The best laid plans of mice and men. How to create an agile business
Many pundits are calling the post-Covid business landscape ‘the new normal’. But let’s face it – there’s nothing normal about it. But while uncertainty is the enemy of business, you can use this opportunity to learn how to create an agile business and develop a new plan that works whatever the challenge.
With this in mind, before you start planning for the different business scenarios that we’ve laid out in this article, it’s vitally important that you assess the position your company is in. After all, you can’t plot a route if you don’t know where your journey is starting from.
With the help of an accountant or trusted business advisor, sit down around the kitchen table and work through your accounts – the health of your accounts is the best indicator of where you are as a company.
Importantly, look at your order book. Work out cash-flow projections for the next three months, six months and year, based on your projected income and outgoings (remember, cash flow is king!). Don’t be optimistic. Be realistic about the numbers.
This process of taking stock will be invaluable, and will inform many of the decisions you make about the future direction of your business.
With that done, let’s get down to business
What is agility?
Having taken stock of your business, you’ve (hopefully) come to the conclusion that, with careful planning, you can move forward confident of a profitable future. Crucial to surviving is one key attribute – agility.
That means being able to quickly and accurately assess changes to market conditions and react to those changes. To create an agile business, you can’t just have a Plan A. You need a Plan B, C and even D. It means planning for the unexpected, as well as the expected. It’s about shock-proofing your business against future financial earthquakes.
Being agile also means finding innovative ways of coping when things do go wrong.
According to management consultants McKinsey: “Agile organisations can quickly redirect their people and priorities toward value-creating opportunities. A common misconception is that stability and scale must be sacrificed for speed and flexibility. Truly agile organisations combine both: a strong backbone… provides the stability for developing and scaling dynamic capabilities.
“This backbone binds structural stability (standard operating procedures) to cultural stability (shared purpose, direction, and values); it also supports dynamic capabilities (for instance, fluid changes to strategy and team setup) in order to respond quickly to fast-changing conditions.”
Scenario planning
Scenario planning is not a new idea. In fact, it’s as old as business itself.
However, most companies have used scenario planning in a limited way. Many successful businesses, built up over years of trading, relied on tried-and-trusted business planning based on the numbers, what their competitors were doing and general market conditions.
The old ‘numbers in, numbers out’ business planning formula just won’t work in today’s economic climate. It’s always been the case that your data tells you more about the past than the future. Now, for many businesses, their historical data is pretty much worthless (and by historical we mean data from 2019 and the first quarter of 2020).
That makes right now a great time to start scenario planning as a way to help you create an agile business.
In any business, no matter how new or well-established, decisions are made with regard to possible outcomes. No one can see into the future, meaning all decisions are predictions about what is going to happen.
The Coronavirus pandemic is the best example of how business plans can be made redundant when circumstances change. Such a devastating and unexpected event was, of course, very difficult to predict. But did you mitigate the risk by, for example, taking out business interruption insurance? Did you have a disaster management plan, or a business continuity plan, in place?
Scenario planning expands the way you can create an agile business by offering a number of predictions and outcomes, based on different possible circumstances. It’s a tool that you can use as a strategist that will help you predict the future and make better choices in both the short and the long term.
So how best to use scenario planning?
The idea is very simple: work out the potential threats and opportunities that face your business going forward. For example:
- How would you cope if there was another pandemic, involving lockdowns and restrictions on trade?
- What would you do if a major supplier went out of business?
- What would you do if interest rates rocketed?
- How would you react if regulation in your sector suddenly got a lot stricter (for example, green initiatives being introduced)?
- What would you do if geo-political tensions forced up the price of fuel?
There are numerous questions that can be asked, and of course these would be different depending on what sector you operate in. The scenarios don’t all have to be gloomy: what would you do if a major competitor closed down? How would you grasp the potential new opportunities that would bring?
Remember, if you are aware of what could happen, you are more likely to be able to deal with it.
To help you identify the critical ‘uncertainties’ you may face it will pay to get input from as many people as possible, so invite all your staff members to contribute ideas. On top of that, talk to your accountant or trusted business advisor, whose expertise is sure to be invaluable during this process.
Once you have done this analysis, the next stage is to create up to four, five, or even six distinct scenarios that are most likely to happen. Once you have identified your ‘major’ potential threats or opportunities, the next task is to use them to develop a range of scenarios. Think about the various combinations that the threats or opportunities present, focusing on the ones you believe are then most likely to affect you.
Through projecting these possible occurrences into different scenarios you are now able to picture the challenges that may lie ahead – and plan for them. With your fellow management team members, and your trusted business advisor, discuss the implications of each of the scenarios. This will help you start to formulate your strategy: to set your goals while taking into account every scenario. Now you can begin planning for the future.
There are pitfalls to avoid in the process. They include:
- Don’t overwhelm yourself by considering too many combinations. Keep it simple by focusing on the major threats and opportunities.
- Remember that you don’t have to choose one particular scenario and build your strategy around it. Scenario planning is not about choosing just one option for the future but rather dealing with all of the possible outcomes to develop a strategy that will stand the test of all the scenarios.
- When developing your different scenarios, try to not focus too much on the short term. Plan for the next 12 months for sure, but also look further ahead, for what might happen in the next three years or five years – or even 10 years.
Harness the power of technology
As discussed in the opening section, your firm’s future prosperity is all about the numbers.
But what does your historic financial data mean post-Covid? Probably nothing. Up-to-the-minute data is what really counts.
So make sure you keep up-to-date with the current figures. That means looking at them two or three times a week, if not daily (depending on the size of your business).
To help you crunch the numbers most effectively, invest in a financial software package (there are plenty on offer out there, so do a bit of research before you buy). This will do the heavy lifting for you when it comes to the numbers, enabling you to focus on managing your business.
A good finance management system should allow you to upload your forecasts, and by substituting the numbers create multiple projections quickly and accurately.
As the business software provider the Access Group says in its report, ‘Building Momentum: How to help fuel business recovery’: “Regular reporting is not about keeping busy with spreadsheets or adding to an already-heavy workload. With the right technology, you can generate reports in minutes and, more importantly, spot early signs of trouble and potential opportunities. As long as your data is accurate and your metrics consistent, you’ll be able to create touch points that add value and steer the organisation to safety.
“The more touch points you create now, and the greater visibility you have, the better prepared you are for any future shocks.”
It added: “More than anything, you should be ready to pivot quickly, report your findings and revise your short-term forecasts in line with new constraints and demands.”
By tracking the data closely you can spot trends, for example what your customers are ordering. Are they cutting back on what they buy from you? Or buying at different times, or more or less frequently? Spotting these trends will enable you to re-engineer your business accordingly. For example, by anticipating busier periods you can allocate your staffing resources accordingly.
Similarly, monitoring when invoices are paid can help you manage your cash flow better. Knowing about overdue invoices as soon as they are late will enable you to speak to your customer and help them if they are having cash flow issues.
Access Group even launched a customer retention programme. It said: “In a difficult trading environment, customer service, payments and revenue are even more closely aligned. The system allows those who have questions about what they owe, or who are struggling financially, to speak to us directly and receive the support they need to get through it.”
The pandemic has shaken business confidence to the core. For a huge number of the UK’s workers it has brought stress and worry, but it has also afforded many the time for reflection.
It has given business owners like you the chance to take stock, look at your business model and activities, and make changes.
While no one knows what the future holds, putting in place robust preparations for the unexpected will help you to make better decisions going forward.
For advice on how to make your business more agile contact our team of business rescue experts on 01455 555444