It never ceases to amaze how often the past is perceived as the only driver of the future. The minute one hears the increasingly archaic and deadly statements “…but this is how we have always done it…”, or “….company policy will not permit that…” is the first sign you are dealing with the wrong company, one that is in guaranteed terminal decay – it is only a matter of time.
An equally frequent blunder is using sales metrics as an indicator of future sales. Sales figures tell us what happened in the past, they do not tell us what will happen in the future. Yes, they may well give some indications, but like every birthday, things are different.
There is nothing more certain than death, taxes – and change!
Company policy is a framework within which the business operates, not an end in itself.
Needless to say, it is also used as a door behind which the business hides so that it does not have to change.
How often have you sensed the message is: “….do business our way or don’t do business with us at all!”
When that message rings in your ears, time to move on!
Darwin’s theory of evolution is just as relevant to business, as it is for all species. Adapt, evolve or die out!
So, sales are trending up and things are looking good, then bam, an exogenous shock like the GFC, or the even more devastating aftershock hits and wham, credit dries up, sales go down – doors are closed!
That resources boom on which many strapped their retirement fund saddle, then phoof, gone up in smoke in six months!
Nothing like change, the modern day roller coaster!
So, what can we do to prepare the business for shock?
Model the business under various scenarios!
There are some neat tools available for conducting ‘what if’ scenarios, such as Structural Equation Modelling (SEM).
SEM allows for modelling the business metrics (financials, marketing effort, human capital deployment, manufacturing, and the like) where the weights of each variable can be simply changed to replicate stress conditions and to see the likely outcome for the business. One can very quickly see where effort should be expended to address the challenges in stressed economic and/or market conditions.
Being prepared for the economic downturn (or upturn) places the business in a position to realign its resources to optimize the desired outcomes under conditions of uncertainty.
Simply put, always be prepared as business cycles are more volatile than ever – and are not going to settle down into our desired comfort zone anytime soon!
How does your business cope with change?
And, is it prepared for the stresses of uncertainty.
More importantly, is your company’s business predictions nothing more than a rubber band stretch of last year’s graph, or is it a comprehensive model of the future?