“Recessions are efficient as a device of nature to prune and weed. Since we are diving into a period of spine-snapping change, we had better start the process of reformation before it happens to us,” says Bill Wade
Former Chicago mayor Rahm Emmanuel famously advised that to waste a good crisis is to waste opportunity — and there is much opportunity today in that regard.
Clearly, nothing clarifies the mind like a crisis. However, nothing potentially paralyses an organization like those same crises. Strangely, it’s the suddenly shifting, volatile and unforeseen market twists that favor strategy over pure response.
We are not talking here about the “airport business book BS” most people call strategy today — mission statements, audacious goals, three- to five-year budget plans. I mean a real strategy. And more importantly, a real plan process.
There is ample evidence that the confluence of new EPA regs and a terrible economy have caused a “structural break” with the past aftermarket patterns and experience.
“Structural break” is a phrase from econometrics. It denotes that moment in time-series data when trends and the patterns — not just values — of associations among variables change, or simply end. (For a fascinating examination of this phenomenon, check out The Black Swan by Nassim Nicholas Taleb.)
A structural break is the very best time to create active strategy and new corporate directions. At this moment of inflection, old sources of competitive advantage weaken and new sources appear.
This is a perfect opportunity for scale to recede in importance. The swift and agile can leap ahead of seemingly entrenched players … obviously, a point that should be ignored by neither.
By strategy, we refer to a cohesive response to market challenge. A real strategy is neither a deck of PowerPoint nor a budget. We are referring to a creative approach based on a qualified viewpoint of specific challenges.
The most important element of a strategy is a coherent diagnosis of the forces at work and their many interactions, not simply the plan itself. Few coaches call a play without analyzing the defense.
Recessions are efficient as a device of nature to prune and weed. Since we are diving into a period of spine-snapping change, we had better start the process of reformation before it happens to us.
The initial trick is to understand how a business has survived, competed and profited in the past. If the business is too complex to comprehend, break it into comprehensible parts. Often the complexity is self inflicted anyway.
Once you gain this critical understanding, you can start the work of reshaping. There is no magic formula. Reforming a business always takes insight, imagination and a certain bold vision.
In ordinary hard times, the traditional moves are things like reducing fixed costs, headcount cuts, controlling variable expense and analyzing SKU coverage. But in hard times accompanied by structural breaks, you must rethink the way you manage as well.
Companies that survive and go on to prosper look beyond costs to the detailed structure of managerial work.
Richard Rumelt, a professor of business and society at UCLA’s Anderson School of Management, recently summarized several new issues that are forced to the forefront for both suppliers and distributors:
- How much extra work results from the way incentive and evaluation systems relentlessly pressure managers to look busy and outperform one another?
- Which information flows can you omit? Information that doesn’t inform value-creating decisions is a wasteful distraction.
- Which decisions and judgments can you standardize as policy rather than make in costly meetings and communications?
- How can the entire supply chain — customers, distribution and suppliers — work to simplify their processes?
The wrong way forward in a structural break is to try more of the same. The break and the hard times are sure indications that an old pattern has already been pushed to its limits and is now destroying value.
The most unsettling aspect of structural breaks is that they render obsolete traditional understanding of many existing patterns of behavior. Yet properly recognized and utilized, these breaks can point the way forward for dynamic managers and even for whole distribution channels.
Bill Wade started Wade&Partnersin 2003 as a consultant specializing in worldwide vehicle parts aftermarket and industrial distribution. Previously, he was CEO of Durakon, FAG/INA Bearings, CR Services/SKF. Wade states that he lives in a barn and has taught the finer points of shark fishing (and cooking) to three children and eight grandchildren. He can be reached at bill.wade@wade-partners.com
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