Not Business as Usual…..

Business environment has now been turbulent for sometime. Predictions are that it will remain so for quite some time ahead. Reading the financial times, one can see that fund managers have cut their allocations to equities to the lowest level since the collapse of Lehman Brothers at the height of the global financial crisis in 2008, as rising recession fears spark worries about the performance of corporate profits going forward. Instead, fund managers are boosting their cash holdings to a 21-year high. In a nutshell fund managers are defending themselves and preparing for the worst.

Yet, I unfortunately do not see the same approach by many business leaders. I do not see many business leaders (including family business leaders) preaching discipline, seriousness and consistency at all levels of their organisations. Instead I see businesses still perpetuating some of the below mistakes:-

  • No proper corporate governance structures, with effective check & balances and well oiled decision making forums.
  • Lack of constant and updated data reporting from all level of the organisation that guides decision making.
  • Lack of proper financial discipline especially when it comes to cashflow management and monitoring of debtors and credit extended.
  • Lack of proper internal structures and clear reporting lines with performance targets well set, communicated and monitored.
  • Lack of leadership with proper time allocated for analysis and strategy formulation

As I keep preaching, it could have been easy plodding along in economic buoyant times with all of the above. It will become more difficult (if not impossible) to keep doing so when economy is not so buoyant anymore. Businesses, including family businesses, now more than ever need to:

  • Take the tough decisions: Management’s decisiveness is a critical success factor in any organisation’s ability to deal with challenges, giving employees a sense of purpose and safety. Management that fails to make tough decisions, hoping the problem will go away on its own and instead opt for a process that could best be described as a “death of a thousand cuts.” is a recipe for disaster.
  • Manage risk and create contingencies: Managing risk requires increased attention to financial planning so a business can continue to exploit its opportunities and strengthen its competitive position. Effective financial management, especially in challenging times requires a very disciplined approach and a shift in focus from growth in turnover and profits to the balance sheet and cash, debt, inventories and receivables. This financial focus demands considering the impact of different performance scenarios on long-term liquidity and debt. You need to survive before you can grow!
  • Get data, analyse it and communicate: Communication during challenging time provides two valuable purposes, first to inform and second to motivate. Engaged and well-informed employees are more willing to make sacrifices that contribute to the business’ future success. Listening to people’s concerns and fears and allowing them to contribute ideas to creating a new vision for the family business is an important tool for strengthening long-term relationships and building commitment.
  • Make sure you have an effective business governance setup: If there is one certainty, that is that businesses need stronger governance processes that focus on leadership, accountability and performance. Effective governance is critical because a business cannot survive if there isn’t a sense of accountability whereby non-performing management is put on the spot. If governance is not effective then there are no forces to counterbalance management and the business can suffer from the owners’ complacency.
  • Focus on building relationships: During challenging times business leaders, including family business leaders and employees need to come together like never before and believe in the values on which this business should be built upon.
  • Have a strong and healthy business culture: Businesses, including family businesses are many times driven by values, perceptions and behaviours which many times are formed and set from the top. This overall business culture needs to be enabler not a hindrance. It needs to give the business an advantage over the competition, being a powerful tool for motivating individuals and organisational performance and creating behavioral norms that support the firm’s strategy. The advantage of a strong and positive culture is that it empowers employees and replaces management’s dependence on administrative controls or sanctions such as policies, procedures, budgets and employee performance reviews.
  • Have effective leadership: Critical to a leader’s success is their ability to use themselves as a tool to influence and motivate others to learn new behaviours and perform at higher levels. Leadership skills are not innate in everyone and training would be needed. Leadership is what makes a difference when businesses need to be directed in challenging times. As Napoleon Bonaparte once said: “A leader is a dealer in hope.” If business leaders can practise this simple idea in their interactions with employees, family members and stakeholders they will emerge from challenging times with stronger organisations.

The recent training sessions intended for family businesses are intended precisely to help business shape up and address many points mentioned above. Click HERE to view them.

One thought on “Not Business as Usual…..

  1. Pingback: IMF Economic Outlook October 2022 – A Business Blog for SMEs & Family Businesses

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