Tag Archives: economic crisis

Analyse This!

Posted on 4 February 10 | 2 Comments

‘Analysis Paralysis’ is often cited as a reason for businesses failing to achieve their potential – too much time spent analysing an opportunity (or problem) with the result that the window closes and nothing is achieved. In fact, much has been written about this, with Google, alone, returning over half a million pages!

The problem is that many in business – particularly the more entrepreneurially-minded – use this syndrome as an excuse not to analyse anything, relying instead on ‘gut feel’ for all decisions.

However, analysis is a critical part of achieving maximum success in a business and there are many areas where this can be automated to a large extent, too.

One often-overlooked area of a business – because it is nowhere near as glamorous as Sales in many eyes – is Credit Control (also referred to as the Debtors’ or Accounts Receivable Department, depending on where you are in the world). And yet, it’s an area that can have a huge impact on the overall health of a company, and one where analysis should play an important role.

In the years BCC (Before Credit Crunch), of course, many companies effectively outsourced much of the decision-making to Credit Insurers, who would determine appropriate account limits for customers, and would chase up for the longer-overdue debt once it was reported to them. The company was paid out either way – by the customer or the insurer – so was less concerned.

This, of course, has all changed.

Credit Insurers are now a lot more careful with their level of risk and companies are having to re-evaluate their approach: do they accept lower credit limits and a consequent restriction to their business, or do they ‘self insure’ to maximise their opportunities?

By analysing their customers’ payment patterns over time, companies will develop a much better understanding of their customers, being better able to assign appropriate credit limits, while also developing an early-warning system of impending trouble.

What’s more, utilising this information in cash-flow forecasts will provide a far more accurate picture of expected income for a given period than the ‘rule of thumb’ that so many companies seem to still use. And, of course, this should feed through to enable companies to give accurate information to their creditors as to payments due, and take maximum advantage of any early-settlement discounts that may be available.

It all comes down to understanding your business more thoroughly. If nothing else, the economic conditions of the past couple of years should encourage businesses to pay a lot more attention to the fundamentals, and that will be good for everyone going forward.

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What’s the Future of Banking?

Posted on 15 December 09 | 2 Comments

One significant side-effect of the global financial crisis has to be a major overhaul of the world’s banking systems. They’ve been shown to be badly broken.

 After all, what is the current state of play with banks in general, when looking at their supposed core competencies?

  • Lending – very little lending activity going on, and only to those that don’t really need it (the very credit worthy);
  • Deposit-taking – although this continues, albeit at a lower rate due to the general economic woes, it’s done with caution and concern as the public no longer believes in the security of banks (the old adage about being as safe as a bank just doesn’t apply today);
  • Investment advice – does anyone trust the investment advice of banks any longer?

 And then there are peripheral activities such as credit cards – banks lowering limits, and now even looking at penalising the credit-worthy that pay up their credit card bills on time: surely a brilliant way to chase away customers…

Talking of customers: the issue of customer service is still something that few banks understand – they’re not open when customers want them to be, and are seldom found where they’re wanted. Fortunately, technology in the shape of Internet and Telephone banking is allowing us to work around these limitations.

And yet, the self-same group that precipitated the economic disaster of the past couple of years through the sale of very dubious investment instruments apparently repackaged to hide their source, believes that they continue to deserve multi-million dollar bonuses “to retain talent.”

What talent, and why should it be retained, considering the mess the world is in as a result of their activities?

Now that so many banks have been shown to have an extremely dubious business model, isn’t it time to relook the very essence of what they should be doing?   

Let’s see a complete separation of activities, so that banks focus on banking and investment houses focus on investment consulting – it’s clear that the “Chinese Walls” in financial institutions were full of holes.

Banking needs to be about rendering a service to the community – after all, a prosperous and stable community base is good for the bank’s business, and a prosperous and stable bank is good for the community. Banks need to focus on the business of taking deposits and making these funds available for loans to build businesses, put people in homes and generally provide a secure growth engine for the longer term. The short-term focus that we came to see in so many businesses (see: The Perils of Quarteritis) is just not acceptable.

And this model need not necessarily result in low returns for depositors – look at the success of microfinancing from Grameen Bank (and, now, others), both for the bank and the community. As with everything, there will be some elements that give lower returns, while others give higher returns. With careful, skilled management, depositors should be able to see appropriate returns while borrowers can secure appropriate loans.

It’s time for financial institutions to rebuild the trust that they’ve lost, and return to being of service to their communities again, rather than simply serving the bankers’ own interests.

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Posted in Banking, Business - General, Customer Service, Economy, Recession

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Leadership for the New Business World

Posted on 17 November 09 | 4 Comments

The worst economic recession for generations has caused a re-evaluation of business practices in many areas, and a call for greater corporate governance and oversight. Now that we’re officially reaching the end of the recession with many countries in Asia and the whole of the Eurozone, amongst others, officially out of it, it’s also time to look closely at leadership practices in business.

One thing’s certain – many changes need to be made, and recent surveys showing a significant majority of employees are planning to change jobs as soon as hiring picks up make this an urgent necessity if companies are to avoid the upheaval and cost increases associated with high staff turnover.

There are many reasons for this level of unhappiness, among them:

  • Severe stress at work – as companies cut costs and staff, those that remained found their workloads growing, often to a point of near-unsustainability;
  • Severe stress at home – really an extension of the added stress at work, compounded by longer working hours, and often less pay;
  • Lack of appreciation – many, if not most, companies overlooked the stress factors and showed no appreciation for the additional efforts of their staff, a situation worsened by cost-cutting which impacted the staff “welfare” programmes already in place;
  • Do as I say, not as I do – as the recession bit ever deeper, many executives seemed oblivious, continuing with executive perks, parties and benefits even as they were making deep cuts in employment and other areas (look at the scandals surrounding many of the bailed-out businesses for example);
  • Lack of direction – as companies cut, often in several waves, many seemed to have lost their direction. Although, as I pointed out in an earlier article, 93% of companies had updated their strategies and priorities to address the slowdown, the fact is that much of this work was done well into the recession and they were floundering for a good time (only half have a strategy in place for the upturn!).

As a result of these and other issues many have lost faith in their business leadership and this is the reason for the potential dramatic increase in staff turnover.

A recent survey by McKinsey, “Leadership through the crisis and after” points to the way forward. What’s interesting is that the top criteria for leadership during the crisis are the same as those for after it, with only minor changes to relative importance. In essence, leaders are expected to be:

  • Inspiring, creating a vision for all to see and aim for, and doing so convincingly and clearly;
  • Unambiguous, defining expectations and rewarding people appropriately for this;
  • Challenging, through encouraging people to challenge assumptions and take risks;
  • Participative, involving others in the decision-making process;
  • Above Reproach, acting as a role model, mentoring and teaching;

These are very much in line with what’s being said elsewhere and with what executives perceive as the most important criteria for organisations going forward: Leadership, Innovation, Clear Direction and an External (Customer, Supplier, etc.,) Orientation being seen as the top success factors.

It may not be too late. Employment typically lags an upturn by several months, so leaders still have a little time to restore the faith of their workforce. However, they cannot afford to delay any longer to address these issues of concern and need to clearly demonstrate that they understand the way forward for success. Failure to do so will almost certainly cost companies dearly.

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Postscript: Was pointed to an excellent presentation by Dr Tommy Weir on CEO Shift demonstrating how leaders will need to shift their thinking in 5 key areas related to talent. Well worth watching! See it at http://tommyweir.com/Video.aspx

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Posted in Business - General, Economy, Recession, Upturn

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Will your business survive the upswing?

Posted on 15 October 09 | 6 Comments

An article I saw today in SmartPlanet.com confirmed what I’ve been feeling for some time: businesses have over-done the cost-cutting and are poorly placed for the economic upswing.

The fact that leading economists and business leaders around the world have declared an end to the recession is great news. However, even though nobody is talking about a ‘V-shaped recovery’ or quick upswing, the Forbes study of 200 large companies cited in the article showed that leading executives believe the level of cost cutting undertaken will severely restrict their future growth prospects.

As I posted a few weeks ago, short-term business thinking has done enormous damage – and unfortunately this thinking carried through the recession with companies cutting costs as hard and fast as they could with little thought for the future.

While I don’t have the statistics to hand that the Forbes study has, my own observations indicate that perhaps the report is conservative: it showed 22% of executives believing their recruiting/retention policies were not aligned with their strategic goals, while a quarter indicated their training and development programs were similarly misaligned. My observations indicate this figure to be significantly higher – here in the Middle East, training and recruitment all but ground to a complete halt for the first 3 quarters of this year, right at the time when forward-looking companies should have been upskilling and upgrading their staff.

This really points to the core of the issue – the study showing that nearly all (93%) companies had updated their strategies and priorities to address the slowdown, but only 51% admitted to having a plan in place to guide strategy once the economy turns. Granted, the almost all rest said they were working on a plan, but is it not too late?

Certainly it seems that companies around the globe have missed great opportunities to position themselves strongly for the upturn and this is sure to lead to many failures as those that have done so take new leadership positions – as has been the case following every previous recession. The difference this time being, of course, that the recession was far deeper than any we’ve seen in a couple of generations, so the post-recession fall-out is likely to be worse, too.

Perhaps some companies can still save themselves by moving quickly to position for the upswing – taking on top-performing staff, embarking on aggressive training and taking advantage of the opportunities for mergers and acquisitions – but they can’t afford to wait any longer. Investors, too, are likely to severely punish those companies they see as being unprepared for the upswing.

The question now is whether your company will be one of the new leaders or will fail to survive?

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The Perils of ‘Quarteritis’

Posted on 17 September 09 | 4 Comments

It appears that one potentially good thing to emerge from the global economic meltdown is a return to sensible business planning and cycles.

One of the scourges of many businesses – this started in the US and spread out from there – is ‘Quarteritis.’ Not strictly speaking a disease, but something that has probably resulted in a lot more suffering than most diseases, ‘Quarteritis’ is about an overarching focus on ensuring each quarter’s financial results are significantly better than those of the quarters that went before.

While we all want to be part of, and invest in, businesses that have good growth, the fact is that business, like most things in life, moves in cycles and the best long-term businesses are those that plan for the long-term, not just the next quarter. A short-term focus leads to rash decisions, decisions that might be good to “save this quarter” but disastrous in the medium term.

To illustrate, in the IT industry two popular results of this are distributors being forced to take huge amounts of excess inventory in a quarter (“channel stuffing”), or new distributors/resellers appointed suddenly to get a new stock order into the current cycle.

Both of these have similar results over succeeding quarters – reduced profitability for all concerned, stretched payment terms, credit limit issues meaning needed products cannot be ordered and, potentially, delays in releasing new products while excess inventory is moved out of the channel.

By taking the longer-term approach to ensuring that all parties in the channel can grow profitably, vendors may not grow as quickly in the short-term but will ensure happier customers – at all levels in the supply chain – and so more loyalty and a more sustainable growth well into the future.

Wasn’t it this short-term focus – albeit in the financial markets this time – that ultimately caused the current crash? Executives and others were induced by means of massive bonuses to find ways to grow well above the market average and so started giving mortgages to those that could never afford them, and repackaging these as “high quality” loans. Frankly, this would have been considered fraudulent in many places – it’s certainly ethically very bad anywhere – and it was only a matter of time before implosion happened.

However, those involved had already taken their money and run… Isn’t it this short-term bonus-driven culture that’s behind the trend to shorter and shorter tenure by CEOs of public companies? Can CEOs really be effective when they’re only in place for a few years?

It’s time we started looking at the longer term sustainability of business, and rewarding people in ways that encourage this and I, for one, am pleased to see a number of governments leaning in this direction. Authorities and shareholders should claw back bonuses paid for fraudulent practice, especially when taxpayers have to bail out the companies as a result. CEOs, and other officers, should be rewarded, and lauded, for long tenure and sustained growth.

Business needs to get back to a solid footing and good practice – we should support those that are trying to move in this direction.

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