The Business Advisory Blog

The Business Advisory Blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

Greg Millar
Published on

Recent global events have tested the mettle of management and boards everywhere

Some businesses will emerge stronger and, sadly, some will cease to exist in their current form.

7K0A0597-403Skilled leaders have a better chance of navigating adverse conditions so let’s look closely at some of those skills.

Getting a Quick Understanding of the Problem

Usually, a crisis doesn’t happen ‘overnight’ (though the event that triggers the crisis might). Declining sales, insufficient cash, customer churn, rocketing expenses, and other symptoms develop over time. The best leaders quickly acknowledge the problem, understand what’s driving it and identify solutions. This doesn’t have to happen all at once but there should be forward momentum. Mistakes are OK… so long as there is progress towards a solution.

The opposite is to be ‘in denial’, which is a convenient way of postponing difficult decisions. Those decisions tend to get harder over time.

Focusing on Cash

The phrase ‘cash is king’ was probably invented in a crisis! Simply put, will the business burn or generate cash? And which parts of the business contribute in either direction? Some businesses overcomplicate this and study a variety of metrics that are less important. This is more than watching the bank balance. Good forecasting is essential.

Being Self-Critical

‘Self-Critical’ and ‘negative’ are not the same! But the best leaders will look critically at their own performance, the performance of their peers and the business plans ready to make a quick and dramatic change. Building in ‘trigger points’ is a smart move, for example, “if we don’t hit XXX in sales by the third quarter we will completely re-evaluate our approach”. Trigger points are most useful when they tie into the availability of cash.

Benefiting From a Board

The relationship between a board and management will vary depending on company size, shareholder breakdown, the regulatory environment, and other factors. In any case, there is great value where leaders can get input from interested people who are away from the operations and see the ‘big picture’. Boards can offer a useful perspective on risk and they should challenge plans. Good leaders know how to make the most of this.

(Note, the same effect can be achieved without a legally constituted board, for example through an advisory board or a mentoring or coaching relationship).

Generating ‘quick wins’

Any success, however small, is valuable when managing through a crisis. Yes, there needs to be long-term, strategic thinking but sometimes the long-term direction is unclear. So focus on saving a customer, closing a deal, cutting costs to be incurred in the coming week, renegotiating a supplier contract, etc. While these ‘wins’ won’t enable the turnaround of the business, they contribute something… and employees’, customers’ and shareholders’ confidence in the business will increase.

Revising Team Incentives

A business in crisis needs different team incentives than a stable business. In a crisis, incentives should relate directly to the turnaround of the business for which clear metrics are set. Perhaps these metrics relate to available cash, new leads, new sales or a return to (sustained) profitability. They should be clear, relatively short-term and reviewed frequently as the business changes. A motivated team with shared goals can be exactly what is required to get a business out of a crisis.

Making Team Changes, Starting at the Top

The mindset required for managing in crisis is different and some managers will never acquire the right mindset. While they may be good managers in different circumstances, they will not succeed or contribute in times of crisis. Simply put, relieving some senior managers of their positions will usually improve the chances of success. This also sends a signal to other stakeholders that the leadership will act decisively.

Surfacing Talent From Within

Understanding the organization and how it works (so-called ‘institutional knowledge’) can be an important asset in a crisis. This knowledge can reside in people who were previously under-valued but can now contribute much more. There also may be individuals who see the situation as an opportunity to develop their careers, be part of something groundbreaking and make a significant difference. They are the minority while most people worry about job security. But retaining them is key to success and a deal can be struck which is not only about money and bonuses.

Getting the Story Right

Leaders need to convincingly answer some important questions. Why is this worth saving? What’s the path to getting there? What does success mean to all stakeholders? The story needs to be told in a short, simple way so people willingly join in the fight.

Making Good Business Practices into Habits

If you look above at the subheadings, they don’t relate only to business in a crisis. They are, in fact, simply good business practices that should be institutionalized. In fact, if we changed the title of this article to ‘Managing in Good Times’, what would we talk about? Avoiding risk? Managing incremental growth? The nuance would be different but the best leaders bring a sense of ‘crisis-urgency’ and ‘crisis-best practices’ even in times of stability.

The Alliott NZ Team are supporting our clients and their leaders as we all tackle these challenges. Please get in touch so we can provide you with the support you need at this time.

Topics: cash flow change coronavirus COVID-19 economy Growth leadership management Performance team