Value Staging Blog

Joseph Blank

Principal, Value Staging LLC

So many companies are struggling for survival. Entire industries are suffering. Quick fixes abound. What is the solution when consumer confidence is low, credit markets are tight, revenue is down and investments are losing money?

Trying to fix an entire economy with so many forces at work and thousands of critical success factors to consider is nothing short of daunting. A few things are certain; there is no quick fix, there will be mistakes along the way, groups of people will suffer, some companies won’t survive.

When a company plans for disasters, it is called a business continuity plan. When a company is faced with an unplanned disaster, it is called triage.

When companies in trouble look to prioritize to determine who or what gets cut, what is that process? What are the criteria? Perhaps the discussions look something like:

• We need to reduce operating expenses by 35% across the board
• This division currently operates with 200 people, we need to get that down to 150
• All future expenditures over $5,000 must be approved by the CEO
• Reduce overall production by 25%
• Suspend these specific projects
• Cut these pending programs
• Allocate available funds to these specific areas

There may or may not be a significant amount of analysis and due diligence involved in these decisions, but the end results will most likely have a negative impact on customers and employees.

Take this scenario and apply it to an entire economy. The ripple effect is enormous. Suppliers and customers, producers and consumers, support infrastructure and the non-related businesses that rely on the peripheral opportunities are all suffering at once.

If we look at some of the major causes of the great depression, they include:

• The stock market crash
• Bank failures and lack of credit availability
• A sharp decrease in purchasing across the board
• A breakdown in international trade

While the specific conditions that led to the Great Depression are much different than what we face today, these major causes are with us now.

So how do we not only survive, but take advantage of conditions and grow using Innovation?

If the stock market is a reflection of how the equity market views the future value of an industry and the publicly traded companies within it, then companies need to come up with ways to boost confidence in their future value.

If credit markets have tightened, creditors will be very diligent regarding to whom and for what credit is extended. If the purpose of a loan is to help a company “stay afloat” for a few more months, that is likely a bad choice.

However, if the purpose is to grow revenue and profitability by opening up new markets or taking advantage of a unique opportunity that has been overlooked, these are probably good reasons to extend financing.

While triage dictates that some emergency actions are taken, simultaneous to “stopping the bleeding” is a requirement to significantly improve the long term health and viability of the patient.

This is a very different, but just as important, type of discussion. This conversation looks at:

• What core competencies and skills do we possess?
• What new ideas and opportunities can we generate to leverage these competencies and skills beyond what we have done in the past?
• What specific resources are required to develop and execute these new opportunities?

If this dialogue takes place post triage, the company may find that many of the skills, ideas and resources required to take advantage of these possibilities are now gone!

Harsh conditions don’t have to stifle creativity. In fact, creativity and innovative thinking are more important when threats to survival are looming.

Stated in a recent Industry Week Article entitled: “New Economic Thinking Required: Successful Companies Will be Proactive

• “For starters, a CEO’s pet project should be placed on the back burner so that company resources can be relegated to those initiatives that positively affect the bottom line the fastest. .  “
• “Secondly. . .During a period of downsizing, leadership needs to be more visible as well as effectively communicate what changes are taking place and why. This will cut down on rumor and speculation. . .”
• “Thirdly, the negative impact of the downturn on the top line can be reduced by changing geographic coverage, streamlining supply chains, altering product designs, modifying pricing and introducing new services. Successful leaders and companies adapt to current economic conditions.”
• “Finally, the downturn offers organizations a chance to implement changes that can improve long term profitability. Pushing ahead with a range of productivity improvements should be front and center, including internal Lean and Six Sigma programs. Many times, the positive effects of these internal programs alone are often short-lived high performance workforce improvements and a more flexible process.

In order to effectively make sustainable change, companies should seek out an operating consulting firm to maximize the results from an internal initiative, as well as ensure that these initiatives enjoy long term sustainability. The long term benefits drastically outweigh the costs.”

A proactive approach towards creative thinking and proper planning can help assure survival in this very serious economic downturn. In the words of Albert Einstein, “Imagination is more important than knowledge. For while knowledge defines all we currently know and understand, imagination points to all we might yet discover and create.”

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Joseph Blank

Principal, Value Staging LLC

Innovation is what drives economic growth. Over time, as innovative products and services become commodities, the economic benefits shift to those sources of lower cost materials and labor.

This economic shift creates two distinct types of economies, those that predominately innovate, and those that predominately provide a lower cost of goods and services. The former economy gets the benefits associated with the innovation introduction such as higher price, rapid growth in initial demand, brand notoriety, etc. The latter economy receives the benefits associated with the long tail of the innovation, volume purchases, albeit at a lower price point, and a reputation as a low cost source.

If the innovating economy ceases to innovate, growth slows and eventually stops. There is no source of new revenue and, once the spending power of that economy is used up, there is eventual economic collapse.

Recently, our country’s economic woes have resulted in numerous lay-offs and companies going out of business. The stimulus package being proposed is only benefiting very large corporations, even though 50% of private labor force employment and over 60% of new jobs are within small and medium sized businesses.

Many of these lay-offs and closures are in the areas of engineering, technology and science, disciplines from which innovations emerge.  Therefore, I believe we now have an excess of capacity to innovate. While finding a job and earning a paycheck is likely a primary focus for these individuals, there is also more time to dedicate to thinking, dreaming, collaborating and creating.

I have started a group in the San Francisco Bay Area to attract such individuals and  provide a catalyst for sharing knowledge and dreams with others in the hopes of stimulating new innovation. Very few people are lucky enough to make a living by their passion. Once we have a steady job and routine, creative time is often stifled. Hopefully for many, these tough times will provide an opportunity to find a new purpose by waking up the innovator inside and collaborating with like minded people.

Visit the San Francisco Bay Area Innovation Group