Failure to prepare for worst is recipe to achieve just that
It was perfect. You recognized an opportunity, formulated a plan, built a team, remained focused on the objectives, and executed with a level of precision that would make even the most storied military leaders blush with envy. So where did it all go wrong?
In 2015, this question has become a daily topic in offices and boardrooms across this country as companies hang on during the roller-coaster ride that our national economy has become. Regardless of which sector your company is in, the status quo has become an environment of uncertainty. Falling commodity prices, a devalued currency and dramatic changes in government are just a few of the items weighing on corporate Canada, leaving many to wonder how their original projections could be so far off.
If you dissect a strategy, it will undoubtedly be based around three very different factors. There are those that you can directly control and the ones with enough long-term visibility that you can plan for them. Then there is the unknown, the uncontrollable factors with the ability to change a company’s fortunes. These are the wildcards that seem to come out of nowhere and, even though they appear obvious in hindsight, they catch everyone off guard and dismantle the very foundation of even the best-formulated plans.
Allocating time to try to decipher the path that leads you to today offers limited value. Yes, a post-mortem of any project will always yield key learning points that can be incorporated into future planning, but after that, it is time to move on. Whether we are discussing resource focused entities working to survive volatile commodity markets, manufacturers coping with declining demand and new competition or real estate developers who can see the balance of supply and demand disintegrate overnight, the ability to look forward and plan for the unknown may determine whether or not your business survives.
Whether you call it planning, forecasting or budgeting, in its most basic form the process involves gathering and analysing information on supply and demand in conjunction with operating and capital costs, to ultimately reach a decision to move forward or not. It is becoming increasingly apparent that the concept of contingencies is lacking in many plans. With the never- ending list of companies facing insolvency, these “swing for the fence” business plans obviously don’t contemplate negative fluctuations within their key variables. As a result, there is minimal margin for error. The collapse of crude oil prices over the last 12 months, which created a major upheaval in the economy and resulted in the curtailment or outright cancellation of many projects, is dramatic. However, it is the fallout in ancillary sectors with multiple revenue streams that is most concerning.
Failing to follow the premise of “hope for the best, plan for the worst”, forces companies into a reactionary mentality. That leads to the pendulum effect we witness as companies spend to excess during profitable periods, only to move toward rapid contraction during unfavourable market conditions. The reality is that from a local business to a multi-national conglomerate and everywhere in between, changes in supply and demand as well as cost structures are inevitable. Creating a business that can only survive under the most favourable conditions is the equivalent of betting on snake-eyes at the craps table. Yes, the potential payout is enticing, but the odds are definitely stacked against you.
Conversely, creating an environment that is entirely focused on stability and saving for a rainy day can result in a stagnant company that fails to explore opportunities to improve products or expand into new markets. For every unknown that is accompanied by negative implications, there is likely one that brings forward the possibility of exceeding previously established benchmarks for profitability. All that is required is a willingness to accept calculated and manageable risks. Of course, finding the balance between these two extremes can be challenging, especially during periods of unprecedented economic activity.
There is plenty of discussion about the changing way in which business is conducted and whether or not this is a phase or the new normal. Anyone can plan for what we know, but the businesses best prepared for surprises are the ones most likely to thrive.