Business Page – January 19th, 2003

Chopping Heads - A Solution?

Introduction

You do not have to be interested in the more arcane business press to know the large number of companies and other forms of businesses which have found themselves in death-threatening conditions. This condition is not unique to Guyana or common to any particular type of industry or sector. While it is true that some of the failures involve colossal amounts and some of the more high profile companies, the reality is that many companies struggle to keep their heads above water which in business terms translate into a positive cash flow. Whether it is competitive pressure, shoddy products, customer service dissatisfaction, incompetent management, or the recently in vogue poor business-model, more and more businesses are failing or on the verge of collapse.

Not withstanding the brave face put on by the senior personalities involved in such companies, business failure usually has a terrible psychological effect on those involved. It is an admission of failure and for this reason several action is taken in secret, fearing that publicity will cause embarrassment outside of the company and even recriminations within.

Rather than biting the bullet and taking strong and effective measures, decisions are usually delayed, sometimes for several years, until only drastic surgery can save the business, if at all. Forced with such an extreme situation, management of troubled companies usually makes the decision to cut everything in sight because cost cutting is seen as the answer to turning their fortunes around.

A cash crunch and loss of market position, termination of supplier credit, and providers of finance bring about the oftentimes belated restructuring moves that are designed to fix overnight problems that have resulted from years of poor business and operating decisions and practices. In the process, the negative impact on morale is often ignored and many businesses continue to flounder as the axe is wielded with scant regard for the damage the act of widespread layoffs causes. This is because cost-cutting is often done without the benefit of proper planning and it is not unusual to find that the wrong things have been sacrificed.

Before considering cost-cutting in some detail it might be worth determining all the options available to the company and a voluntary liquidation or the sale of the business should not be ruled out. But there are other options as well – asset-reduction strategies are often very effective because of the significant sums which might come in. Where the strategy involves the disposal of sections of the business, management is freed up to concentrate on a smaller set of problems. It is also possible to reduce current assets such as inventories and receivables as well as sell and lease back some of the more substantial assets.

The options are not few and many of the companies’ suppliers, creditors and lenders are often more understanding and patient than they are usually credited for. The important thing is to convince them that one is serious, that the burdens of adjustment are being equally shared and that there is integrity in the process. But for now we will return to the option of cost cutting.

Impossible Objective

While in any crisis situation in business, cost cutting and saving cash are essential the people within the entity cannot be ignored. It is impossible for a turnaround to be achieved if those remaining employees are not willing to strain their every fibre to support management’s efforts to right the ship.

There is little margin for error and tasks must be carried out with higher levels of efficiency than previously the norm yet those who must do so cannot be guaranteed of their future. To continue the metaphor, instinct may very well tell them to jump ship. This apparent impossible objective of ensuring maximum in a situation where even the future can no longer be taken for granted, effort can only be fostered in an environment where people understand, believe and are willing to support management actions – a triumph of faith over expectation.

Relationships

Managers must recognise that in the current set of circumstances they are being scrutinised under a microscope by everyone. The leadership must therefore step up and out and show its ability to function under intense and sometimes conflicting pressure. It must recognise that there are many challenges within and outside the organisation that must be dealt with. Management must be prepared to confront these with the attitudes that inspire confidence of those around, be they customers or employees.

For any measure of success to be achieved, enduring relationships must be built that will help to move the company into a stronger position. These relationships must be fostered with employees, customers, suppliers and everyone on whom the survival of the organisation depends. 

Trust

This brings us to the question of trust, which in the current environment is justifiably not a word that is easily or readily associated with corporate life. While employees are called upon to be reasonable in the demands, sometimes agreeing to cuts in wages and benefits, they must be convinced that top management is doing at least its proportionate share and indeed has not acted without integrity in the past. Trust and confidence are not obtained overnight but can be destroyed very quickly. It is a safe bet that in addition to incompetent management there were some actions by the management of any entity in trouble that served to erode trust that may have taken years to cultivate.  The question is how do the leaders focus on rebuilding confidence with all the chaos and problems swirling around.

Integrity

The people at the top of organisations must be prepared to show that they have always been committed to the entity, its customers and employees and by displaying the highest levels of integrity. When the stakes are high as is case when the survival of the company is at risk, honesty and forthrightness are even more necessary. While candor it is not always the easiest thing in the world, its absence can be damaging when trust has been eroded. Customers must be made aware of what can be delivered and what cannot and employees must understand that once a commitment is made it must be met or all efforts at regaining confidence are being wasted.

Conclusion

Competence is another ingredient that is required because if any sign of incompetence is evident trust goes out the window. This is can be seen in all organisational relationships since customers have little patience with incompetence, superiors have little faith in employees who cannot function and employees do not respect and support managers who do not have the requisite skills. Of course any good leader must recognise where weaknesses exist and ensure that while perfection is desirable everyone including himself will have areas where support is needed. The leader must then ensure that the required support is provided quickly in the area where it is most needed.

It may seem trite but an organisation is successful if it works on certain fundamental principles and tries to stay the course without significant departures from them. It must comprise of people working towards the same goal with a high level of skill, integrity and commitment to its raison d’être, whatever that may be. While this is not the magic potion that is expected from the legion of esteemed consultants out there, it usually works.