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Every decade or so, we experience an unforeseen economic tsunami. At Seaman Corporation, we navigated the oil crisis of the 1970s, the extraordinarily high-interest rates of the 1980s, the 9/11 terrorist attacks, the 2008 financial crisis, and now, COVID-19. As a business owner, you must recognize that severe economic disruptions are going to occur – so how is your organization prepared to deal with them?
As the 2008 financial crisis was unfolding, Seaman Corporation, like most other businesses, was unexpectedly impacted, particularly when it came to revenue generation which quickly fell far below what was forecast. Fortunately, we had a robust strategic planning process and we were just completing our annual planning. This allowed us to recognize the crisis quickly and start to make adjustments. We also realized that, whenever we came out of the economic impact of this crisis, it would not be business as usual. Our world was going to look different, which could significantly affect our strategic goals. The fact that we had articulated our defined strategic objectives allowed us to make financial adjustments in a strategic way and not a short-term tactical way.
In contrast, many companies failed to recognize quickly or early on how the 2008 financial crisis was going to impact their business. They also thought they could weather the storm until things came back to normal, failing to recognize there would be a new normal. When these businesses ultimately tried to respond to the crisis, they did it in a very tactical way, such as enacting 10% across-the-board cuts across all business functions, including reducing their workforce.
Avoiding knee-jerk management responses in times of uncertainty and crisis requires implementing an ongoing strategic planning process. When your organization has a strategic planning process that has identified future strategic options and you also recognize there will be a new normal, you focus on which strategic options will be of value in the new normal. Then, you look very carefully at what your organization’s needs will be and what the human capital investment needs to be to support those strategic objectives.
For example, in 2008 at Seaman Corporation, we were in the process of expanding our sales resources to grow our single-ply roofing business. Even under a new normal adjusted for the economic impact of the financial crisis, we concluded that there would still be a significant business opportunity in the single-ply roofing market. While we may have delayed the timing of new hire decisions, we did not reduce the investment in our existing sales resources that supported this strategic objective.
To illustrate this point further, take the airline industry. Airlines look at their aircraft as an investment, not an expense. When their revenue drops off dramatically, as it currently is, they do not sell or cancel leases on their aircraft. They furlough excess aircraft but continue to invest in maintaining them. When air travel returns, the airline will have those aircraft ready to support their business. However, if leadership strategically looks at how the new normal will impact their business, they may reevaluate the type of aircraft they will continue to operate and then they sell aircraft that are not relevant to the strategic objectives in the “new normal” model, as many airlines are currently doing with their Boeing 747 fleets.
Unless you already have a strategic planning process in place that allows you to adjust daily operations without compromising long-term goals, your management decisions can be reactive when a crisis occurs. Fortunately, in this current crisis with COVID-19, the government’s quick offering of the Payroll Protection Program for small businesses has allowed companies an additional two to three months to maintain their investment in their human capital while continuing to evaluate how this crisis will unfold. This has provided company leadership with more time to determine how the “new normal” will affect their future business model and strategic options and not make across-the-board tactical cuts, particularly to their human capital.
Most multigenerational family businesses have already locked into this kind of strategic thinking because of their long-term orientation. Human capital is an investment, not an expense. If cuts need to be made to sustain present operations, you cannot cut core functions that will adversely affect your future business growth. Any workforce reduction we made in 2008 was about jobs that would not exist in the new normal we predicted in the future.
In these deeply uncertain times, rely on your iterative strategic planning process to guide you. Remember: the planning process is more important than the plan itself. Ask yourself: What is your future business model? How will the crisis affect that model in the short and long term? What organization will you need to support your business model? And, most importantly, what investment must you continue to maintain in your human capital?