Managing A Business In A Recession
Business coach Paul Simister has written a fascinating article which you need to see if your business is in trouble see Recession Coaching.
Paul tells a story from his own past about how quickly he saw performance of his business change in the 1990-92 major recession which makes sobering reading for anyone who in firm control of their business and knows precisely how it is performing.
It seems there are three types of company:
1 – Those who are ready for the recession and come out of it in a much competitive position. These companies will have a relatively easier time in the recession because they have been proactive.
2 – Those who ignore the talk of tough times but react when the recession comes through in their numbers.
3 – Those companies who live on hope and don’t have the managementcontrol systems to alert them to how serious the problems are. It takes a crisis to stir these businesses into action but by then, it may be too late.
This is a well researched article drawing on experience and academic studies.
He explains a five stages\stages of decline model which typifies companies going through a tough time:
1 – managers don’t see the serious problems
2 – the managers see the problems but action is delayed while they try to work out what is happening
3 – the wrong actions are taken because managers try to do more of what worked before or try to treat the symptoms rather than the underlying disease.
4 – the problem gets much worse and the business lurches into a crisis and may not have the resources needed to recover
5 – the business fails
This is a worrying sequence of events but you can see why so many companies, and especially small businesses with inadequate financial control systems suffer. They don’t know how the business is doing, the accounts they have is limited often poorly presented and often it doesn’t focus on the underlying drivers of performance.
What was even more alarming reading the blog was that as managers see the problems, they make attributions about the causes of those problems and whether anything can be done.
According to the blog, these attributions are based on three factors:
1 – are the sources of the problems external or internal to the firm
2 – are the causes uncontrollable or controllable
3 – are the problems temporary or permanent
Research indicates that the common attributions are that the problems are external, controllable and temporary.
This says that the managers believe that if they work harder at generating and converting leads, they can overcome the external problem of the recession and even if they don’t, the problems will only be short lived.
Unfortunately this may not be the and the next attribution is external, uncontrollable and temporary.
Paul Simister argues that this is the exact opposite of the attribution needed to seek external business advice to help solve the problem.
It’s not the firm that needs to change, nothing can be done and the problem of the recession will go away.
In the blog he then goes on to challenge each of these attributions and shows that this approach will cause many businesses to fail.
Instead they need to see the problems as:
1 - Internal – the firm must adapt to the new conditions and can’t carry on as it is
2 – Controllable – thousands of turnarounds show that there are recipes to success and often there is a gap between knowing that something needs to be done and doing it
3 – Permanent – seeing the problem as short term is an easy excuse to procrastinate.
This is a fascinating blog posting and I recommend that you read it. The Business Coaching blog contains many other articles on Business Turnaround and profit improvement strategies.
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