Action Plan for Survival
Improving the odds of your organization's ability to survive whatever the future may bring is very different from your normal business planning process. The primary and absolutely fundamental difference is the focus on survivability.
Acting as both a guide and an option constraint, your survivability scorecard becomes a primary process driver. Until the degree of uncertainty returns to "normal", your business plan has to include some number of action plans aimed at vulnerability reduction and defense. In addition, other action sets in your plan have to be tested under your uncertain world conditions to ensure that they do nothing to significantly weaken your survivability.
The Foundation
As noted in our Survivability page, the foundation for a survivability (or robustness, if you prefer) action plan is your vulnerability analysis with its related survivability scorecard.
Without these, you may be tackling survivability without a either a solid understanding of your weak points or a way to assess the likely impact of whatever actions you may be considering.
An outline of what this foundation-building step may entail appears in the sidebar at right.
Action Plan Ideas
Without any knowledge of what your points of significant vulnerability may be, we can only offer some general examples of what such an analysis might target for action:
1. Vulnerability: Thin Operating Margins
This can be huge in terms of target richness. Your first job would be to determine the source of your weak margins. Is it an outdated product set or technology? Is it too broad a range of products (lack of focus)? Is it a customer base too heavily populated by unprofitable accounts? Or what?
Clearly, your action options depend on what is causing your low operating margins. Outdated technology suggests a plan of investment of development coupled with a funding plan that may target weak products or unprofitable accounts. If the cause appears to be product diversity, then a product rationalization plan might be the action target.
A customer base with too high a percentage of unprofitable accounts can offer substantial gains at very little cost. We can provide some excellent how-to references if this is what you need to do.
2. Vulnerability: Heavy Load of Short-Term Debt
Exceptionally low borrowing costs have encouraged many firms to build up their short- and medium-term debt. Proceeds may be used to retire higher-rate long-term debt or just kept as cash reserves. Whatever the use of funds may be, this can be a bomb lit and just waiting to explode. So many events and conditions may trigger a rise in borrowing costs that this is nearly always a primary vulnerability point requiring immediate action.
Cash and equivalents today earn essentially nothing. Having such assets not only reduces your overall profitability and return on invested capital but also makes you more attractive as an acquisition.
3. Vulnerability: Dated Products or Technology
As products or technology age, they nearly always come under competitive pressures from new and better products. This requires constant attention to development and adequate investment. Reductions in development spending may in fact be increasing your vulnerability rather than reducing it. A pile of cash is not always helpful.
Broad-based retrenching during difficult times is rarely effective. Instead, it can severely weaken critical areas such as development. You will want to assess your product and technology position relative to competitors in order to see where you may have significant weaknesses.
4. Vulnerability: One or More Very Large Accounts
What impact would you face if one (or more) of your largest accounts went out of business or stopped paying? A very large sales hit plus a likely balance sheet write-off (or reserve) for the current receivables are virtually certain.
This is a critical task in any vulnerability analysis since the likelihood of losing one or more major accounts is quite high. You can't apply industry survival statistics to specific accounts; you have to assess each one individually as an investor or lender might do. These are, in effect, small-scale survivability assessments.
5. Vulnerability: Resources Spread Too Thinly
The fat and happy days are over, perhaps forever. During such times, firms tend to tolerate weak performers in their business system — offices, functions, subsidiaries — which usually results in resources being spread over too large a business base. As resource availability tightens, focus becomes increasingly important.
Here is another critical assessment task — ranking major profit and cost centers by performance. One way to begin is to ask a simple question: what would happen if we eliminated the unit? For core units, the answer is easy and they can be dropped from the list of action candidates. You should end up with a shortlist of units that are clearly non-essential or are underperforming an essential function.
6. Vulnerability: A Major Supplier Fails
After years of trimming your roster of primary suppliers, you have probably concentrated your business on a relative few of the best. However, being "best" as a supplier may mean that they are weak in some obscure ways. What happens if one of these should fail or if their supply chain is disrupted?
If you are running a very tight ship on product materials inventories, you are probably highly vulnerable to a serious delay or stoppage. It is important to have a list of critical materials that cannot be replaced easily from alternative suppliers. The analysis should provide an estimate of the duration and nature of possible delays for each material (or class) that is likely to lead to business failure.
7. Vulnerability: Competitors Take Your Best Accounts
Intensifying competition is one of the few certainties. Sales declines will force many businesses to do whatever it takes to offset lost sales. This is very likely to make your best customers prime targets. What are you doing to lock these customers in more closely?
The vulnerability analysis question, however, is what the impact might be of a loss to competitors of some number of specific accounts. You have to identify the accounts here since part of the answer involves the relative satisfaction of each. If many of your major accounts are not particularly happy with you as a supplier, these accounts are almost certain to be a prime target for alert, aggressive competitors (see Action Plan for Success).
A Survivability Focus
You will notice in each of the action ideas outlined above that the driving concern is not growth or profit improvement-plus-growth but instead a sharp focus on a particular vulnerability. Some of these actions could well end up reducing the size of your business but concentrating it in a more robust core.
Vulnerabilities may in some cases be so apparent that they can be listed without supporting data and analysis. Others may require a bit of digging. Most organizations will be able to develop a list of primary vulnerabilities without much effort or difficulty.
Once you have this list, the next task is to think of events or conditions that might impact each vulnerability. You don't have to worry about the likelihood of events and conditions but only about the much more readily seen causal linkage.
The final step is the toughest: figuring out the impact of various events and conditions on your points of vulnerability for a range of severities. You want to determine the combinations that appear likely to cause your business to fail. These define your "survivability envelope": inside, you survive; outside, you die.
Next: Finding the Path to Success
As important as survivability may be, it is just an essential foundation. Success lies in the special opportunities that arise during times of great uncertainty ... Next ...
Vulnerability Analysis
1. Events & Conditions List
► Generate ideas
► Rank by significance
► Build shortlist for analysis
2. Impact Modeling
► Specify model scope
► Build and test model
► Conduct impact analysis
3. Vulnerability Analysis
► Identify top impact points
► Rank impact severity
► Summarize findings
Survivability Scorecard
1. Scorecard Design
► Develop a metric design
► Test and benchmark metric
► Report current survivability
Action Plan for Survival
1. Action Ideas
► Generate ideas
► Test idea impact (model)
► Rank action ideas
2. Results Assessment
► Update scorecard
► Evaluate revised actions
► Update model
How We Can Help You
To to carry out a vulnerability analysis and generate a survivability scorecard, you will almost certainly need to build a dynamic model of your business. These models are quite different from typical business analysis and planning models.
If you do not have a resource available who is experienced in building, validating and applying dynamic business systems models, we can help you with this specialized task.
Developing and applying dynamic business and process systems models is our specialty.
We bring modeling expertise, an extensive toolbox of model and testing components, and years of process experience.
We also offer solid breadth and depth of experience in most aspects of business strategy and operations.
Topics:
Action Plan for Survival