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5 Strategic Business Essentials in a Recession
Author: Mark Fidelman
If the senior executives in the companies you are invested have less than 14 years experience as an executive, then they have not managed in a difficult economic period. Equally as challenging, analysts that are covering company stocks with less than 14 years of experience may not have the experience to properly evaluate the activities of senior management. So what clues should investors look for in properly evaluating whether the company they are following is going to survive the downturn?
From my own experience, executives of publically traded companies are first seeking to reduce costs closely followed by increasing revenues. My purpose is not to debate those priorities, but to explain the top five initiatives every best-in-class company (BICC) above $50m should be doing today in order to survive the current down turn as well as come out stronger when the economy changes for the better.
To enact these and other initiatives BICC's today create a sense of urgency and pursue change relentlessly. They understand how to manage the naysayers who insist change efforts will not work.
#1 Strategic Sourcing
Every company should regularly evaluate their direct (product or service related costs) and indirect (overhead or non-product costs) spend for cost reduction opportunities. They should be categorizing their spend then asking suppliers and vendors to re-bid for the right to have that company business. For example, most companies have "office supply" category spend. Smart BICC's are asking their office supply vendors to participate in reverse auctions or multi-round request for proposals (RFP's) in order to compete for their business. Once the spend is properly categorized (this is no small task), a spend reduction team should be set up to renegotiate each of the spend categories. The team should achieve a percentage bonus for the total amount of cost saving obtained over the life of the project.
Of course careful consideration should be given to strategic suppliers (especially on the direct side), but letting the supplier realize the business is not safe through a renegotiation effort usually leads to cost reduction or ancillary benefits (e.g. longer warranties, shorter delivery schedules, etc.).
#2 Most Sales Organizations Cut Sales and Marketing Activities
The majority of companies fall into this trap. They need to use the savings from initiative #1 to increase lead generation and customer contacts to weaken the competition. By strategically targeting and segmenting their customer and prospective customer base (see initiative #3) with more messaging and contacts, BICC's will steal competitor customers, keep them front of mind with prospects, and receive higher referral rates from existing customers.
Since target customers are facing the same difficult economic situation, in most cases BICC's will need to shorten the ROI timeframe to less than a year. That means retooling the product/solution value and compressing the sales cycle so that prospective customers can more easily buy the product/solution and the BICC can achieve quicker cash flow. BICC's need to be prepared to understand their prospects better by doing extensive research and becoming an expert on how to help them achieve their goals.
#3 Leverage the Customer Relationship Management (CRM) System
Investors would cringe if they truly understood how little most companies know about their customers. Most CRM implementations are done without much thought and planning and thus are not used strategically by Sales, Marketing and Customer Support. What they have is an expensive customer contact database without much customer intelligence.
Conversely, BICC's have set up CRM systems to be a strategic corporate asset with enterprise level value. They can segment their customers and prospects 50 different ways and;
BICC's understand that salespeople do not like entering data into a CRM system so in return for their cooperation; BICC's provide actionable intelligence for the salespeople through CRM. For example, BICC's will add customer knowledge tools to the CRM system so that a salesperson can quickly capitalize on an opportunity before the competition. Knowing that your customer is in discussions to buy another company may be of great benefit to the salesperson selling M&A related services.
#4 Leverage Business and Social Networking for Lead Generation
Unfortunately, most publically traded companies are led by executives and boards that did not grow up with social networking sites. Since they do not understand it, most make mild, fruitless or no attempts at leveraging the power of these influential networks. Those at the lower levels in the organization do not have the authority or budget to properly take advantage of these networks and thus countless revenue opportunities are lost to shear lack of understanding.
BICC's (and there not many here) use social and business networking sites like Twitter, Facebook and LinkedIn to build a strong brand and sociable reputation to connect with people on a personal level. If they like you, they may recommend the company to others or use the company's services themselves. The fortunate become viral phenomenon's and quickly become household names. Smart BICC's build up their reputations by helping people with problems, answering questions and making sincere recommendations and suggestions that will help people flourish. Social networking is an inexpensive channel to obtain vast amounts of customers and promote a company brand by word of mouth (the best kind).
#5 Increase Channel Partners Who Know Where the Deal are
Often overlooked and underused sales conduits are industry channel partners. Not only are companies not having to pay the partner until a sale occurs, they may have better relationships than the company that has brought them on. For a small or medium size company in a challenging economy not to increase or better leverage their channel partners, is an absolute unforgivable sin.
Managing a high quality channel is not easy and in essence are an extension of a company's sales and marketing teams. So great thought and planning needs to occur to ensure the channel is performing optimally. In addition, reaching out to a broader partner network (especially internationally) and building strategic relationships takes time and can be challenging. However nothing inhibits a competitor more than a "locked up" partner network and the risks of hiring people to fill the same roles are much higher.
In summary of course there are more initiatives that can be added and you may disagree with how I have prioritized them (I'd love to see your comments). However, those companies ignoring these initiatives are wasting your money and therefore you should think about selling their stocks today. There are only a few BICC's that are properly prepared for this recession and I'll wager those that understand and execute on above will far outperform their competitors.
About the Author:
Mark Fidelman is a well known strategic business leader. He has been featured on many business sites including Seeking Alpha, Fox News, and Reuters.
Have a nice day!
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