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Preparing for the Inevitable

Posted By Ron Sidman, Wednesday, September 27, 2017

The recently announced Toys R Us bankruptcy filing brings back memories of numerous crises we at The First Years, like every company, has had to weather. Bad things happen—with regularity. And anticipating and preparing for them should be part of your standard operating procedure.

 

As a senior manager, there’s a value to being optimistic about the future. No doubt your company’s mission statement and vision are based upon bold beliefs about what’s possible—and rightly so. To grow and improve you need to dream, and dream big. However, if your plans and budgets are based on a belief that you can accurately predict the future and everything is going to work as planned, you’re in for a painful surprise. Bad stuff happens.    

 

In fact maybe the only thing about the future you can be sure of is that something unexpected will occur. In my 32 year experience leading The First Years, it seemed as if we had at least one major costly negative surprise every year. Here are just some I can remember:

  • Numerous major account bankruptcies
  • A phthalate-related mass return from retailers of standards compliant merchandise sparked by a Greenpeace protest in Hong Kong
  • Product safety recalls (fortunately few)
  • Precipitous decline of licensed character sales after many years of rapid growth
  • Patent law suits
  • Unexpected losses of key employees
  • Dock strikes
  • “Greenmail” by a major stockholder
  • Aggressive new competitors
  • 9/11

I’m sure you could add to this list. For example, some companies have had fires destroy their warehouses, sexual assault or discrimination cases, or had their information systems compromised. So how do you deal with these harsh realities? Here are a few suggestions:

 

Brainstorm What Could Go Wrong

After your senior management team has generated your company’s preliminary plan of action for the next time period, devote some time to thinking about everything that could go wrong. Build this into your process. Usually the rule for brainstorming is there’s no such thing as a bad idea. For this kind of brainstorming, no bad idea is a bad idea. Get the most pessimistic and conservative people in your company to participate. Narrow the generated list down to the most costly and disruptive possible crises with a reasonable chance of happening. Then see if you can come up with ways to prevent them from happening or mitigate the impact and build that into the overall plan.  

 

Include an Adequate Contingency Fund in Your Budget

After a few years of getting blind-sided by unexpected financial setbacks (usually when we’re on our way to a record-setting year), we decided to include a sizeable “unknown contingency” expense line item in our annual budget. If nothing bad happened, great. If it did, we still had reasonable profitability. 

 

Maintain Ongoing Diligence

Just like when it comes to personal health issues, early detection can enable you to minimize the harmful effects. Stay on top of industry related news and take pre-emptive action when appropriate. JPMA can be especially helpful to you in this regard but also subscribe to relevant news feeds and other information sources. Don’t ignore the red flags! Often there is smoke before there is fire.

 

Have Reaction Plans in Place

It’s very worthwhile to have thought through in advance what the best things to do are in various crisis situations. In the “fog of war,” it’s going to be very difficult to think straight. One personal example—when 9/11 happened, I should have been more proactive in speaking to our employees, recognizing their concerns for the safety of their families, and making it easy for them to leave work if they desired. But in the heat of the moment, I was so caught up in what was unfolding that I failed to do my duty as CEO. Similarly it would be wise to have at least some guidelines in place for what to do if there was violence in your workplace, a product safety recall, accusation of sexual misconduct, etc. 

 

Have Crisis Communication Plans in Place

A mistake even the largest companies make is to keep their employees, customers, suppliers, and other stakeholders in the dark too long when something goes wrong or appear to be hiding the truth. Obviously these are no-no’s. In an information vacuum, people will imagine worse facts than what’s actually true. To be prompt and prudent with your statements, it’s wise to anticipate problems and formulate at least some possible talking points well in advance of an actual occurrence—with legal and PR advice as appropriate. Make sure you reflect your corporate mission and values in what you say. By doing so, quite often you can turn a negative event into a positive as J&J did with the Tylenol recall. 

 

Next Steps

If you haven’t already, take a hard look at your strategic planning and budgeting process and make sure you have adequately addressed the inevitability of unexpected negative events.

As always, if you’d like more information or assistance from me regarding your unique challenges, consider taking advantage of JPMA’s Executive Mentor Program. Check the JPMA web site for more information or contact Sam Adams at sadams@jpma.org.

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