Transcript Downturn

LEADING IN A DOWNTURN
LARRY ETTAH
GROUP MANAGING DIRECTOR/CEO
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The World We Live in Today
”Today, I say to you that
challenges we face are real”.
the
- President Barack Obama
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How did we get here?
• Greed: Irrational exuberance, Asset bubbles,
speculative excess in property and stock market.
Easy money, leveraged equity markets, Deals and
poor regulation. Risk under priced.
• Has led to the collapse of many notable financial
institutions and organisations in the manufacturing,
durable and fast moving consumer goods sector.
• Politics: Deficits, money supply.
• Result: Parlous Balance Sheets, Contraction of
credit, suicides. Irrational complacency, corporate
failures, nationalisations, blood bath of layoffs.
Humility.
3
Why are we so badly traumatized!
Inertia
• While Lies: Our Economy is Sound! No
fiscal firepower directed at the issue.
Someone is sleeping at the switch.
Leadership “not on seat”.
• No adequacy
response.
and
coherence
in
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Current Reality: It is not a Crisis;
It is a deep Crisis
• There is severe recession and credit contraction
with no end in sight in the current year. (Interest
22% prime?)
• The outlook is highly uncertain, and the timing
and pace of recovery depends critically on
strong policy actions. Estimates 2-3yrs.
• Global growth is expected to fall to less than 2%.
• Financing conditions will likely remain acute for
some time, especially for corporate sectors that
have very high rollover requirements.
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The Nigerian Business Environment
• Wriggling under challenges
• Official pretences
confession.
has
given
way
to
• Our situation has been made the more
difficult by the fact that our own environment
was already in the throes of infrastructural
inadequacies coupled with poor security and
other structural problems.
• Financial strains remain acute, pulling down
the real economy.
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The Nigerian business environment (Cont’d)
• A sustained economic recovery will not be
possible
until
the
financial
sector’s
functionality is restored and credit markets
are unclogged.
• As economic prospects have deteriorated,
stock market tanked. Consumers can no
longer use their stocks as ATMS.
• The foreign exchange market has been
volatile as Naira is under speculative attack.
7
The Nigerian business environment (Cont’d)
• Government intervention through forceful
policy actions to restructure the financial
sector, resolve uncertainties about losses
(margin credit) and break the adverse
feedback loop with the slowing real
economy. Government becomes the
only entity with a strong balance sheet to
buy off the toxic assets (margin loans).
Will that happen?
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The hard times are here!
• Bizarre somersault in the foreign exchange market;
• Low electricity generation
• Falling oil prices – low government revenue and
foreign reserves for import financing; Culling of
international trade finance facilities. Currency and
translation risk.
• Capital market instability;
• The not-too-stable financial system.
– Tough economic realities.
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What does this mean for our business?
• The goal here is to understand the true picture and
not what we wish to believe.
• What is the health of the business environment: Is
this a growth market or not. If growth how to pursue
low cost growth or if low growth how do we
allocate resources to ensure excellent returns at
minimum risk.
• The safe thing to do at a time like this is to, some
may say:
-
Freeze infrastructure investments;
Defer new growth projects;
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What does this mean … (cont’d)
– Cut advertising, recruitment and training
investments;
– Postpone loyalty programmes for customers and
staff.
• These may not all be a correct position to take
now.
• But we must have downside models and
downside planning on any potential activity or
investment we undertake. Intelligent Risk and No
gambling.
Keep capital discipline: No one
expects us to predict the future but we are
expected to show discipline once projected
returns do not materialise.
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What does this mean for our business?
• Some of our businesses may have suffered
immediate losses as a result of depreciation in the
exchange
rate in respect of previous import
transactions yet to be paid for.
• Our AE 2009 is already under pressure from the
expected rise in prices of raw materials and other
business costs.
• Revenue projections will also come under serious
strain as individuals and organisations re-order their
spending priorities.
• Growth projections have also been tested by the
deep uncertainties in the business environment.
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What to do?
• ASPIRATION - Keep sight on our vision and
goals.
• DESPERATION - Take no prisoners
• INSPIRATION - Lead your people; give them
hope
• PERSPIRATION - We need to run faster to
even stay at the same spot, manage the
fundamentals, be ready to go zig when
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others are going zag.
What to do cont’d …
• If we are No.1, behave like No.2 and think likewise (insurgents
than incumbents)
• Bring analytical rigor to decisions. 95% of economic rent of
every company comes from 5% of activities (people?). So
have to discover that 5% fast and focus on it.
• Lead from the front, side and back
• Be prepared to reconcile compassion with aspiration as we
take on the leadership challenges and face the sad but
necessary duty of firing underperformers.
• The general environment is same for every player what
differentiates success from failure is insight, perception,
industry, competition, consumers etc.
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What to do Cont’d….
• As business managers, we must be good owners
and aggressive managers of performance, act
proactively and decisively, take tough decisions
(become less sentimental), have the tension
needed to deal with cost, and position our
businesses to take advantage of the upturn when it
comes.
• Engage in frequent reviews that
helps us
understand what’s happening and what turns in the
road are going to be necessary. Ask hard questions
to prevent dumb decisions.
• Some urgent actions are required in the following
areas:
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Balance Sheet Management
We must remember that in business cash is reality.
 All activities must save or bring in more cash.
 Unbridled credit sales should be curtailed.
 Not paying cash immediately should not
encourage purchases and subsequent inventory
overhang.
 More proactive approach to cash management
– short-term cash flow reporting; immediate
investigation of variances.
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 Avoid asset heavy and margin Iean business and
investments.
Balance Sheet Management (cont’d)..
• Aggressive working capital management –
adequacy and quality of stock levels, securing best
credit terms from creditors than is available to
debtors.
• Aggressive review of adequacy and quality of
banking and other financial arrangements.
• Review of discretionary and non-discretionary (no
luxury of nice to haves) expenditure and assessment
of real business needs.
• Enhanced control over purchasing and order
processes (core and non-core) with probable
lowering of authorisation limits and increasing exco
accountability.
• Deploy based on right cost, right skills, right business
environment. Ensure work flows to places where it 17
is
Focus on Must Do for business
• This is not the time for frivolities.
• In a downturn such as we are in, we must ensure
that our customers occupy the number one
position in all that we do.
• Innovate: Products, processes, brands, systems to
increase our “shots on goal”
• This is the time to identify which customers,
products and channels are the most profitable
and give due attention to them.
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Cost Management
• A time like this provides a unique opportunity to
re-evaluate the relationship between your
business cost and profit.
• You , no doubt, may have been doing something
like this before, but there is need to move from
ad-hoc cost management to more strategic and
sustainable way of managing cost whilst
successfully maximising profit. What does it take
to be ahead of the curve on cost?
• The inefficiencies of the past can no longer be
tolerated by the market, I mean consumers. The
competitive landscape has changed so
dramatically that we can no longer continue with
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a business as usual attitude to cost.
Cost Management (cont’d)…
• We need to have more detailed information on
elements of our cost to be able to manage the mix
effectively. This means that our reporting format
may need to be altered to reflect more information
for management decision making.
• It must be stressed that we need to remain focused
on cost cutting and keeping a close watch on
head counts.
• It is not sufficient anymore to be guided by the rule
of thumb of making increasing cost to be less than
inflation. Zero based budgeting is the only option.
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Flexibility – Scenario Planning
• Periods of uncertainties such as this calls for
flexibility.
• This entails re-assessing your business operation
and consider a number of options possible.
• The model that worked for you last year may no
longer be relevant today. Avoid being blinded by
your past triumphs. This is an opportunity to think
afresh. A critical test of our management and
leadership acumen.
• Nobody can accurately predict what may
happen to the entire economy in the next few
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months. Building a body of possible scenarios will
Flexibility – Scenario Planning (cont’d)..
• Stress test all your assumptions.
• Leading in a downturn is all about being
flexible, anticipating and reacting quickly to
changing circumstances. Changes don’t
come along in nice annual packages, so
our approach to strategy must be episodic
although we have our AE. Changes in
technology, consumer behaviour, consumer
taste,
resource
prices,
competition
behaviours etc. Ride that change with
quickness and skill.
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Flexibility – Scenario Planning (Cont’d) ..
• You cannot get rid of ambiguity and
uncertainty; it is the flipside of opportunity. If
we wait for certainty and clarity, we wait to
see what others do, but it may be too late
to profit the knowledge.
• Mitigate risks while also positioning your
business to seize opportunities which
may arise.
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Take your people into confidence
• All of these will require that we manage our people
effectively as they are crucial to executing a
sustainable strategy at a time like this.
• Your job is to breakdown the situation into
challenges that your subordinates can handle. You
should absorb the ambiguity in this environment
and give less ambiguous problems to others. Give
them targets not vision.
• Recognise the value of your people.
• Identify the talents that cannot be lost.
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• Identify possible succession risk areas and ensure
that possible candidates are well motivated.
Take your people into confidence (cont’d) …
• Give responsibility and challenges to your
talents at a time like this in a different part of
the organisations where their talent could be
most relevant. Don’t care what jersey people
wear, HR, IT, Finance etc. Look for people
with answer to a problem whether he is on
JC10 or JC40, in UAC for 40 years or 4 days.
Battlefield promotion – pull up and stretch our
people. Fewer managers, talented people
whose job can be scaled up. Pleasant
surprises; replace their small jobs with big ones
and they blossom.
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Take your people into confidence
(cont’d)..
• Engage with your people by keeping
up dialogue with your employees.
• Show your employees you value them
and care for them. Show empathy.
Offer development opportunities and
discuss
their
future
with
the
organisation. But also be firm!
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Conclusion
• We cannot hope to exhaust the discussion tonight.
• These issues will be taken further in the course of the
retreat as we have invited professionals to discuss
with us the issues highlighted above.
• We will be looking more at answering the question
“how” in the remaining part of this retreat.
• Our deliberations should provide us with the
pathway to navigate in this year’s tricky economic
landscape.
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Conclusion (cont’d) ..
• Be less sanguine about risk
• Be prepared for the Pain that is plain to see and
have to unsentimental detachment to take the
tough judgement calls
• Roll up our sleeves and ensure important decisions
are made in our business quickly without sacrificing
the value of collective debate.
• “Stand and Deliver”
• “Be of strong will … To strive, to seek, to find and not
to yield” Tennyson.
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Conclusion (cont’d) …
• I wish you all a pleasant stay in IjebuOde and successful deliberations.
THANK YOU FOR YOUR ATTENTION AND
HAVE A GOOD NIGHT REST
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