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Panic Response Management

Guest post by: Dr. Rick Johnson

Article Overview: Panic Response Management is, in effect, crisis restructuring. There's nothing wrong with crisis restructuring by itself. However, this restructuring is more apt to occur from the bottom-up versus the top-down. In other words, revenue producing functions or people may be prematurely cut. These people or positions may be, at a minimum, covering their variable expense and contributing to some degree toward fixed costs. This creates a redistribution of fixed expenses which may now jeopardize the profitability of some other segment or division. This can create pressure to close other divisions and business segments or cut deeper into revenue producing functions that are contributing at least a portion to fixed costs, thus creating "The Death Spiral."

Panic Response Management

Panic Response Management is, in effect, crisis restructuring. There's nothing wrong with crisis restructuring by itself. However, this restructuring is more apt to occur from the bottom-up versus the top-down. In other words, revenue producing functions or people may be prematurely cut. These people or positions may be, at a minimum, covering their variable expense and contributing to some degree toward fixed costs. This creates a redistribution of fixed expenses which may now jeopardize the profitability of some other segment or division. This can create pressure to close other divisions and business segments or cut deeper into revenue producing functions that are contributing at least a portion to fixed costs, thus creating "The Death Spiral."

To most of you, this may sound ridiculous or even laughable, but it really does happen. The right approach is to view restructuring from the top-down, including taking a serious look at corporate and/or family overhead. You begin this diagnosis by asking questions like the following:

• How do you define your business strategy?

• How do you communicate your strategy to the employees?

• How would you define your company's competitive advantages?

• What are your strategic initiatives?

• What changes have had a significant impact on your business?

• What keeps you from being the most efficient and effective source for customers?

• What competitive advantages do your competitors have?

• What is the competency level of your executive staff?

• How do you rate yourself with respect to the success of the Corporation?

• What volume does the top 10% of your customers represent?

• How many of your customers represent 80% of your revenue?

• Do you measure account retention and growth?

• What is the turnover rate of your sales force?

• What is your overall corporate turnover in personnel?

• What percentage of your customers considers you to be their number one supplier?

• Have your average sales per invoice increased or decreased over the past three years?

• What single thing has had the greatest impact on your company's profitability?

• What single thing has contributed the most to your decline in profits?

• How does your company compare to the industry par report?

• What metrics or industry surveys are available to you from your trade association?

• Do you have a strategic plan?

• Do you have or promote a culture of cost containment?

• Do you provide functional leadership or do you dictate as a management style?

• Is there accountability within your executive staff and your upper management?

• Is there accountability within your sales force?

Get each member of your executive staff to go through this exercise for each department. When all the soul searching has been done, meet with your executive team to review the entire process and formulate a contingency plan. What is the situation you are really facing? If you are the owner or the CEO it is often difficult to admit the facts.

If that's the case, it is highly recommended that you hire an outside pair of eyes to help you through this assessment process as defined in the previous chapter. During the final assessment review you should be able to understand the scope and severity of the situation you find yourself in.

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Article Tags: business segments, death spiral, response management, restructuring



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