Crisis? Nope, Never Heard of It!

There can't be a crisis next week. My schedule is already full."

 – Henry Kissinger

Crisis phenomena in business have become commonplace. Especially in turbulent times like today. The job of CEOs and CFOs is mostly to deal with crises and to improve the company. How can the rich world experience in dealing with crises help in this difficult matter?

Most likely, not much. As usual, people learn only from their mistakes, and company managers even more so. But the lessons they learn from their mistakes can be a little more useful if you know how other companies acted in similar situations, what they paid attention to, and how they continued to work during the crisis.

As you know, almost every crisis contains the seeds of success. The main thing is to recognize and nurture them. Easier said than done. Therefore, let's consider more practical tips.

Avoid crises

No matter how boring it sounds, engage in risk management, this will help you prepare for crises. Make a list of the most risky business areas, determine the possible crisis consequences, assess the cost of preventive measures – in other words, build a Risk Map. Not a very fun activity – most likely, this is why so few managers do it.

Plan your crisis response

If a crisis cannot be avoided (and this is always the case, the only question is the correct and early identification of the crisis), it is necessary to plan a range of measures in case of various negative consequences. As a last resort, you need a "Plan B", a backup option. Don't be overconfident about the company's ability to withstand the crisis. Plan the necessary actions: action plan, communication plan, preservation of key relationships. In this regard, take an example from emergency response services (MES) and companies that work with risks to life and health (for example, airlines): form a potential crisis center in advance, determine its composition from among current management, employees, and external consultants, draw up an action plan, determine the means of communication.

Recognize the crisis in time

Business leaders often misidentify an impending problem, focusing on the technical aspects (which is easier) and not paying attention to the big picture and strategy. Forgetting about the external perception of the problem in the company. And it is it that sometimes becomes a catalyst for a crisis. Listen to your subordinates and take action. Recall of large batches from the market under the threat of low-quality products is a common practice among auto and FMCG manufacturers: if generally high quality standards are maintained, this is perceived as a positive sign. The main thing is not to do it systematically.

At the stage of recognizing the crisis, the role of external consultants is very important (along with the company's own expertise, of course). The logic is simple: in solving a problem, you cannot rely solely on people who should have prevented the problem (cf. "Bees vs. Honey"). Of course, the involvement of consultants costs a lot of money. But as the American saying goes, "If you think a professional is too expensive, try hiring a cheap amateur."

Time is King

When a crisis occurs, the first thing to do is to "stop the bleeding", quickly eliminate a simple problem that can lead to the most serious consequences. Companies that have prepared for anti-crisis actions in advance will cope with this best. "Problems don't just get solved over time," Warren Buffett said. They do, - you will say, - But what about the well-known principle not to start the task immediately, because it can change? In the case of a task, this may be true, but not in the case of solving a problem whose goal is a healthy and profitable company. Quick action now (changing the company's management, starting negotiations with the bank, communicating with creditors and buyers) will remove the need for long and difficult changes in the future.

Cash is King

No matter how much recovery and crisis management experts repeat this axiom, CEOs are still far from understanding the central role of cash flow. Let's be more precise: in Russia, cash flows (issues of their distribution) may be given more importance than abroad, but their planning remains undeveloped. Meanwhile, there is only one step from the inconsistency of cash inflows and outflows to cash gaps and insolvency. In this sense, large companies are better protected – they have better access to a bank overdraft and can negotiate with counterparties more easily. But times are changing, in the current conditions, even market leaders cannot remain calm.

Prepare regular short-term cash forecasts. Carefully approach the assumptions embedded in the forecast. Discuss these assumptions directly with sales, marketing, capital construction, and purchasing. Your goal is a realistic forecast. Don't stop at two scenarios: "best case" and "worst case". First, you never know what the "worst-case scenario" might actually be. Secondly, it is better to conduct the most objective analysis of the most possible scenario and supplement it with a sensitivity analysis.

Working capital is a storehouse of money in moments of crisis! Constantly monitor the level of net working capital. Regularly check the status of several specific items on a selective basis – down to specific counterparties and commodity items. In addition to optimizing working capital, this will allow you to better understand the relationship with customers and suppliers – knowledge that can be invaluable after the crisis is over.

Instruction Manual

In a crisis, current company managers and crisis managers should be as close to the sources of relevant information about the state of affairs in the company and in the market as possible. You should not rely solely on the consolidated reports of the financial department. You need to see the big picture – but you also need to be able to dive as deep into the details as the situation requires. The correct approach would be to combine induction and deduction.

Long-term business plans in such conditions are not very useful. All attention should be focused on the next few months, broken down by weeks and days.

In order to quickly gain control of the situation, the CEO/Restructuring Director must eliminate redundant levels of the management hierarchy. It is not necessary to change the organizational structure and established business processes. But the director may not follow them in crisis conditions – and even should not! It's like creating a mini-chaos in which the entirety of leadership is concentrated in the hands of the restructuring director.

We are not afraid of crises – we work with them. But how successful? Successful crisis management is sensitivity to changes in the external environment and the correct response to them, daily control of cash flows and close contact with suppliers, customers and employees to ensure effective management.