With the National Bureau of Economic Research's announcement on Monday, it's official -- we're in a recession, and have been for a year now. Among the welter of advisories from consultancies about what companies should do about it, The Hackett Group's have been standouts this year. The global strategic advisory firm was early to the game, with guidance on G&A savings published back in May (reported here).
But the economic outlook has darkened since then, and Hackett has updated and extended its guidance to reflect current conditions. A new report lists five actions Hackett believes every business should take right now to ensure safe passage through the storm:
1. Accelerate activities that can deliver a positive return within six months. Hackett has consistently recommended that companies avoid knee-jerk, across-the-board cuts that could undermine companies' competitive position when the economy recovers. Instead, companies should identify activities that can provide a quick win without raising the organization's risk profile. For example, maybe you can get more out of your shared services centers by having them take on additional business processes or extend their services to more business units. Companies that implement shared services sometimes fail to reap the full benefits because they retain the resources that were originally doing the work, according to Hackett. There may be scope for cuts there.
Consider moving routine work to low-cost nearshore or offshore locations. Since a speedy ROI is imperative, Hackett recommends a "lift and shift" approach, moving processes in an "as is" state without attempting to improve them first.
Scale back non-value-adding administrative activities such as allocations processes and standard reporting. Often reporting tasks take on a life of their own; they continue to be produced even when they no longer have value. Review your ad hoc reporting, too, and limit it to truly essential work.
2. Understand your cash position; be able to forecast it, access it, and increase it. Aggressive management of working capital is critical in tough times. According to research from REL, a division of Hackett, a typical Global 1000 company has a cash flow improvement opportunity equivalent to 13 percent of revenue ($3.2 billion) that can be realized by adopting the practices that are typical among organizations that excel in working capital management.
The first place to look for cash is in excess inventory, Hackett notes; make sure your sales forecasts are detailed enough to provide discrete inventory planning. And take a closer look at your A/R portfolio to identify high-risk customers and evaluate customer profitability.
3. Leverage your best suppliers and actively manage supply chain risk. Look for opportunities to consolidate suppliers and improve pricing, payment, and inventory terms. Make sure you understand suppliers' needs, their cash position, and their financial health. If a key supplier runs into financial problems, can you replace it quickly?
4. Reexamine and, if necessary, accelerate or delay IT investments. In research published earlier this year (and which we reported here), Hackett found a strong correlation between companies' overall financial performance and their IT management disciplines. The firm advocates a portfolio approach that pays careful attention to each project's business value and weeds out projects that don't cut it. That's even more crucial in the current environment. Look for projects that can be delayed, eliminated, or accelerated. Give preference to new initiatives that provide opportunities for cost reduction.
5. Identify and develop the talent that is most important to the success of your business. The crisis may be a golden opportunity to give the "hidden stars" in your organization new responsibilities. At the same time, headcount reductions may be unavoidable, but avoid across-the-board cuts. Instead, use performance reviews to remove poor or marginal performers. And use the opportunity to build your talent base by recruiting additional top performers.
See the full Hackett white paper "Urgent and Precise Action Will Determine Winners and Losers in Today's Economic Turmoil" (requires free registration) here.