dangletech

Each year, most organizations go through an annual business planning process. The process usually involves multiple facets, and may include the following: i) An update of the longer term strategic plan assumptions and goals. E.g. How have the external factors that influence how the Company operates changed, since a year ago? How is the organization itself different now from when the planning assumptions were first made? What risks and opportunities exist that didn’t when the plan was developed? What is the organization’s capacity to deal with these? ii)Following a Strengths/Weaknesses/Opportunities/Threats (SWOT) analysis, a discussion of this year’s annual business goals and success against these. E.g. How is the Company doing in executing against its current year business plan? What needs to continue to be done? What needs to be changed? What needs to be dropped or postponed? What needs to be added?  iii) After i) & ii), a business plan for the coming year, that is S.M.A.R.T., and that contains business objectives, a forecasted P&L, headcount plan, opex budget, and capital investments plan, and iv) a risk management plan (which looks at products, services, revenues, customers, competitors, human capital, and other key factors).

So, given that the past 12 months have proved consistent in one area, namely,  most professional economists and other forecasters have mis-forecast the breadth, depth, and length of the recession, what are leaders now doing?

They are being overly conservative on managing their businesses. They have reduced revenue forecasts by enough, so that even if the economy is worse than they expect, they have a cushion to ensure that their sales teams win (and remain motivated and engaged until the economy once again picks up). They have reduced discretionary spending and reduced capital investments to the point that even if the revenue drops by more than planned, there is again another cushion (this time on the cost side), that will still see the organization being profitable, and responsible in the eyes of the Board and shareholders. They have been in touch with lenders to shore up their finances and ensure that even in a worst-case scenario, they are able to continue to operate their companies without needing to take desperate measures that impair longer term value creation.

What does this mean from a market perspective? Well, hundreds of thousands of leadership teams around the world are now taking such actions. Over time, through a combination of now being overly conservative with respect to revenue generation; expense control; and shoring up finances (much as such leaders at the start of the recession were being too optimistic and aggressive re its duration and impact), we will see companies begin to positively overshoot their numbers. Profits will again start to grow; there will be more cash in the bank for companies; and organizations will again begin to invest.

If we can’t yet see this happening, we needn’t worry overmuch. Right now, although there’s still snow on the ground in Toronto, and it’s minus 15 celsius as I write these words, birds have already begun migrating back to Canada, and the buds on trees are beginning to appear. Like Spring, an economic recovery is on its way, thanks to great leaders everywhere, doing what they do best.