How to Recession-Proof Your Business

It's just Economics 101: All business is cyclical, and that's true even when, as seems the case in the new century, the cycles are speeding up. Finance executives need to be prepared to meet the challenges of bad times as well as good.

Companies that react quickly to an adverse market have a good chance of preserving profitability. But world-class organizations go beyond that, says The Hackett Group: They leverage disruptive events to get the buy-in they need -- from management, workers and stakeholders -- to drive transformative change and raise their organization's performance to world-class levels.

The first priority is to take a close look at G&A functions to identify initiatives that can yield hard-dollar savings. It's all too easy to take your eyes off G&A in an expansive economy, and CFOs' cost-reduction skills may have grown a bit rusty in the last couple of years. Consider increasing investments in shared services operations and globalization of back-office functions. Next, review more long-term strategic opportunities clustering around technology initiatives and simplification of complex processes.

Next up: working capital. In a down economy, cash is king. Chances are, hidden pools of liquidity are sloshing around your inventory, payables and receivables operations just waiting to be tapped. Review your customer payment process, examine your inventory management strategies, and look for opportunities to consolidate your spend to earn volume discounts.

Globalization comes into play here, too: it's hard to ignore the benefits of sourcing from low-cost regions, especially Asia. Be aware, though, that the massive increase of distance and lead times associated with this strategy may result in increases in inventory and a more cumbersome supply chain. Seek to build collaborative relationships with your customers and suppliers to gain insight into "true demand" -- which may diverge considerably from the ordering patterns you receive from your customers.

Now is a good time to fine-tune your enterprise performance management (EPM) systems. Doing so will help you get a handle on the impact of your strategies and the changing business environment on your cost structure.

At many organizations, the financial reporting process is poorly aligned with the business cycles in their markets, Hackett finds; companies in high risk/volatility sectors should be preparing monthly forecasts. EPM can help, and it can also enable companies to make the move to a rolling forecast, a more dynamic forecasting model. EPM-enabled predictive modeling can reduce the potential for bad things to happen.

Finally, make sure your planning and forecasting systems cover the supply chain. Especially in volatile markets, sudden price swings or disruptions in supply systems can impact your cost structures at a moment's notice. Ensure that your procurement function is committed to developing innovative techniques to assess supply chain intelligence and evaluate risks. Strategic sourcing will be a growing corporate imperative for the foreseeable future.

Read the full report