The Owner’s Calendar – Oil Prices Got You Down? Managing in Uncertainty – Part II

By Robert Wagner, Advisory Lead, and Aaron Ackerman, Consulting Executive

Falling oil prices have created uncertainty for many companies throughout the oil patch. Even companies not directly involved in the energy sector are scrambling to determine the “new normal” in 2015. In the first edition of this two part series on managing in uncertainty, we discussed the benefits of stress-testing your financial model to understand the implications of a sudden downturn and the importance of remembering that cash is still king, in both good times and bad.

In this second edition, we will discuss: facing brutal reality, encouraging innovation throughout the organization, and flipping challenges into opportunities.

Managing My Business in Uncertain Times – Part II

  1. Face Brutal Reality.

In “Good to Great”, Jim Collins states that leaders must confront the brutal facts. He cites a quote from Winston Churchill: “There is no worse mistake in public leadership than to hold out false hopes soon to be swept away”.   Leaders must foster an environment where it is okay to speak the truth –even brutal truth. A leader cannot successfully navigate through uncertain times without truly confronting the known realities of the situation. Collins provides four best practices to create a climate where the truth is heard:

  • Lead with questions, not answers
  • Engage in dialogue and debate, not coercion
  • Conduct autopsies, without blame
  • Build red-flag mechanisms that turn data into information that cannot be ignored
  1. Encourage ideas/innovation from all levels of the organization.

The impact of uncertainty can be partially mitigated by fostering innovation and improvement from the bottom-up as well as from the top-down. If you have ever watched CBS’s Undercover Boss, you have probably noticed that in almost every episode the CEOs and founders who go undercover in their own organizations are blown away by the bright ideas of the “rank and file” employees. These employees come up with fantastic ideas for process improvements, new products, and enhancements to the customer experience. Frequently, they have solutions to problems the boss didn’t even realize existed. Do not let the talent in your company remain untapped. No organization will ever be as great as it could be if the only person generating ideas is its leader (regardless of how talented that leader may be).   Foster an environment where idea sharing is encouraged and rewarded.

  1. Flip challenges into opportunities.

Challenges are a part of running a business, regardless of the level of economic uncertainty. Intellectually, we all know that our attitude toward these challenges can make all the difference. A fatalistic view is the easy way out. It takes no effort and does not lead to success.

We worked with a business owner in the past who saw these challenges as significant opportunities. His first step was always to lead the organization to believe that we did not have to accept what the market was giving us without a fight. He would then have deep conversations with his leaders and with customers and vendors to identify new products and services that could be offered. This process required significant energy and effort and eventually some measure of risk, but it almost always lead to greater success.

In another instance, a company had to wrestle with the loss of a single customer that represented over 50% of its revenues. The management team had not been naïve to the risk involved with such a concentration of revenues, but their prior attempts to diversify their revenues always stalled when they calculated the capital and operating costs required to secure and service new customers while still meeting the needs of this anchor customer. When this customer left for another provider, the management team chose to embrace the situation as a challenge and within 90 days had replaced 100% of the lost revenue and had dramatically diversified the customer base. The company was now stronger and better positioned than it had ever been before.

Uncertainty is one of the most difficult situations that business owners face. Good times are easy and fun.   Bad times are no fun, but at least the conditions are understood. Uncertainty is more difficult because it is not clear if present conditions are temporary or if it is the start of a trend upward or downward.

Implementing the practices and cultural habits suggested above and in Part I of Managing in Uncertain Times will help you to better understand the impact of potential market scenarios and to enable you to blunt the impact of sudden disruptions in your business.