How Cfos Can Build Business Resilience
In the first year of the global pandemic, businesses experienced more change than they had in the previous decade combined. The greatest lesson of that year is that businesses have to be built to withstand sudden, sweeping change. Manyexecutives had grown complacent with the status quo, believing their businesses to be safe from disruption. The […] The post How Cfos Can Build Business Resilience appeared first on Disrupt Magazine.
In the first year of the global pandemic, businesses experienced more change than they had in the previous decade combined. The greatest lesson of that year is that businesses have to be built to withstand sudden, sweeping change. Manyexecutives had grown complacent with the status quo, believing their businesses to be safe from disruption. The pandemic taught us that change comes from very unexpected places. Chief financial officers (CFOs) who had grown accustomed to long-range projections suddenly discovered that they could not see further than a few weeks, and in the beginning of the crisis, it was hard to project even further than a day. CFOs face a challenging landscape, with the global supply chain disruption, a return to 1970s style stagflation and a repeat of the 2008 debt crisis, rising labor costs as a result of the Great Resignation (which predated the pandemic), and the certain prospect of rising interest rates after over a decade of easy money. Nevertheless, there are tools that CFOs can use to build resilient businesses.
What Does It Mean to Be Resilient?
The first rule of finance is to not lose money. The resilient firm can survive a crisis. During the pandemic, resilient firms were able to quickly adjust their business models, embracing remote work, accelerating their shift to digital and reimagining how they could operate in a world where physical contact was potentially lethal. Resilience is first and foremost about survival and thereafter, about finding ways to thrive in novel, adverse conditions.
What are the Qualities Needed to be Resilient?
According to the Institute of Management Accountants (IMA), two key qualities characterize small business resilience: having a vision and remaining focused on the core business.
The Strategic Company
Every company needs a vision and strategic goal. These are the organizing principles of the company. The simpler, the better. The more complex and numerous, the harder it is to achieve any of them. For instance, Google’s vision is “to provide access to the world’s information in one click.” That is nice and simple, and the organizing principle of a multi-trillion dollar company. However, when a company has many goals, many “visions”, that company is constantly forced to make trade-offs to decide what vision to attack first, and at some points, these visions may even be incompatible.
Sadly, many small businesses do not have a vision of any kind. They have products and services, they want to make money, but if you woke the CFOs at 3am and asked them what their company’s vision was, they’d be stumped. Without a clear vision, the company will lack a clear direction. If your business doesn’t have a vision, then how do you decide what to do? If Google didn’t have their vision, what would be stopping them from going into cattle ranching and gold mining and cuisine? Nothing! A vision anchors the company’s actions onto something and this allows the company to think strategically. By “strategically” I don’t just mean long-term, I mean cohesively, holistically. Thinking strategically means every decision taken within the company is taken with the view to making the vision possible. Every single decision.
Focus on the Core Business
This follows from the above. Management should look through the entire business structure and all its operations to see how it fits into the company’s vision and core business. Your business must always remain focused on improving its core elements. What you want to do is to create flowcharts for a HVAC company visualizing six key areas: customer relationships, product offerings, vendor relationships, organizational structure, performance reporting, and talent management. These areas will define your ability to drive value creation in your core business. Failure in one of these will kill your business prospects.
The underlying philosophy governing this process is that you need to ensure that two key constituencies are happy:” customers and workers.
In a world increasingly mediated by the internet, customer relationships are more important than ever. Your customer has easy access to your peers from across the world. They are no longer bound by geography. Your business has to find ways to make its customers feel that they are the winners in the relationship. Generating value for customers means that customers feel as if they are vastly underpaying for the services they are getting. That means not only should you enhance your relationships with customers, the products the business sells must do better than customer expectations to create that sense of underpaying. The customer is the heart of the business and every facet of the business needs to be redesigned with the customer in mind. Many small businesses claim that is the case, but it really isn’t. Not enough companies look at their businesses and its underlying processes from the perspective of the client and design the business with the customer in mind. The business that does that is rare and something which customers appreciate.
The other side of focusing on people is ensuring that your workers are happy. Workers are the ones who operate the business’ systems and who interact with customers, vendors, and the like. They are a valuable resource. Too many businesses have top-down operations which assume that the boss knows best and needs to impose his vision on a blind team. That shouldn’t be the case.