Crisis? What Crisis?

Real crises are rarely anticipated. When newspapers start reporting that a crisis is imminent, we are probably already in the middle of it. At that point, many people panic and, acting in fear, make illogical decisions. But, is it possible to anticipate a crisis and be more prepared to deal with it?

Of Course I Knew It!
As soon as the word “crisis” is out, post-mortem specialists flock to the airwaves to brag about how they had anticipated the critical situation and analyze the current state of affairs with the advantage of hindsight. Interestingly enough, these specialists were never brave enough to speak up before the milk had already started spilling.

Yet, a rare number of trendsetters use their unique skills to anticipate events and put their reputation on the line. They suggest the direction of what is coming next. It takes courage to guess where the current situation is heading, and even more courage to say it out loud in public. Not many people are willing to risk being wrong.

Developing skills to understand the current context and interpret trends is a survival skill for strategists. Knowing how to do it well can give you a competitive edge and help you position yourself as a trendsetter.

Learning to Guess
A long-time friend of mine, called Alan, is good at noticing the early signs that a critical time is approaching and predicting the mood in his industry. Alan has a large cattle ranch in the Brazilian farmland's interior. His business is constantly exposed to ups and downs in the harsh reality of the agriculture commodities market in a developing country. But, his business is thriving. Alan is able to time the market in a way that none of his competitors have been able to. With that ability, he grew his business into one of the most profitable operations in the entire region.

One day we were sitting on the "veranda" of his farm, and Alan explained his approach to me. While other farmers were looking at the daily commodity news provided by BOVESPA on the Cattle Channel [yes, Brazil has a cable channel that discusses cows and bulls 24 hours a day!], he looked at more noticeable signs of change in his local market. In other words, he used local events to help him predict the direction of his regional market.

For instance, when passing by a restaurant where truck drivers usually gather to chat and wait for business, he would note the parking lot. A large number of empty parking stalls meant that drivers were busy transporting livestock. Then, calling on his expertise about the cyclical nature of the cattle market, he would know if people were buying or selling cattle. With that information, he could determine if it was time to join the stampede of farmers selling cattle or wait until the other farmers’ cattle were sold and then leverage better prices with the sudden scarcity in the local market. At other times, he would drive 100 km to a regional slaughter house, just to see how many times his conversation with the owner would be interrupted by the phone ringing with other farmers trying to sell their cattle stocks. A flood of calls in the owner’s desk meant farmers were desperate to sell and meat prices were about to take at hit. This information would help him understand the level of influence of stockyard owners in his market.

Alan’s message is clear: to identify a trend, you must follow your local market first and pay attention to what is going on around you. For him, the information reported on the Cattle Channel just indicated the general trend, which would influence other cattle ranchers. He preferred to observe the local trends, which were more relevant to his situation. Understanding the slight differences in his local market provided a major competitive advantage for his business, making him a trendsetter instead of trend follower.

No Guess Work
Most likely, you don’t deal with cattle on a daily basis. But, Alan’s lesson can be applied to other situations. As I was picking up a newspaper at a coffee shop in Vancouver Yaletown about a year ago, I learned from the barista that Starbucks was laying off a few hundred people. "Slow sales" mentioned another person behind me in the lineup. This news was an early sign that the economy was slowing down. People get scared when they think they might run out of money, and they start cutting back their spending here and there. Instead of going out for a 10am coffee at Starbucks, they stick to the free-for-all black tar (i.e., office coffee) at the office. This trend towards spending less money on disposable goods was an early sign that the economy was changing and slowing down.

There is no empirical evidence to prove that a slowdown in Starbuck’s coffee sales indicates a coming recession. That is not my point. What I am suggesting is that, as a strategist, you need to develop your ability to observe the events around you and your industry and make educated guesses about what they mean. Amazingly the more you do it, the better you get at it. Observing the world with curious eyes will help you have out-of-the-box insights and predict trends in your industry with more accuracy.

Dealing with This Unforeseen Crisis
Many people in Canada are just starting to realize that the American credit crisis is already affecting them. The worst part is that they are learning this through CNN and through the slow down in their industries. They completely missed this big elephant coming their way.

Changing course appropriately is essential in these types of situations, but knowing which direction to go is even more important. The ability to adapt and move in the right direction can save your organization big bucks in times of crisis. If you haven’t started looking for the right direction yet, it is better to start now than to keep waiting.

Bad times also have opportunities. In bad times, people are more conscious about their choices. They may eat less filet mignon, but they may also eat more beef ribs and port chops. They may sell their gas guzzling SUV and buy a more fuel efficient car. Likewise, companies may give up expensive products and use products that reduce their costs and improve their efficiency. Thus, you should keep your eyes on what your customers are asking for and customize your strategy for the current times. Give up old formulas that don’t work in the current context.

In times of crisis, learn to guess, be courageous, and set your own direction! This is my advice.

Build a Strong Strategy, Go Beyond Numbers!

“I need to improve the profitability of my division!” I often receive this request from customers who want to improve the results of their organizations. However, doing that is more complicated than it seems.

Beyond Numbers
Using a simplistic view of how business works, you may decide to focus solely on numbers to improve the profitability of your company. You may argue that there are only a few ways to improve the numbers. You can increase revenues (sell more), decrease expenses (cut costs), or operate more efficiently (get a better bang for the buck). However, this may not be the whole story. To truly have a winning strategy, you have to dig a bit further and understand the underlying drivers of profitability.

Beyond Customers
You can improve profitability by looking externally to find sources of growth and better manage your current accounts. In many situations, your frontend employees will have insightful information about the state of the market and where your competition is at. You may realize that, with your current product offering, you can invest as much as possible in sales only to find that there is no market for what you are trying to sell. Examining how your product is promoted and distributed may indicate whether you’re really adding value to your customers. Brief conversations with a few long standing customers may help you gather insights and out-of-the-box solutions. Then, you can go beyond just selling something to selling the right products to the right customers.

Beyond Processes
From an internal perspective, the company can operate more efficiently by innovating and streamlining processes. Selling more doesn’t mean making more money. Once in my career, I witnessed a company folding before its management’s eyes because they started to sell too much. In that case, their internal processes were so complicated that the costs of scaling up production created a perfect storm and suddenly the company ran out of capital and – bang! – they were out of business. Beyond controlling costs, you need to understand the structure of your costs and the scalability of your internal processes.

Looking internally for sources of innovation, you may be able to find new ways to do business, thereby, positioning yourself as a trendsetter in your industry. A Forrester report I was recently reading reminded me that companies are not spending enough time in innovation, but spend most of their budgets maintaining existing products and systems. If you can find ways to increase efficiency, you can spend less effort maintaining what you have, and, suddenly, you will have more time for innovating.

Beyond Numbers, Again
Instead of looking at your total headcount, look after your people. Consider investing in a better team and overcoming internal communication barriers. Investing in team collaboration pays off big time. I know a few companies that have taken the time to reduce internal bureaucracy and integrate similar areas. They were extremely successful. Note that investing in people does not necessarily mean sending them to expensive retreats in Cancun; it means having real conversations with your staff and empowering them to resolve issues.

Results, not Numbers, are Important
Finally, manage expectations by aligning your profitability goals with your strategy. Use numbers to verify that you’re achieving the expected results and use them wisely. The business world is more complex than that complex spreadsheet model sitting on your desktop. Remember, Excel is just one of the tools you have at your disposal. Think wide and get better results!