Stop Waiting on The Economy
by John Strelecky, Partner,
Morningstar Consulting Group, LLC

The people who succeed in life are the ones who don't wait for external factors to make them successful; they make success happen. The same applies to organizations. Too many companies are sitting and waiting for the "economic recovery" that will magically allow people to start buying their products and services again.

Stop waiting.

Within every company there are numerous opportunities to eliminate manually intensive tasks and to increase the sales of products and services. The problem is that organizations haven't identified where these opportunities lie, which opportunities to pursue, or where to find the funds necessary to pursue them. In some cases it is a combination of the three. So how do such organizations react? They use the "economic downturn" as an excuse to focus on reactive measures such as budget cuts, staff reductions, and downward sales revisions.

While such organizations fight for survival and lament their bad luck, truly visionary companies are preparing for the inevitable economic recovery by envisioning the future and doing the hard work necessary to realize it.

Take, for example, a major European luxury automobile manufacturer I recently worked with. While this client has taken the necessary steps to control costs and realistically understand the short-term sales impact owing to reduced consumer spending, they've also set the audacious goals of quadrupling sales volume in the next five years while improving profit per vehicle.

As a first step toward achieving these goals, the client identified several eBusiness initiatives that will radically improve key competitive areas such as brand-to-dealer communication, product information management, customer service satisfaction, and lead management. In just five months, they determined the functional requirements of these initiatives, as well as the required investments and projected returns; the next step is implementation. By the end of the year, the first of these new tools could be coming online. Even if the economy is still sour, the business cases predict these tools will produce immediate returns owing to operating efficiency and competitive advantage. When the economy recovers, our client will be in the best position in its history to create and address new demand for their product-and to achieve their volume and profit goals.

Is your organization creating its future, or reacting to external forces that appear to be beyond its control?

Creating your future is a relatively straightforward process. It involves three stages:

1. Identification: Identify eight opportunities within your company that will address current competitive or infrastructural shortcomings while scaling to provide value when the economy turns. In most cases, half should focus on cost savings, half on increasing revenue.

2. Definition: Analyze each opportunity to determine its requirements and return on investment.

3. Implementation: Implement every resulting initiative that exceeds your company's investment criteria.

1. Identification

The quickest and, in the long run, the most cost-effective way to do this step is to bring in an external source that can facilitate discussions among key stakeholders. Within 3 weeks you will have identified dozens of opportunities that you can prioritize; the most promising eight should then be pursued.

This process can be done using internal resources only, but this approach entails several problems:

• Often internal politics or assumed constraints will stifle the creative thinking of the group, causing it to ignore potentially great ideas; an external facilitator can identify these roadblocks and circumvent them.
• Internal resources are often quite capable of running such a process, but through a combination of the distractions of their day-to-day jobs and nonfamiliarity with the optimal techniques, what should take three weeks ends up taking three months. An experienced, dedicated outside facilitator is not subject to these challenges.
• Presence of an external expert psychologically escalates the importance of the process to internal stakeholders, causing them to assign it higher importance.

Given what's at stake, it's worth the cost-typically around $50,000-to hire an expert to get the job done objectively, creatively, and efficiently.

2. Definition

This is where you roll up your sleeves and get into the details. Develop a business case for each opportunity that includes what the idea is, how it will work, what values it brings, and the financial return once the opportunity is implemented. This stage requires: · A team of four to five dedicated individuals containing the financial, facilitative, and technical skills necessary to get the job done. The team must be capable of extracting and synthesizing necessary information from far-flung stakeholders through interviews and workshops, performing financial investment and return analysis, documenting high-level functional and technical requirements, and, most importantly, gaining stakeholder buy-in at various levels of the organization. · Executive support at a high enough level to ensure that the team gets access to stakeholders in various organizational areas, and that the stakeholders understand the importance of making themselves and their information available.

With the proper skills and access, such a team can complete business cases and requirements documents for four initiatives every eight weeks.

3. Implementation

The main driver of your company's investment criteria should be your cost of capital. Cost of capital is basically the interest rate an organization would pay to borrow money to do a project. The business case should comprehend this cost of capital in its projected return, typically by computing the initiative's Net Present Value (NPV). If a project promises a positive NPV, go borrow the money and do the project. Interest rates are lower now than they have been in the last 45 years. Now is the time to borrow money to fund projects that will produce positive returns.

Should you do every project with a positive NPV? Assuming the human resources to do the project exist or can be expediently acquired, yes, for two reasons: 1. By the time you discover a positive NPV, you will have been through all the work of understanding the project's requirements, investments, risks, and returns; all of this knowledge is ultimately embedded in the positive NPV. By this point, you can't get much more confident in the project's prospects. 2. Smart companies further insulate against risk by developing a portfolio of projects. Some of these may have higher than expected returns, some lower, but the upside potential is theoretically limitless, while the downside is limited by the project's total investment, which can be capped as an added safety measure. If you use conservative assumptions in your analysis and you still come up with a positive NPV, the project will make a solid addition to your portfolio.

As discussed, an outside expert can add significant value in the Identification stage. The Definition stage can also benefit significantly from outside help.

This is because most organizations face two challenges when it comes to accomplishing the Definition stage: time, and expertise.

The reason most people don't fix their own car is not because they don't have the mental capacity to understand how a car works. The issue is that they don't currently have car-fixing expertise, and they are probably too busy to fix the car even if they have the expertise. They could set aside a chunk of their free time each month to learn car repair and/or work on their car, but this prevents them from realizing the benefits of owning a car. And if their automotive repair experience is limited, they run the risk that they might miss something and the repair won't work.

The same applies to pursuing business opportunities. Someone who has already built 30 business cases can draw upon the experience to build number 31 more quickly and accurately than a smart person who has never built one.

If you bring in a team of 4-5 consultants to take the top eight opportunities and run them through the Definition stage it will cost you around $750k. This may sound like a lot of money, until you compare it to the money being lost each year because those opportunities aren't being acted upon.

These opportunities exist in your business. Seize them. Create your own future.

Stop waiting.