In an uncertain new environment, Australian board directors and other leaders must be prepared to enact swift change if their organisations are to avoid becoming collateral damage as the new economic landscape reveals itself. So what steps can organisations take to help reset their business and not just survive, but thrive in a post-COVID-19 Australia?
Get back to the basics
Many Australian organisations were not prepared for a recession. After all, we haven’t had an economy-wide recession on local shores in decades. We’ve been blessed with an environment that has allowed for a strong focus on growth for a good 10 to 15 years, without the need for the same scrutiny on matters such as operational performance.
However, if those same organisations are to ride the coming wave, not just unharmed, but improved as a result, that focus needs to switch — and it needs to come right back to the fundamentals of business: what you do and who you do it for. Clear away bad practices, get your organisation in good shape, put aside pet projects, eliminate waste and be clear on the essence of what you do. In recessionary times, being one with the pack is not good enough — you have to excel at what you do.
Renew focus on cost
When the market expects organisations to focus on a growth agenda, companies emphasise the top line. Now, directors need to switch focus to the bottom line. While cash is king in these times, costs are corrosive. Compare direct and indirect costs to competitors. Target bottom-quartile positioning on the competitor cost curve.
This step sits in line with renewing your focus on business fundamentals. The best way to impact the bottom line is to focus the business on operations, and make sure that everyone in the organisation is crystal-clear on their focus, targets and objectives, how they are measuring and reporting — and that they have clarity on their position in relation to competitors, because competitors are also doing all of this.
If you can improve your operational excellence, it can enhance your operating margins in these challenging times, which may provide increased flexibility to exploit unforeseen future events.
Apply increased rigour and due diligence to capital expenditure
Moving into uncertain, potentially quite dramatic economic times, cash is king. As such, there is a need for increased discipline when it comes to when and how to spend significant amounts of capital.
You may recognise yourself in the following description: you apply extraordinary rigour when it comes to M&A activity to make sure you’re not paying over and get value for your dollar. However, you do not apply the same degree of scrutiny to the minutiae of other capital expenditure, for example, replacing assets, or investing in new programs.
Now is the time to apply the same fine-tooth comb to capital project investment and governance that you would to a merger or acquisition of another organisation. Before authorising these big-ticket purchases, ensure you fully understand the benefits they will deliver, how they’re going to deliver them, how you’re going to stay on track with these projects, and what governance you’ll require to make sure they don’t stray off the path. Most capital project cost blowouts and failures result from poor definition of requirements, inadequate risk management and ineffective oversight.
Focus on fewer things and ensure you are resilient
What we’ve discussed so far can be boiled into one thing: prioritising activities that drive value. However, it’s important to bear in mind that most organisations struggle to coalesce around more than one driver. If you’re thinking this is the time to get the bottom line in shape, that needs to be the singular focus. Eliminate the nice-to-haves and anything unimportant. Urge everyone in your organisation to pull in the same direction.
In addition, we don’t know what the future holds. Therefore, you need to ensure your company is flexible enough to scale up or down. This will mean examining each level and department for any dependency on individuals doing a great job. We want individuals to do a great job, of course, but we can’t have our survival dependent on them doing so — we need “system redundancy”. As you trim your focus to the few key fundamentals, it’s imperative that no piece of the puzzle is overly single-point sensitive, or it may be difficult to scale in the future.
Questions directors need to ask
- Executive strategy
- Are we focused on the important few things?
- What really matters to our customers?
- How do our costs compare to our competitors’?
- Do we have a culture of constructive challenge?
- Operating model
- If our survival depends on it, what do we not need to do?
- How clear is accountability for the things we really need to do?
- Do we do the important things right first time?
If it doesn’t feel right, push it back
There may be a number of new initiatives coming out of your business in the coming months and years. There will be analyses, reports, projects, spreadsheets and pitches. Even the most skilled directors can be presented with things they simply don’t understand and things that simply don’t feel right.
In short, if it doesn’t feel right, send it back. Stop things you’re unsure of. If you or anyone in your business can’t summarise 100 pages into two, it’s not being put in layman’s terms, which may impede effectiveness in either leading the activity or in its execution.
This is a changeable economy. Make sure everything presented to you is crystal clear, so you can be confident of the need and the delivery.
Don’t trust — know
On a similar note, there may be times where you’re faced with a situation you’re unsure of, but you trust your management team and so are prepared for their initiative to proceed — even if you don’t completely understand all aspects. However, this isn’t a normal business environment, so the old axiom “to trust is good, but to know is better” now applies.
It’s good to be able to trust your management teams to do the right thing, but right now it’s better to know what they’re going to deliver. You achieve this by digging in, getting more detail, applying that rigour we discussed, interrogating, challenging and making sure you’ve got an executive team open to challenge.
Note: that doesn’t mean “criticise” or “push back”, but constructively challenge. Now is an era for humility and honesty. Members of your team, from top to bottom, must accept that it’s OK not to have all the answers. When we get more perspectives, we’re more likely to get a better outcome.
Don’t waste this opportunity
Finally and perhaps most importantly, these are unprecedented times. Shareholders, customers, governments and employees aren’t just requesting change, but demanding it. The barriers to transformation have come down and this opportunity will not last forever. You must not allow it to pass by. This enthusiasm will wane at some point and we’ll return to the complacency of a normal economy. Whether that happens soon remains to be seen as the economic damage reveals itself. But no matter what, the opportunity is now to reset strategy, focus organisational energies, rally around your core business fundamentals and make positive change for your shareholders, staff and customers. It’s in times of uncertainty that we either get ahead of our competitors or they get ahead of us.
Find more insights for Australian company directors and boards here.