Case for Preserving Downturn Capacity

In the economic downturns of 1984, in Australia I had some valuable lessons in business. Back then with a colleague, we were charged by the Company that employed us, with an onerous task of keeping alive an ailing business unit, hit hard by the market downturn. In the face of this adversity, we had clear instructions to protect the ongoing business capacity. This was also at a time when others chose a path to rationalize idle capacity burdens on cash and balance sheets.

 

Our company which was well managed, had a dual growth strategy for both organic and acquisition. So we took a stand for the efficient survival strategy of maintaining as viable our operational capacity. In late 1983 it had acquired a profitable stand-alone business that had a poor fit and unprofitable downstream products business that had made it predator vulnerable to us. Our plan was to strip out the ailing product and merge it with and existing business unit in the group. Adding the synergy business to give it economies of scale made good sense, but by now this too was suffering, but mostly due to its growth being stifled by the economy short-circuiting conditions.

 

With our merger rebranding done, our work then began on the rationalizing the bad business. By unbundling products uplifts of prices on marginal and loss business was an option. This also had the immediate impact to first reduce the loss burden on uplifted customers who stayed and cull poor customers unwilling to pay more. The cull meant a quite high revenue loss. But it converted many of the branch bottom lines to profit and all products had gross profits in the black. And surprisingly over time, a lot of the culled customers came back as the market was barren of sustainable cheap deals of that had been financed by foolishly by bundling cross subsidies in the past.

 

At the time I recall estimating that if the downturn stabilized we could also see our operating capability would be viable. But that was not the end of it as the market was still falling relentlessly as we had to fight even harder to keep it all a float. For this we set about a program of cost minimization and efficiency programs aimed at more streamlined product delivery.  An improved customer service plan made a huge difference and new business efforts were also doubled to protect erosion of market share on our existing customer base.

 

For our planning and analysis needs the mainframe services available were too slow to setup for what we needed and we knew proper analysis of our business information, albeit by hand, was the only way to make our decisions and avoid and otherwise certain failure.

 

Being accountable to our Public Company Board on this high profile effort also required decision transparency. Thankfully we also understood well that using seat of the pants cowboy management that could work in good times would mean certain failure now.

 

Around that time we were very fortunate that the personal computer had just became available; As did the spreadsheet. A quick one day how to use it lesson gave us vital and timely end user power we needed. I even bought for home and hooked up a modem for my first online sortie to collect our bureau services information.

 

What followed over the next year was a tug of war on resources and priorities as we stuck with our plan. For control we were still in the dark ages on the information highway as it was not yet invented, as we know it today. But we still managed to set up an efficient and transparent reporting with crude business intelligence systems for effective decision support and planning activity. We did this across the country using mostly decentralized paper based processes. In the branches we had key performance data rung through and compiled centrally each week with detail collated and analyzed on daily basis and sent in via Telex and FAX. General ledgers and payrolls were run on bureau services making possible only a few days after the month close this to make the crucial confirmation that our weekly results and operating decisions were on track.

 

With everyone involved as a team, we become highly motivated to get in early each day fight the commercial hard times of business then. We had to suffer the deprivation of long hours for less reward, but with a plan and feedback system it made it so much easier.  At times, I admit, we did feel like it could have been easier to take the hit and just close it down, when it got worse before it got better.  At least then everyone would have a redundancy package to ride it all out.  But looking back now it did not seem that bad and it was worth it.

 

The initial 6 month mandate and window we worked to for pending recovery did not come for over a year as we cycled our strategy again by merging business to and from other organic brands.

 

In the end the strategy proved successful as the turnaround began more than a year later. But we had retained our capability and could to take up the slack with a highly efficient operation and network, as business growth returned.

 

As an aside I am proud to be able to say in that time as we moved things around to stay vital we managed to retain all our key resources and facilities with one exception, being one of our best sales guys who took a package and went on to become Captain and Coach of the Brisbane Lions Football club.

 

Business is now more investment driven with risk and core captivity of business operations and supply chains much flatter and customer centric. Non-core services too, are already cut to the bone and delivered on shared services or outsource models.  Labour markets too are quite different to 1980’s. But regardless of how the business is organized and controlled, knowledge skills, relationships and culture are still the imperatives that bind to create a business delivery capability. And that takes significant investment get and keep.

 

In downturn strategies and no less or even today with fluid business and ease of global shifts, a lifeline philosophy for survival is needed. Identifying and taking hard decisions to protect mission critical ongoing capability to deliver should really thought through well to find a way. Conversely short sighted expediency will mostly likely see difficulties instead of helping to achieve a goal and business will cease.

 

In over 35 years in business with plenty of scars from downturns and recession, I have noted that “when capacity goes out of the supply chain, general recovery gets longer as this deepens”. The 2008 tumble is shaping as one of the worst we have seen.  So it may be take some time to come out of this. Best practice is preserving as much capacity as you can and ride it out to put money back in the bank when turns.

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