Responding to business challenges – strategically redirecting, reallocating, cutting back and economizing

I was thinking yesterday of a conversation I had with a colleague in a business with a home office in the United States Northeast and one satellite office in the Southeast. They had plans for opening a third office in the Midwest and saw real potential in that. In general, this business planned with care and according to a carefully reasoned overall strategy for growth and development and for maintaining quality of product and market share. Then they ran into difficulty and their Southeast office, which had begun with promise started to have real difficulty bringing in revenue and meeting expenses, let alone generating profits. Quite simply, this second office started displaying a failure to thrive where it did not seem able to transition out of a support-needed, startup phase to become a productive entity that could self-sustain and offer value to the business as a whole.

Their third office plans were now shelved, which makes sense as it was reasonable to assume they might have had a fundamental gap or other problem in their business expansion model per se. But at the same time, they cut back on a range of other areas as cost-saving measures and some of them were perhaps more problematical – more difficult to strategically and operationally defend. This included getting rid of any and all consultants and regardless of what they did or how cost-effective it was to carry out these functions with an outsourced or consultant solution. They dropped some key necessary IT initiatives and even ones that would not have cost much. They created an air of uncertainty and of pulling back throughout their staff and their overall organization.

I remember raising a metaphor example to attempt to explain my thinking and to argue the case for a more nuanced response to this challenge, and I would repeat that here. An octopus has eight tentacles and under normal circumstances they are reaching out and exploring, testing in all directions. But if you pinch the tip of just one of them, all eight are rapidly pulled in and the octopus as a whole withdraws, which may or may not be effective or necessary. My point as I sought to make was that pulling back in so across the board a way might or might not have been the most prudent, effective move for this business.

• What happened in their Southeast office to create the difficulties it encountered? Was this because of problems and issues endemic to the Southeast region, or even to the national economy, or was this a management and leadership problem or some other issue at that office where different leadership in place or other within-office changes might have led to different results?
• What was the impact of this office failure on the organization as a whole as far as its operations and business flow were concerned, and its finances and liquidity?
• Where would holding steady or even expanding their efforts and investments in select directions have made a positive difference for re-stabilizing this business?

A lot of this blog is about information technology, so I will cite a few possibilities that at least depend on execution from that here, though similar questions can often be asked about most any functional area as well.

• What has this office’s marketing and online marketing been like, and their use of the internet and social media? How did their activity and approach connect with or differ from what was being done out of and for the home office?
• Have they been connecting effectively with their supply chain, where much of that is via information technology channels? What parts of their supply chain, for that matter has been unique to this office as opposed to following a more company-wide pattern?

There are a lot of questions that could be asked here and determining the more important of them would depend a great deal on what specific issues come forward as answers to the question of that first bullet point, above. This may or may not involve marketing and communications, or supply chain. The important thing is to understand what it does involve and to react operationally and strategically accordingly, as to how this could be addressed at that office and for its risk to also become a problem elsewhere in the organization.

Simply pulling back in general and as an automatic response, is probably not the right move unless this local event has overriding global-to-the-organization impact – with significant reduction in available liquidity for example.

• What are you willing to cut? What would you strive to preserve at all possible realistic costs?

Cutting all consultants was a decision made to try and forestall having to lay off any full time employees so that probably made sense and certainly where organization-wide cash flow and liquidity concerns were in play. But delaying and putting off IT initiatives that were in effect already paid for and that were designed to enhance revenue generation capabilities may not have made as much sense.

If I were to propose a simple, single rule of thumb here it would be the following and I offer this as a final thought for this posting.

• Know why you sustain, or cut where you do when your business is under challenge. Simply cutting to cut and with only an eye to immediate, short term line item expense savings probably means making the wrong cost-savings and economizing decisions.

You have to look to how your potential chopping-block items actually fit in, and where they do or do not connect with what is going wrong to bring you to cut in the first place. You need to know if they are part of the problem, potentially part of the solution to it, or simply there and neutral and you need to look to the cost-effectiveness of either doing without or finding alternative ways to achieve the ends they were offering your business.

I have put this posting in my Business Strategy and Operations directory and you can find other postings related to strategic change and .change management there.