BE READY FOR WHATEVER HAPPENS:

RECESSION CONTINGENCY PLANNING
Intelligent and experienced observers may disagree about exactly where the economy is today, and where it’s headed, but there’s certainly no disagreement about the fact that we are living in very difficult economic times:

• George Soros: “We are in the midst of the worst financial crisis since the 1930s.

• Warren Buffett: “I believe that we are already in a recession… perhaps not in the sense defined by economists. … But people are already feeling the effects of a recession…. It will be deeper and longer than what many think.

• Alan Greenspan: “…there is a greater than 50% probability of recession.”

• CNN “A growing number of top economists believe that the U.S. economy
  has now toppled into recession.”

Of course, this isn’t the first recession—and it certainly won’t be the last.  So in determining how to turn this particular problem into real opportunity, a good place for us to start is by learning what leading management consultants have recommended in the past.

During a difficult economic period in 1990, Gene Berrett wrote an article in The Journal of Accountancy, called “Survival Tactics for a Business Slowdown.”   In it, he laid out “the four steps of economic contingency planning” that a company should follow:

1. “Assess your company’s vulnerability to recession 
2. Develop an early warning system 
3. Sketch out a contingency plan for a significant change in the economy 
4. Manage the business to preserve the flexibility to implement the contingency plan, if needed”

In 2001, in “How to Think Strategically in a Recession,” published in The Harvard Management Update, Bain & Company consultants Chris Zook and Darrell Rigby posed a number of pertinent questions, and outlined recommendations for what companies should do, including:

• Build strategic contingency planning into your culture.
• What if your risk profile shifts dramatically? Act now to spread that potential risk or buy it down.
• Review the competitive landscape.
• What if demand suddenly falls off?….  Map out alternative markets that could absorb your additional supply.
• What if global events disrupt your supply chain?  Where should you strengthen your supply chain network to avoid your worst case? 
• What if prices drop precipitously?  The high-cost producer sets the price during boom times, and most competitors make money.  In difficult times, the low-cost producer sets the price, thereby controlling the level of competitors’ profit margins.
• Firms must scrutinize their purchasing costs and cycle times relative to their competitors, detect the inefficient processes, and fix them. 
• What if a global recession hits?  In such an extreme scenario, do you have the cash reserves to help consolidate your industry and save jobs?
• Strengthen the bonds of loyalty…. Now is the time to prove that you deserve your stakeholders’ loyalty and trust…. Loyalty is not just the way out of a recession; it’s the way back to better-than-normal prosperity. 
• Pay special attention to your employees…. In a recession, employees need to know that their actions matter. Explain to them in detail how their efforts can help protect your core assets. You may also need to ratchet down targets and extend time horizons. Realistic targets will help the people who power your core get back on track without feeling like they’re failing.
• Get close to customers.
• Protect your core assets…. Reinforcing your core assets helps recession-proof your company. Weak businesses have proven much more volatile than strong ones.
• Don’t set up stakeholders for disappointment. Clear-eyed expectations and strategic contingency planning will reassure them that your company can be counted on in a recession.”

Now, confronting the economic crisis we all face, astute consultants have once again been taking the critical steps to get ready for—and beat—the recession.�
Bill Conerly, author of Businomics, was ready with his recommendations in 2007:

“What should a business do to prepare for a recession?  I see four key steps:

1. Evaluate your vulnerability to recession.  
2. Set up an early warning system specific to your business, so you are not relying on
   newspaper headlines, but instead are focusing on the metrics that reflect buyer     decisions to purchase your product.
3. Sketch out on one sheet of paper a contingency plan.  How might you cut expenses if your sales start to falter?  Do you have alternative revenue sources?  How can you conserve cash?  
4. Manage the business on a day-to-day basis to give yourself the flexibility to implement the contingency plan.  Some of the things you considered in preparing your contingency plan may not be immediately available to you, so operate the business in a way that increases your flexibility to handle a downturn.” 

Flexibility, therefore, and clear contingency plans, are critically important; but business owners and managers must also make sure to maintain a key aspect of their focus on their most important resource: their people—even when they know that cash may be very tight.  As Susan Heathfield says in her article, “Recession Planning for Employees,” a company’s employees are more crucial than ever in an economic downturn: 

• “Take a look at your strategic plan, your mission statement, vision statement, values, and annual goals. Is your strategic framework sufficiently articulated to help you make it through a serious downturn? Has it been sufficiently communicated to your employees so they are not afraid, they trust their leadership, and they feel they are headed in a shared, positive direction?
• Be aware of your company’s and your industry challenges. Is your product or service essential no matter what happens in the economy? Does your product save time, save money, or otherwise make itself indispensable even in a down economy? If not immediately determinable, how can you reposition your product or service so that customers begin to see it that way. The customer loyalty and the brand recognition you have built over time will become even more critical in an economic downturn. 
• Have you done contingency planning to identify your potential risks and the affects of a recession on your business or function? What potential scenarios are most likely to unfold for your organization? What will you do differently in the various scenarios you consider, and, in the short term, is there any way you can change the potential impact of the various scenarios? As an example, what areas of your Human Resources department need to change or grow to deal with an economic downturn? Staffing?  Benefits?  Employee morale programs?  Retirement planning?  Employee training channels? 
• You need to communicate that your leadership team is doing forward thinking, forward planning, and discussing possible less-than-positive contingencies. Most of your employees don’t care what the specific plan is. But, it is critical to their retention and sense of well-being, that a plan exists, that they know a plan exists, and that they understand that someone is really minding the shop. And, in my experience, even the best companies are bad at communicating all of this.”

All of the above are indeed valuable guidelines for a company to keep in mind today.�
In addition, we also recommend the following actions when you do your Recession Contingency Planning:

• No matter how busy you are—or how much pressure you’re feeling—be certain that you make the time to take the first critical steps toward developing a strong and aggressive contingency plan to turn problems into opportunities.
• Analyze your financial records—including baselining and benchmarking—to spot any problem areas–before they turn into bigger problems—and to determine cost efficiencies and begin to plan the best way forward.
• If debt is building up as a result of the recession, focus immediately on reducing it.  
• Secure financing (if necessary).
• Look carefully for forces operating as a result of the recession that are impacting the company or might impact it in the future.
• As you start to plan, first focus internally.
• Determine if changes need to be made to the company’s business model, mission, and goals and objectives.  If necessary, define a new business model and focus relentlessly on both innovation and continuous improvement.
• Analyze risk, opportunity, and competitors; identify market trends; anticipate changes that will result from the recession, and then identify your most significant short term growth opportunities, and the key decisions and actions which will spur growth.  
• Articulate a short term strategy based on your core capabilities, and build a detailed, one year action plan, aligned with the strategy. 
• Focus on how to generate greater revenue, solve cash flow problems, strategically cut costs, improve operational efficiency and productivity, and increase the bottom line.
• Work with your sales and marketing team(s) to define a strategy and detailed action plan that will enable them to more clearly define their value proposition, in order to attract customers, and to more powerfully elaborate the benefits of your services/products, in order to increase sales.  Set aggressive but realistic sales forecasts and budgets.
• Understand your critical success factors and how they may have been impacted by the recession. 
• Create a scorecard with metrics to accurately measure individual, team, and company performance; measure progress and track your progress daily.

The benefits you will get from focusing on the development of a rigorous Recession Contingency Plan, will be of great value to you and your company.  They include:

• A clearer understanding of  the current state of your business, including systems, processes, people, and products
• A transition from reactive to proactive and generative thinking, planning, and action.
• A company that will not allow the general crisis to become a company crisis, and is focused on moving through the difficult present and toward the future, with a vision, a well defined destination and a clearly marked path toward it, and results oriented plans and methods to turn the problems caused by the recession into real opportunities for your business
• Improved morale at all levels  

So get planning, get growing, and beat the recession!

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