Many organizations, especially smaller and mid-sized companies, do not leverage effective strategic planning and annual budgeting processes — if they engage in such activities at all. But, to shape the future, especially during times of uncertainty, strategic management is a business imperative.
CFOs and their teams are needed more than ever to bring structure to planning and decision-making. Strategic management is an ongoing process that includes strategic planning, strategic implementation, and strategic evaluation. That said, the most important thing about strategic management, in my opinion, is to be intentional.
- Strategic Planning. Every organization has a vision, mission, and purpose. Understanding your reason for being, and then developing strategies to make it a reality, is where strategic planning begins. It entails scanning internal and external factors, conducting a strengths, weaknesses, opportunities, and threats (SWOT) analysis, analyzing the gap between where you are now and where you want to go, and ultimately formulating a strategy, answering the question of how to get there, including goals, strategies, and specific objectives.
- Strategic Implementation. Executing your strategic plan, and bringing it to life, requires leadership, budget alignment, risk management, and change management.
- Strategic Evaluation. To evaluate performance relative to your strategic plan, leverage key performance indicators, financial metrics, balanced scorecards, good governance, and ethics, adjusting and course-correcting along the way as needed.
Tips to Manage Your Business During Uncertain Times
Sometimes, despite developing solid strategic plans, things happen that could derail your organization’s success. The challenge may be internal, such as a leadership change, production issue, workforce strike, or talent gaps. Or maybe the challenge is external, such as economic turmoil, supply chain disruption, or natural disaster. The following are tips to manage your business through such uncertain times.
- Assess the Challenge. Understand the challenge you are dealing with. Is it company-specific? A supply chain disruption? Economically, financially, or politically driven? A natural disaster? Something else? Next, assess how long the situation may last, (e.g., 1 hour, 1 day, 1 year, or forever) and how global the crisis is (e.g., one product, one plant, the entire industry, or genuinely global). Finally, determine how serious the situation is for your organization across all these variables.
- Cash, Cash, Cash. Cash is the lifeblood of every organization. Do you have it? How long can you sustain it? What if it runs out? Working capital must be your priority above all else. Ensure you have enough cash to meet your debt obligations, pay suppliers, and meet payroll. In a crisis, once cash dries up, it’s hard to come back, so be vigilant. Prioritize cash forecasting, including appropriate detail, frequency, and cross-functional awareness.
- Strengthen the Supply Chain. Carefully analyze your supply chain end-to-end, identifying potential weaknesses and looking for opportunities. For example, carefully assess all critical suppliers to ensure they have scale, identify alternatives where needed, and then build and strengthen relationships with these suppliers, increasing the probability you’ll receive preference if there is a disruption.
- Focus on the Long Term Too. Fix short-term issues, of course, especially cash flow and supply issues, but also look for longer-term opportunities. Find opportunities for growth. Could you launch a targeted marketing campaign? Could you enter a new market? Could you acquire a weaker competitor? How do you use this time of uncertainty to your advantage?
- If Cut You Must, Cut Intelligently. In the “do” category, address operational inefficiency, consider cutting non-core initiatives, consider taking payments off autopay, think about the future, and be transparent with employees. Regarding “don’ts,” don’t cut strong talent, completely cut marketing, cut areas generating positive cash flow, and/or overlook the small stuff.
- Consider All Your Tools. Could you prune products and services, focusing only on those that are most profitable? Could you raise prices, whether strategically or across the board? Could you reduce labor costs via automation? Could you use your inventory as a physical hedge? What else is in your toolbox?
- Find New Opportunities. It could be a rough ride. Planning, agility, and execution will be essential — along with a lot of nerve. While riding the ups and downs, be on the lookout for opportunities — new products, new markets, competitor weaknesses, etc. There is opportunity in chaos!
- Run Scenarios. Run what-if scenarios to test various potential impacts of any crisis or opportunity. For example, what if prices double for key raw materials or the cost of medical premiums increases by 20%? What if a key customer goes bankrupt or your bank stops lending? Or, what if supply chain disruptions cause 25% or greater revenue delays and inventory build-ups? Or, on the other extreme, a spike in customer demand depletes inventory? Then leverage this information to develop appropriate contingency plans.
- Implement an ERM Framework. Consider implementing an enterprise risk management (ERM) framework with a strategic, long-term focus. Effective risk management can help you to achieve your organization’s strategic goals and to be more anticipatory, agile, and adaptive in managing sudden or disruptive events.
Call to Action
Our business environment is constantly changing, and sudden shocks to the system may require a new focus, an agile sense of purpose, and, at times, even a survival mindset. That said, the best offense is a good defense. Be prepared and, whether or not times are uncertain, always be strategically managing your business.
Steve McNally, CMA, CPA, is CFO of The PTI (Plastic Technologies Inc.) Group of companies and chair emeritus of the Institute of Management Accountants.