There’s never been a time when Strategy Design is more important in today’s highly-competitive, uncertain marketplace. There is much talk of recession or downturn, which is very hard to predict the precise timing of such an event. The health of the economy is beginning to show—leading indicators have weakened, such as the PMI and IPC book-to-bill ratio. Perhaps, your company already has several key customers throttle-back on orders and inventory levels. Or maybe, some of your customers have notified you of additional price increases. But, whatever the degree of uncertainty, it is possible to prepare and plan early, and be proactive against a slowing and softening economy.
First, make a serious commitment to form a response team.
Second, make a solid decision to focus and invest to increase sales growth and expand EBIT margin.
Third, make a commitment to follow-through and support the response teams’ plan.
Managerial flexibility is very different from uncertainty. The latter implies that a forward-looking business statement may deviate from its original plan. The former refers to alternative plans that managers design and evaluate in response to very specific events. Flexibility and uncertainty need to be explored and discussed because of managerial complacency—heed to old adage, when times are good, why change?
But, if you are serious about adding flexibility to your core competency list, you will discover its value before, during, and after an economic downturn—competitive volatility rises by 50% within the Fortune 100 and offers businesses an opportunity to rethink its diversification strategy. Your business plan may be working very well today, but in 6-months, it might show signs of coming apart.
Interestingly, an economic downturn will cast a spotlight on deficiencies in your market diversification strategy (range of customers) and on how well your processes can adapt to change. For example, a business is structured to handle large orders, but with a slowing economy, the company can no longer compete on low-quantity orders. This is a time to evaluate whether low-volume work is a value-add service alternative. During a slowdown, companies will shorten the number of suppliers and move toward a top 2 or 3 list. If your manufacturing can handle a variety of products and volumes, your business will be chosen to remain as a primary supplier.
The following highlights a strategic business model for pre-market slowdown: