Ed Winterschladen

22 September 2022
Topics in this article
  • Cost Optimization
  • Risk & Resilience

We all hoped that the end of the Covid-19 pandemic would bring businesses a degree of respite. A period of stability, where businesses could focus on getting back on the front foot in a relatively benign economic environment. Instead, we’ve ended up with almost exactly the opposite.

The Covid-19 pandemic triggered a tidal wave of long tail impacts that are now colliding with the economic shockwaves of the Russia-Ukraine war. This means we have a situation where businesses are having to navigate soaring inflation, an energy crisis, a strained labor market, an ongoing trade war between the world’s two largest economies, continuing Covid-19 lockdowns in China and potential recessions in some major economies.

That is an incredible amount to deal with. Unprecedented is a word that feels like it gets used a lot today, but most C-Suite executives will have got used to over the past decade to focus on two or three really key issues that matter to their business. Now that number has probably doubled or even trebled.

And to make things harder, things are changing by the day. To give just one example, energy prices have been changing more in a day than has previously been seen in a month or year. That then has a knock-on cost into supply chains, which has a further generally inflationary impact – but while you know this is coming looking at prices daily, you never quite know when it’s going to land on you given costs can sometimes take time to work through the supply chain.

With this degree of volatility, it would be tempting for business leaders to simply say they cannot predict what is going to happen and take a ‘wait and see’ or ‘steady as it goes’ approach. In my experience, this would be precisely the wrong approach.

Having spoken to huge range of business leaders over the past few months, it is clear that those who have pursued the option of doing nothing, a decision in itself, are potentially being hit the hardest. Ultimately, they are at greater risk and paying the price for their indecision – in some cases facing crippling energy costs as they took the view that it would be better to wait and see what happens with energy rather than to lock in back in Spring 22, albeit at a higher cost than maybe was comfortable or budgeted.

On the other hand, the businesses I have seen who have taken bold action are the ones in the strongest positions. They’ve accepted they would never have 100% certainty but have understood the general direction of travel and acted to protect their businesses.

So, what does this mean for today and what can you do? There are three things I’d recommend – get better information, understand your businesses’ red lines and act swiftly to manage risks.

While you may never have perfect information in this fast-moving environment, you can get better information. On any issue there are a wide range of data sources at your disposal and you’ll also have one of the best data sources right under your nose – your suppliers. Many don’t think of them that way but that’s exactly what good suppliers can be as they’ll often be closer to an issue than you will be. These insights can give you the confidence to act.

The second piece of the puzzle is getting a clear understanding of your businesses’ financial tolerances and where you may be able to bring down costs to balance things out. This is about analyzing what’s really essential – identifying ‘good costs’ vs. ‘bad costs’, and then being absolutely laser focused in reducing the ‘bad costs’ as swiftly as possible.

Finally, it’s about acting swiftly to manage risks. One of the things we saw in the challenging days of March, April and May 2020 was that decision chains shortened. Some organizations have forgotten this and moved back to their previous processes – and that’s costing them. Companies need to be able to act in hours and days, not spend weeks deliberating or waiting for HQ approvals.

There is no doubt that the coming Winter, and potentially beyond, will be challenging. These are times for which we don’t have historical reference points but by getting a clearer picture, by understanding your internal situation and by acting swiftly to make decisions, you can put your business in a much stronger position to weather the storm.

Please get in touch, if you’d like to discuss how Proxima can help you and your business.

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