News & Blog

The Economy Is at an Inflection Point…Where Are You?

by Don Moore

Your business is at an inflection point and so is the economy. Now what?

Most businesses and nonprofits we’ve met with lately are at an inflection point, driven mostly by the strongest and longest economic expansion in decades. The opportunities and challenges are many. Further, most businesses and nonprofits are dealing with multiple challenges and opportunities at the same time. I’ve made the list below from among those that our existing clients are addressing. Which ones are on your plate right now?

• Some are at the limits of production capacity…they need people, equipment and/or space.
• Some are at the limits of employee capability…the challenges are more than current staff expertise and head count can stand up to.
• Some are facing a hiring crisis…employees are impossible to find and very expensive to hire, onboard and develop.
• Some have leadership gaps…they have good managers where they need strong executives.
• Some have product and service gaps…customers want more services, products and more options than the organization is providing…they are at risk of competitors stepping in to fill the void.
• Some are at the limits of geographic reach…there is more opportunity than can be served from the home base and the cost of a new location is high.
• Some have technology limits…customers want more technological integration and technical solutions. Technological infrastructure is more important than ever…but technology is often difficult to afford. The effort and cost to integrate is high. The cost of getting behind is more damaging than ever.
• Some have outgrown their marketing and sales infrastructure…websites are stale, good sales people are impossible to find, marketing channels have changed dramatically and quickly.
• Some are facing massive capital investment costs…growth steps are large and expensive.
• Some are facing industry consolidation…bigger competitors are on a buying spree to speed their growth and gain capacity, people, technology, market share and geographic reach. Eat or be eaten. Compete or die.
• Everyone is facing the threat of a recession within the next couple of years…so every decision needs to be made knowing that the company has to be financially and operationally stable when sales drop 30%.
• …and the list just gets longer

If our client base is any indication, you and your company are almost certainly dealing with five to seven of these issues. Collectively this puts you at an “inflection point” in the sense that you must respond; something has to change. The changes must be integrated and optimized. There will be restructuring. Money will be spent. If you make the right decisions, it will result in a “step-change” in the right direction. Poor choices or no choices will result in drift, which almost always heads down.

If ever there is a time when the answer is a strategic assessment and a strategic plan, this is it. Given the uncertainty around the economy, strategy also needs to address the contingency of a recession. In fact, contingency planning has to address opposing potentials: if the administration can reach an agreement on trade issues with China and Great Britain finds a way out of the Brexit mess, worldwide growth will be re-energized and the current expansion will spike up and continue for some time. If those issues linger, pessimism will increase and economists will talk us into a recession.

When I’m trying to get my arms around an issue, I like examples. So, let me provide examples of what other companies are doing:

First, the requests for Strategic Assessments have spiked.  Owners want an outside perspective, a second opinion.  They believe that a misunderstanding of the opportunities and/or a wrong diagnosis of the challenges could lead to huge expenditures in the wrong direction.  They just don’t want to take the risk that they are missing something.

Second, we’ve been doing more strategic planning in the last 9 months than in the previous three years combined.  That’s normal….strategy happens when businesses and nonprofits are trying to figure their way out of a jam or when they’ve reached their limits….in other words, they’ve hit an inflection point.

Third, most are tackling multiple complex issues simultaneously…usually at least three at once:  Market Strategy, Product/Service offering, Operational Capacity (high CapEx locally or in a new location or both), Compensation Strategy (including incentive compensation systems), Succession Planning, and Organizational Restructuring. They see this as risky but unavoidable.  We agree.

Fourth, we’ve been hiring more key executives than ever.  For three years in a row, we hired 6-8 presidents because owners want to replace themselves but keep the company.  We’ve hired 30-40 vice presidents, executive vice presidents, and department heads every year just within 100 miles of Erie, PA.  About half have moved here from somewhere else, so yes, you can attract good people to this region.

Fifth, more companies are buying a smaller competitor or a supplier and/or establishing a new location outside the region.

Sixth, more companies are doing deep dive scenario planning than ever before: What if the economy takes a dive… how deep and where do we have to cut for each scenario?  What if we made an acquisition…what are the attributes that would be the best fit?  What if a competitor is bought by a deep pocket acquirer…which competitors are most likely to flip and what is the likely collateral damage?  What if customers move toward vertically integrated solutions….can we provide that and how would we do it?  The list of scenarios that have to be addressed is actually not long; most companies and nonprofits face just two or three major uncertainties that need scenario assessment.  What are yours?

Seventh, more are setting up formal boards of directors.  Owners want to have the insight of other smart business owners and the safety of stable governance if something should take them out of the business temporarily or permanently.  Five years ago, we couldn’t convince more than one company a year to establish a board.  Lately we are working with about four a year.  It’s not enough, but the momentum is building.

In closing, I want to come back to my first point: A long running economic expansion has resulted in significant growth for companies and nonprofits.  You now face many key decisions. Most of the decisions are around opportunities, but these opportunities all involve large scale decisions that will cost money and take time…..it’s an inflection point.  The path forward is strategically assessing, running scenarios, defining strategies and building the structures to pull yourself into the future.  We’re here to help you think and work through these steps.

Since founding Decision Associates in 1984, Don Moore and his team have helped hundreds of businesses, nonprofits, school districts, government agencies and authorities develop strategies for growth and improvement. To learn more about the topics in this article, contact Don at (814) 881-6168 or DonMoore@DecisionAssociates.net.