regular basis and had elite flier status on both. One airline informed me how many miles or segments I needed to maintain my status, and the other airline explained that they understood that many companies had cut back on air travel since 9/11 and was extending my status through the next year. I immediately switched all my future travel to airline #2 and strongly suggested that all my employees do the same.

Focused Cost Cutting
Ignore the impulse to make cuts across the board when going through a cost reduction program. When making cuts, it is important to maintain customer facing functions and focus initial cuts on “back office” activities. Back office functions include accounting, finance, human resources and IT departments – all areas that do not interface with your customers and can be supplemented with outside resources.

Use a tool like customer profitability analysis to identify cost cutting opportunities in the “customer facing” functions. This process will identify those customers that are unprofitable and in most cases suck your organization dry of valuable resources. “Fire” your unprofitable customers, so you can focus on those that are profitable.

Once you have eliminated the activities associated with your unprofitable customers, it is now time to cut costs associated with the “fired” customers in your customer facing functions. Taking this approach allows you to provide a consistent level of customer support and maintain a sales staff to grow your business.

Marketing Spend
It is easy to “go dark” and eliminate your marketing spend to save money. Going dark is essentially putting your head in the sand and giving in to the poor economy. There are a number of studies that have been done to evaluate the effects of marketing spend on the results of a company during and after a recession.

One such study was done by ABP/Meldurm & Fewsmith in 1979 to evaluate those companies that did not cut marketing expenditures during the 1974/1975 recession. They found that companies that did not cut their marketing spend experienced higher sales and net profits during the two years of recession and the two years immediately following than those companies which cut in either or both recession years.

This is due to the cumulative effect in marketing communications. When you start a marketing program it does not result in an immediate impact on sales, exposure or improvement to brand; instead it takes many months of continued exposure to provide momentum. For this reason, it can be easy to cut back on marketing because there may not be an immediate impact on sales, but rather a slow decay.

In Summary
It is possible to increase revenues during an economic downturn, but it takes hard work and a focus on results. Any cost cutting program needs to be paired with a program to stabilize or increase revenues; otherwise you will be forced into the downward death spiral of continual cost cutting. You stand a better chance of thriving in the volatile economy through targeted cost reductions, maintaining customer facing activities and not cutting your marketing spend.


Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. For additional information visit www.RoundhouseAdvisors.com

ref: “How Advertising in Recession Periods Affects Sales,” American Business Press, Inc., 1979