Wednesday, December 17, 2008

Just blame it on the crisis Joe!

As the news remain pretty negative, business and consumer confidence stays in the basement and incompetent senior managers get away with the consequences of past poor decisions by blaming it all on the crisis.

The string of recent bad news from several sectors of the world economy is fast becoming the latest great excuse in companies that are in dire straits for reasons wholly unrelated to the macroeconomic context. Sectors that are still considered to be at least unaffected if not outright favored by the recession, e.g. online and interactive marketing, have their casualties too and it does seem odd that the credit crisis should be invoked to explain lay-offs. In many cases the current difficulties can be better explained by yesterday's lack of foresight, excessive increase of fixed costs, careless allocation of financial and human resources and most likely by insufficient profit margins in the core of the business. So in many cases even though managers blame it on the crisis they'd better take a long hard look at the objective reality 'cause you may blame it on the crisis but in ain't so Joe!

Monday, December 8, 2008

Managing in the downturn

Obviously the current financial crisis is capturing a lot of attention and causing serious trouble even for the best managed of companies. In my practice I see a number of entrepreneurs and managers having very hard time coping with the fact that liquidity is not even an appropriate term to describe the lack of cash in te economy, while the level of trust is at its lowest and not only between banks. So, what's the smart way of managing in the downturn? Here are a couple of points that came up in an interesting email I got from McKinsey:
  1. Freeing up cash from operations

  2. Maintaining the customer experience

  3. Upgrading talent

  4. Managing IT spending

Of course these recommendation may seem to be very high-level, but I think they're interesting because the last thing you want to do in a downturn, unless you absolutely have to, is to part company from the people who run your business and in many cases ARE your business. In fact, not only should you do your best to retain talent, but it does seem like a good time to upgrade it. The trouble of course is that in many cases personnel is precisely the first area to be seen as a way to adjust, right after R&D and marketing. There's another reason why McKinsey's recommendations are an interesting inspiration for any manager worth their pinch of salt: the value of maintaining the customer experience, something that usually goes down the drain as soon as a business losses key customer facing personnel and / or core expertise.
Then there's another point here which I believe is important: cash should be managed carefully regardless the situation of the economy and what you don't want to do is spend it unwisely in perfectly useless assets. Some companies tend to do that, painting their walls, buying expensive furniture (nope I didn't say anything about the famous Aeron chair...), painting walls, travelling around the globe well beyond the needs of their business or acquiring tools and means that are not high priority... Usually, with unwise use of cash comes an increase in the fixed costs of a business, which makes break-even more challenging to reach. Another phenomenon that comes with lack of thinking through the allocation of cash resources is an increase of the cash tied into assets that are not directly productive... and you don't want that under any circumstances, let alone those in which we are today.
So be careful in dealing with the crisis so as to avoid throwing the baby with the bath water...

Wednesday, December 3, 2008

The making of a credit crisis

Here's an interesting set of slides to provide an overview of how the credit crisis was caused, even though there is a little something that is missing: the role of rating agencies that failed their mission more than ever before...