Q. I am the finance director of a medium sized business. For the last year I’ve spent a great deal of my time controlling costs and the cash flow, and revising budgets. Is this all that I can contribute? A. Observing the rules of financial probity should not depend on you playing the role of financial policeman. Of course, controlling the components of your company’s cash flow is a vital task without which positive action is difficult. Cost control is necessary but the responsibility must be located at the point at which the costs are incurred. But if your organisation cannot behave responsibly then you have a people and communication dilemma and not a financial problem. In turbulent times, keeping score in the conventional manner that monitors and reports corporate performance in terms of ROI is less important than creating the conditions for healthy endurance. In general our reporting rules are unhelpful in turbulent conditions. In today’s complex markets, there are businesses that would be better served by not publishing annual accounts but by formulating moving three year financial statements or providing shareholders with more detailed cash flow statements, which are audited to stress test the company’s liquidity for the risks to medium term survival. But that’s another more difficult conversation. A key feature of healthy survival is to create sufficient flexibility to absorb unexpected shocks. This means ensuring that financial resources such as loan agreements can be modified easily to reflect a wide range of strategic changes rather than focus exclusively on the requirements of a single preferred plan. Recessions are characterised partly by elevated risk but mostly by increased uncertainty. You should resist the natural tendency to compensate by expanding the number and complexity of control procedures. They make the operation less adaptable and tend to slow the decision making process. The preparation of ad hoc reports and analyses only when they’re really necessary should replace a regular tsunami of data. Graphic presentation of key trends should be used to replace numerical schedules. Try to design all the relevant information to fit two sheets rather than a reporting pack. Use your expertise to calculate the maximum financial flexibility you can provide over the next six months, 12 months and two years. This shouldn’t be done just on the basis of funding the preferred programme; you should examine the extremes.
What if you were to downsize radically or change shape substantially by abandoning some of the sacred cows such as the corporate centre? What if you were to assemble rather than manufacture, focus on development and contract out production, disintegrate your organisation into multiple small businesses, go upstream or downstream? Counter-intuitive as it may seem, now is the time to think what previously was unthinkable. While your colleagues are absorbed in running the existing business, you can consider the optional organisational routes that are feasible. It doesn’t matter if they seem too radical or disruptive; this is the time for someone to think through all the possibilities that are cogent and you are best placed to stimulate this process. What we are experiencing is not just a pause but more likely to be a discontinuity that invalidates many pre-existing business models. In more stable times, radical change is the most difficult thing to implant into any organisation but the virtue of a recession of this magnitude is that it makes change unavoidable and in this sense it provides you with a choice of whether to use your position and expertise to protect the status quo or to enable changes that would otherwise be resisted or unthinkable.
Anthony Holmes is an international corporate turnaround specialist and transitional leadership expert. He has led the revival of seven companies over 15 years and his 30-year international business career spans strategic consultancy, investment banking and senior corporate management in a diverse range of industries. Holmes’s book Managing Through Turbulent Times is out now with another, A Time to Lead, A Time to Manage, to follow.
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