‘May you live in interesting times.’

This ancient Chinese proverb has become a reality for many businesses – both established and start-up – when dealing with the current economic turmoil.

For many years executives have been drawn to studying the practices and the strategies of the best-of-the-best. However, in today’s current economic and business environment, healthy companies can learn a great deal from troubled organisations without having to incur their own battle scars.

Below is a perspective on the most important lessons … and a couple of mistakes to avoid:

  1. Speed is more important than perfection: Given the pace with which markets and customers are changing, using elaborate methodologies and team structures to achieve predictable results is, in many cases, too slow. Small, mixed teams able to deploy and adjust quickly will have an impact on the situation in a much shorter timeframe. In the words of one famous AFL coach just ‘do something’.
  2. Cash is king :Cash is the oil that lubricates the commercial engine. Having a detailed and current understanding of your actual cash position is always important but becomes particularly significant in a tightening economic and credit environment. Often, small and simple steps can make a huge difference to improving cash outcomes. All executives – not just those in finance – should be accountable for meeting cash and working capital objectives.
  3. Focus on the issues with the highest impact :Troubled companies learn prioritisation through necessity – they have no option but to focus on high impact issues. Choose the shortest path to the desired end state, focusing only on critical issues and actions. Do not waste time on anything else.
  4. Make the tough people calls: Ensure that you have the best possible people in position to deliver high impact results. Stakeholders must recognise that certain personalities and management styles are suited to different economic and competitive environments. Although change can be painful, the consequences of inaction are far worse. There is no justification for leaving an ineffective employee in place, especially in a critical position.
  5. Unfreeze the organisation: Functional silos, internal politics and personal empires are best described as cancers that undermine performance. Do not underestimate the power of liberating an organisation. In times of crisis, decisions that previously took months are made in hours.

In addition to the lessons learned, our experience with troubled companies provides insight into the common mistakes made by distressed organisations that healthy companies should take care not to replicate, here are a few key mistakes:

  1. Cutting muscle along with fat: In a troubled business it is generally accepted that it is better to cut hard and early. Nonetheless, it is important to be careful not to cut muscle along with fat. Cutting ‘muscle’ may result in significant short-term cost savings, but in the long term it may tip the corporation back into trouble.
  2. Focusing solely on survival – not on thriving long term: The will to survive is strong, but survival alone cannot be a goal or a final destination. Unless organisations keep one eye on the longer term and jointly develop purpose and strategy, they risk joining the ranks of the so called ‘corporate zombies’ – companies living a hand-to-mouth existence and, while generating sufficient cash flow to carry on trading and paying their bills, have inadequate resources to invest and grow.