Ask Score: Reactive Errors, and Proactive Solutions

Ask Score
Reactive Errors, and Proactive Solutions
A Three Part Program of Organization Transformation

Being proactive in Management is presumed to be more effective than reactive. There are good reasons for this, however there are times when unforeseen events force managers to react. We believe that the current economic slowdown is a time when managers must react to events, and stabilize their operations before becoming proactive.
To demonstrate this paradigm, we have developed a step series from one to three in order to illustrate the ongoing processes of a declining economic environment and how it could affect managerial actions. The intent of this program is to show how Management may react initially to unforeseen events and later develop a proactive action set for improved results.
Step 1. Sales Decline
The reactive Stance. The first indication of impending difficulty shows up normally in a sales decline. The decline is seen initially from a macro perspective, that is the sales total. Given that the normal planning process in an ongoing business projects increasing sales, this anomaly gives rise to a reactive stance made up of increased exhortation of the sales staff to pressure their clients into giving the firm more orders. This reaction usually fails to produce the desired results.
The Proactive Stance. Macro data such as total sales conceals more information than it presents. Immediately upon realizing a decline in sales, Management should become proactive in searching the micro data set, such as sales by market segment, and sales by individual product or service line. Superimposed upon that data should be the amount of effort that is devoted to that product line or market segment. Management can then see where effort is concentrated and what the direct relationship is between effort and results. Furthermore, effort can be divided into the various components of marketing and sales activities, such as brochures, advertising, sales promotion (the activity set of Marketing) and field sales rep contact data, number of calls, lead conversion statistics, etc. (the activity set of Sales). The two can then be combined proactively to reinvigorate the firm's product and service offerings and turn a sales decline into a sustainable increase.
Step 2, Increasing Costs.
The Reactive Stance. The typical reactive stance to a cost increase and/or a cash flow slowdown is to reduce costs through layoffs, curtailment of purchases, and an attempt to cut administrative costs by an across the board reduction. Layoffs reduce payroll costs and also reduce productive capacity. Curtailing purchases also can have the effect of slowing production, which of course will also be felt as a sales decline. Cutting administrative costs across the board is almost always a bad move, unless they are seriously over inflated through past managerial decisions.
The Proactive Stance. A better result outcome is achieved by initially concentrating upon costs as a function of gross profit margin, the cost of production deducted from the sales price of products and/or services. Maintaining and improving gross profit margin is the best technique in improving costs. Also, the gross profit margin is the key to developing a breakeven point analysis, under which the firm posits through its operations sufficient income to defray the costs of administration. It is then possible to utilize the proactive measures identified above in Step 1 to improve profit margins and decrease costs.
Step 3. The Organization Culture and Transformation
The Reactive Stance
When an organization sees sales decline and increasing costs, the usual reaction is to try to fix blame on either people or operations, and demand more output, and less input. This usually has the effect of creating culture wars under which relations between Management and the employees suffers as the blame game goes on.
The Proactive Stance
A proactive stance calls for the development of a positive culture as a part of any effort to build a successful business. Cultural changes are transformative in that they will act as the glue that holds the organization to its goals and will energize employees and Management as well to 'buy in' to the new paradigm of higher sales, lower costs, and ongoing company success. The artifacts of culture can be shared decision making, open communication, and no fault problem solving. There are more, but the above three can constitute a powerful first step in creating a 'can do' and 'will do' culture.

Richard Walton, Counselor for SCORE, and President, Enterprise Resource Management Associates, Inc., of Hagerstown, Maryland. Cell phone: 301-462-9850, email: richard@ermacorp.com.