PWC sets out 'fundamental priorities'

Every business is currently facing new challenges that must be addressed.

Equally, however, the depressed market conditions provide a unique opportunity for businesses to be revitalised. We believe that those businesses that emerge from the downturn agile and fit for the future will have focused on 10 fundamental priorities.

Taking a closer look

The goal posts are moving. Understand that the true picture is not what you'd like it to be. Get to the bottom of what's driving your business and work out what you do best and why. Importantly, understand how the business is being impacted by the downturn.

In order to reach these conclusions, ask yourself the following questions:

What have been, and what will be, the real drivers of performance across your portfolio?

For each of your businesses, products, or clients, how much performance is driven by the market and how much by your competitiveness?

What are your customers telling you that they value and are prepared to pay for? What would they be happy to sacrifice?

Why are your customers switching to other providers? Is it simply trading down, or do others represent better value for money?

What are your competitors doing or planning to do? What did they do during the last downturn? Who gained and lost as a result?

Acting decisively

With increased uncertainty and volatility it is important to make tough decisions sooner, rather than later. Focus relentlessly on the crucial drivers of value and the key risks across the business. Don't sit back and wait; the winners will be those who position themselves to take advantage of the upturn.

Consider the fact that strong leadership is required, with different skills needed in different positions. Do you have the right people in the right roles?

Are you ignoring ingrained biases and failing to tackle internal powers that work against collaboration?

Is there a determination to focus on the "have-to-do" issues, rather than those that are "nice to have"?

Have you reassessed the key risks facing your business and are you completely focused on those risks?

How are you responding to the changing landscape? Are you acting decisively and taking the initiative?

Are you agile, thinking innovatively and re-focusing resources on the value drivers of your business?

Are you taking decisive action on costs, key customers and suppliers?

Are you managing cash proactively?

Remembering 'cash is king'

Ensure that your finances and working capital are in good order and protect your liquidity. Re-examine your treasury, financing, funding and pension exposures. Monitor your performance against financial and non-financial covenants. Adopt a hands-on approach to cash management.

Consider answers to the following:

To what extent are you familiar with your obligations on your existing facilities?

How regularly are you updating your financial stakeholders? How aware are they of your current situation?

What opportunities are there to renegotiate or adapt existing financing arrangements as your business model and trading environment evolve?

How effective have you been at implementing cash-generation and cash-preservation initiatives? What more can be done?

What processes have you introduced to manage cash proactively and to properly monitor progress?

Are you reviewing your debtor book regularly? Who is managing the process? What targets have been set?

How effectively are you managing creditor payments? Is there any more that can be done without damaging relationships?

To what extent have you taken control of inventory management? What is your minimum operating level? What steps have you put in place to achieve this?

Have you reduced or eliminated non-core or discretionary expenditure? Who is accountable for this initiative? How much progress is being made?

Are there any other sources of cash that can be readily accessed? Are there any surplus assets that can be disposed of?

Focusing on what really matters

Evaluate which products, customers and channels create or destroy value. Revisit your existing investment programmes and consider what initiatives you could stop or defer.

Consider also which customers have declining orders and think about how you can mitigate this, as well as asking:

Which products - or new product developments - really matter to your profitability?

How can you build more volume through new and profitable channels to market?

Which investment programmes are critical to surviving the downturn and which can wait?

If you must focus on the core, which products, customers and channels should you focus on?

Are you really having a hard look at the projects you are undertaking or about to undertake? Are they critical to the business? Can they be scrapped, delayed, or "mothballed"?

Are you really focusing on what really matters?

Managing your cost base

Focus on enhancing the operational performance of your business. Go for targeted, rather than across-the-board, cuts; extract better value and reduce unnecessary complexity. Look at whether your business model needs to change, and ask:

Is the business making and buying the right things?

Are you putting its skills and competitive advantages in the right place?

Is the company eliminating waste?

Are the operations completely aligned to the end consumer?

Can you employ smarter procurement techniques?

Does management understand where value is being created or destroyed?

Is there a direct attribution of cost to products?

What is the true net product profitability?

What profits are your activities generating and where are you wasting money?

Accessing reliable management information

In the present conditions, more than ever, you need the right management information. Clearly defined key performance indicators are essential to ensure that initiatives for improvement effectively add to customer and business value. Decision-making must be based on facts, and the speed of decision-making needs to improve.

Consider which areas need to be monitored carefully. How often do you receive information on these critical areas? When do I receive it?

What degree of confidence do you have in the information that you receive? What are the key risk areas surrounding your business? How should you monitor your performance against these risk factors?

Is your business focused on cash management? Is the senior management team updated frequently enough to be able to make the right decisions?

How can you get critical information more quickly - before it is actually out of date or irrelevant?

Have you reviewed your reporting templates in light of recent changes to both your business and the external environment? Does the information still make sense?

Are you looking at the past? To what extent are your systems geared to providing useful information on the future?

Thinking of the last big issue you had to deal with: could a more focused reporting of key risk areas have helped you identify or mitigate it earlier?

Planning for different scenarios

Winners demonstrate agility and flexibility. Model a range of financial, operational and workforce scenarios that reflect the impact of the downturn on your business. Explore your strategic options and adapt quickly.

Consider these questions:

How will your business be impacted by an extended economic downturn?

In what industrial sectors and geographic areas does the company operate? What are the likely repercussions for these sectors and areas?

To what extent have you stress-tested your forecasts to account for changes in performance and outlook? Have you stress-tested forecasts over different time periods?

How good are your management-reporting and information systems at highlighting potential issues? What areas need to be monitored carefully?

What are the key vulnerabilities in the company's business model? Is your model flexible enough to allow you to adapt quickly to a new environment?

What is your long-term financial position? How significant would a material loss of revenue be? Even if your products are non-discretionary, could customers find a cheaper option?

What are your competitors doing and are there opportunities for organic growth in the sector? How bad should performance get before you face the breach of a covenant or facility?

Are you regularly appraising the board on performance and scenario planning?

Recognising the value of your people

Regular and clear communication with employees is vital to their engagement. Identify key talent and develop appropriate incentives for them. Free-up limited resources by outsourcing or partnering functional activities and secure strategic new talent that suddenly becomes available.

Ask yourself how the current economic environment is affecting your people needs.

How are you using your workforce differently to reflect changing revenue streams?

How are you motivating and rewarding your workforce?

What reward strategies are your employees telling you they value?

Do your high-fliers know how much you value them and why?

How are you using performance ratings to recognise employees' contributions?

When did you last communicate with your employees?

Taking your stakeholders with you

Evaluate the likely impact of the downturn on your stakeholders, and make sure you understand their agendas. Perception is often reality, so maintaining regular and open dialogue on a timely basis is essential.

First, do you know who your key stakeholders are?

Are you aware of recent changes in your stakeholder base?

Are you aware of their agendas? How are you meeting their expectations? When did you last exchange a detailed update with them?

Have you seen recent changes in attitudes? Are you keeping up to date with developments concerning your key stakeholders that may impact the business?

Have you developed a well-articulated communication plan, both internally and externally, to make sure there is a consistent projection of actions being taken?

Have you considered possible differing agendas and what the more-likely areas of conflict could be?

Are your people engaged in the overall strategies of the business and are they aware of the mitigating actions that you wish to undertake?

Taking advantage of opportunities

Do not stop innovation or investment in those areas of growth that you will need for the future. Identify growth opportunities that may suddenly arise; recognise opportunities to acquire strategic targets and to negotiate more favourable relationships. Have an eye for the future, and consider:

Which parts of the business generate the highest returns on capital, and which the lowest? Would they benefit from additional growth capital or productivity investment?

Do you have a clear view of the investment opportunities that are in the pipeline, and an accurate assessment of their risk and reward profiles?

Is the current situation an opportunity to re-engineer the business to remain productive under new conditions?

Is the business in a stronger position than its competitors to pursue step-change opportunities?

Do you understand the landscape of assets you would be interested in buying?

Do you know how competitors are being affected by the downturn and whether they might now be prepared to consider a merger?

This article was extracted from "Managing through the Downturn: 10 Fundamental Priorities" by global professional services firm PricewaterhouseCoopers (PWC).