The world is moving yet again towards the threat of recession, with exchange rates yo-yoing. Under these circumstances, the natural instinct of many is to batten down the hatches and find a safe shelter in which to weather out the storm.
According to Kevin Phillips, MD of idu Software, one typical manifestation of this instinct is that companies stop spending on any but the most obvious of necessities; they do what they must to survive, but no more.
“Interestingly, often those who come out strongest on the other side of bad times are the companies who have remained proactive rather than retreating into reactive mode,” he says. “It’s precisely in times of danger that we have the best opportunity to refine our processes so that they deliver the maximum benefit for the lowest possible cost, not only in terms of money but also in time and resources.”
Using the bad for good
Phillips elaborates: “When times are easy, many firms treat their budgeting process as a ‘nice to have’ – so it doesn’t matter if it takes three months to complete, relies on dodgy figures and is never checked again by anybody outside the accounts department.”
He believes that when things get tough, there’s no room for this kind of indulgence. “The budget is the most visible and important tool through which you manage your costs, and it should be part of the daily awareness of everyone who ever signs off an expense,” he says.
“Every cost centre manager, in other words, needs to manage his or her own budget. And to do that, they need both accurate, timely information and autonomy to act in their own area of responsibility.
“If we come back to the idea of a company in recession being like a ship in a storm, there are lessons to be learned from how the chain of command functioned in the days when information moved at the speed of sail and it took weeks, months or sometimes years to relay orders.”
As readers of the great nautical novelist Patrick O’Brian will know, the success of an admiral depended greatly on the quality of his captains. Within the context of the orders which set his overall mission, each captain was empowered to do whatever was necessary, in his judgment, to fulfill those orders given the circumstances he found. When your ship is weeks or months away from the nearest communication, checking back with your boss before you act is not an option. Of course, the captain was also completely accountable for the results of his actions.
“In exactly the same way, cost centre managers need to be empowered to carry out their orders according to their own judgment. Rather than a directive from on high to ‘cut your travel costs’, let the fleet order be ‘cut your costs’ – and let the individual captain decide where in his cost centre those cuts should come. Maybe travel for the IT department is no big loss; limit your sales team’s travel, though, and you could be losing sales.
“Micromanagement, centralisation of power – whatever you call it, it’s a natural response to uncertainty – but it doesn’t work. It leads only to paralysis and stagnation. In the bad times almost more than any other, staying afloat means empowering everyone to manage their own domain to the best of their ability – and being responsible for the consequences,” Phillips concludes.