Most companies are facing significant challenges today. But for manufacturers, the state of the current economic climate is an especially bitter pill to swallow. With operations and business relationships spread out all over the world, manufacturing has been hit hard by the global downturn. Companies are searching for solutions to keep their doors open and keep plants running. Gaining a leg up on the competition is crucial, but even in times of economic uncertainty, companies cannot compete on cost alone. In this economic environment, management should prove its worth by focusing on how best to position their companies, not to survive, but to thrive once the economy turns around -- which, of course, it will.
Sound business decisions have two components: cutting out inefficiencies and finding new sources of revenue. Here’s how to implement those strategies and reframe thinking in the downturn to ensure preparation for the upturn.
Focus On Efficiencies As Well As Costs
“Cutting out inefficiencies” is not the same as “cutting costs.” Cost cutting may appear to be the easiest way to move forward, but it doesn’t get you the biggest bang for the buck because it does not position your company for long-term growth. Unfortunately, right now I see many companies using the same playbook: Cut salaries, cut the 401(k) match, close outlets or conduct rolling shutdowns of manufacturing facilities.
Cost-cutting needs to be balanced with the more nuanced approach of cutting out inefficiencies. That means identifying proven efficiencies or streamlining that will better position your company for profitability and growth for the long haul. This is a more sophisticated, complex approach that takes a lot more thought, but in the long run it pays off.
Remember Your Long-Term Goal
Companies are in business to generate long-term sustainable growth. That means profits at year-end are more important than immediate costs, and long-term growth and profitability offset a bad year. Always make decisions based on what positions your company best for the long term.
I’m not suggesting management should be optimistic after operating in the red for a year, or even a quarter, but I believe you can make money every month. Long-term planning is the best way to position your company to do that.
Focus On Your Value Proposition
If all you offer customers is a lower price, you’re going to have a rough time generating reliable long-term growth. There’s always a competitor who can undercut your price eventually. Offering long-term value is the only sustainable strategy. For example, you can explain value to your customers in terms of their profitability.
Focus on your customers’ business goals, not on the cost of a product or service. Put yourself in their shoes and understand what they’re trying to accomplish. In our business, for example, we ask: How can we help our customers earn their bonus or get promoted? How can we make them look good consistently over the long term? The reason they’re getting the bonus is that they are hitting the objectives the company has set out. That’s a win-win for everybody.
Define “Value” In Terms Everyone On Your Executive Team Understands
I sometimes joke that there are Word people and Excel people -- but it’s not funny when failure to comprehend this difference dooms good strategies. I am a Word person, meaning I do not see a plan as a list of numbers. Instead, I draft a narrative of what we’re going to do, especially what we are going to do differently, to drive higher margins or profits in the long term.
But I need the support of my company’s “number guys,” who may focus on the up-front costs. So I take care to translate my narrative into the quantifiable impact that the costs I want to incur today will have on my company’s bottom line and when. I cannot get their support unless I first get their understanding.
Define “Value” In Terms Your Customers Understand
Make sure your business proposals, including intended results, and how those will be measured, are clearly identified and easily understood. The goal is to clarify what you intend to do, how that will result in additional revenue or profits, and to quantify those projections. This gives you an agreed-upon set of metrics for judging success. It also translates the words into quantifiable monetary terms.
Consumer-focused companies have figured this out. Consider the mortgage brokers who are offering plans to protect homebuyers who lose their jobs. Several automakers are taking the same tack, offering to buy back cars or take over payments if customers lose their jobs.
Seek New Sources Of Revenue
Long-term success takes creativity. It is all about generating new business or extending business offerings in ways you might not have thought about before. This is one of the more challenging areas for companies right now, but it’s also the greatest area of opportunity in a down economy.
This is basic business sense: Sell more products or services to current customers, or identify new customers. Many companies get stuck in the mindset that they only serve one or two industries or they only make a certain kind of product. Why not look at expanding into other sectors, other countries and into other markets? The key is to be open-minded and quick to capitalize on opportunities.
This is the time to address the tough issues limiting business performance, and not every company will survive. Those that thrive will do so by offering long-term value to customers, not short-term cost cuts.
Jeff Owens is president and chief operation officer of Advanced Technology Services, Inc., a company that improves productivity and profitability for manufacturers through the managed services of production equipment maintenance, spare parts repair and information technology services.