A Perfect Storm is an unusual combination of events that produces an especially powerful result. That’s what business leaders today are facing with slowing economic growth, rising prices, and unstable markets.
These issues are interlinked and can’t be tackled in a silo. Moreover, rapid changes over the past few years have accelerated the speed and intensity of these challenges, combining to create the Perfect Storm.
CEOs are charged with leading their organizations through this Perfect Storm while navigating surging inflation, supply chain shortages, economic impacts of the war in Ukraine, lingering effects of the COVID-19 pandemic, the start of a recession, and more.
While Europe’s economy grew in the second quarter of 2022, the U.S. economy shrank by 0.9% after slipping 1.6% to start the year. Two consecutive quarters of negative growth are fueling concerns that the U.S. may be heading into a recession. And, while Europe grew, there are now strong signs that show the region is headed in the same direction as the US. In the UK, for example, GDP fell by 0.3% in April amid the cost of living rising, and the Bank of England has predicted the country will face a recession in the second half of this year.
Rather than hunkering down, leaders should use the current economic climate and challenging business pressures as an opportunity to take an offensive approach and come out on top.
This blog series will lay the foundation of the Perfect Storm; it will show how C-suite executives can emerge from it stronger. We’ll share recommendations based on 100+ combined years of industry experience to help you prioritize your efforts and build a holistic solution.
Why it’s important for CEOs to stay ahead of the storm
The Perfect Storm is affecting businesses of all sizes and across industries in real-time, and the damage can have long-lasting consequences. Elements of the storm, such as inflation and supply chain shortages are increasing costs and impacting True Profitability every day.
With so much disruption, this is the perfect time to stop and assess your organization. While you can’t control external factors like inflation or recessions, you can examine your customer, product, asset life cycles, and organizational structure to determine where change might enable growth.
Key areas to weather the Perfect Storm
In this Perfect Storm series, we’ll be discussing the following three key areas and providing specific value creation levers your organization can start pulling immediately to mitigate the impacts. Subsequent blog posts will go into more detail on each area and will provide you with the insight you need to get going as soon as possible.
1) Managing growth
Everyone wants to grow; especially when markets and economies seem to contract, those who steadily manage growth are the ones that will come out on top. Having recently supported Private Equity, Services, and ‘Hard Hat’ industries on how to manage growth, here are the main items we are seeing as immediate requirements to manage growth:
- Focus on growing EBITDA (earnings before interest, taxes, depreciation, and amortization) over new sales, because it’s easier and more cost-effective to upsell and cross-sell existing customers.
- To uncover growth opportunities in your customer base, you’ll need strong commercial excellence practices, like key account and portfolio management and the development of the right pricing strategy by customer type.
- Pricing sensitivity and the right pricing strategy allow you to compete better for customers and to understand your True Profitability – another critical element to managing growth. In an inflationary environment, knowing the entire value chain costs for every customer and product helps you stay profitable even as costs increase at different rates.
There are other critical items to delve into, such as your M&A potential activities, Cycle Time improvement on your product development, and keeping an eye on market demand changes. The key to growth will be to instill discipline in focus and your commercial practices from end-to-end.
2) Managing cash, operations, and cost
Operating in today’s turbulent economic environment, while also setting the stage for the future of work and managing the costs of doing business, requires a proactive approach. Our current conversations with 100s of CEOs show that the focus to manage operations during inflation and recession should include:
- Supply Chain & Logistics: With fragile global logistics, supply chain shortages, and deglobalization still at play, it’s increasingly important to have regional and local suppliers and to have a strong handle on your Supply Chain internal structure.
- Decarbonization & ESG: decarbonization and ESG (environmental, social, and governance) initiatives should remain a priority for many organizations, as government policies and customer expectations are pushing businesses to take measures to combat climate change.
- Working Capital and Operating Structures: Your working capital management practices, processes, and discipline around cash; how you have changed your business operations due to COVID; and even how, and if, you choose to tackle potential restructures can all be accelerators to operational stability and propellers of growth.
You will want to understand all your options to operate in a leaner way and take the opportunity that the economic cycle is presenting to potentially look at your business with a critical eye and re-shape your organization so that you are managing risks, producing more with less without operating hic-ups, and supporting both operating and growth strategies.
3) Focus on people
Nothing moves until people move! That means finding, developing, retaining, and engaging talent at all levels matters now more than ever. Now, we know that’s more easily said than done when the world is going through The Great Resignation, and there are no signs of it slowing down.
The talent shortage demands an emphasis on recruiting and retaining people. Here are some of our firsthand suggestions to engage your people and manage your people strategy in these times of uncertainty:
- Non-monetary benefits like career development opportunities, more flexible work arrangements, and extra time off can help organizations engage and align people, they will also support your retainment goals.
- Whatever you do in Managing Growth or Managing Cash, Operations, and Cost, you will need to develop a strategy to transfer knowledge to your people and advance skills and capabilities at all levels.
- Create a cultural shift to fit the new working world – ensure that people are aligned with your vision and mission and provide your employees with a purpose they can get behind yet supports their own sense of growth and belonging.
People are your greatest asset. We notice that the typical denominator to great successful organizations, or those that go through change successfully, are those that find ways to connect with their people at a level that matters to them – they make their own people champions of change and the net promoters of total company success. Engagement through these turbulent times will be imperative to thriving during the storm.
Assess your organization and get a road map to implementation
As the first organization of our kind to recognize and approach the current climate for CEOs in this way, Proudfoot is equipped to provide businesses with the support and ground-floor coaching to navigate the Perfect Storm.
In our upcoming 4 blogs, we will dive into each of the three key levers mentioned above and walk you through all the value creation levers that you can pull to operationalize your strategy, depending on which key lever you may want to focus on first. We invite you to join us and discover not only what we have seen, but also what other CEOs are focusing on to emerge from the storm successfully.
At Proudfoot, we are currently working with clients across the world to help them improve on the three key levers of Managing Growth; Managing Cash, Cost, and Operations; while delivering sustainable transformations through their People and fostering new cultures fit for resilient, yet employee-driven organizations.
We do this by working with our clients’ people and their leaders at every level, to upskill them in new ways of working, embedding tactical and strategic change at the point of execution, and transforming overall behaviors to achieve change that lasts.
To begin weathering the storm, you may want to start analyzing, and deeply understanding the status of your organization across those three levers, much like we have with our clients across a multitude of industries.
With a clear view of what levels to pull, you can – or we can help you – develop a roadmap that shows you how to accelerate change, so you address today’s challenges and create long-term solutions for a sustainable future.
In our next blogs, we will lay out the key elements of a successful roadmap, including specific value creation levers that your business can utilize to weather the Perfect Storm.