Management: Be ready for the nuances of 2012

By TEC President Harry S. Dennis, III, originally published in BizTimes.

It’s hard to believe that 2012 is just around the corner. The best word I would use to describe 2011 is tumultuous. Everything bad that could happen economically happened.

For small and medium-sized businesses, 2011 can best be described as unpredictable.

But businesses have endured because, for the past decade, they’ve learned to think about surviving first, and then about the good times that might lie ahead.

So this month, let’s take a look at the nuances for business planning next year and the variances we’ll be facing.

In statistical jargon, error variances explain the strangest things: a missile that unexpectedly deviates off course, an aircraft that crashes because of an instrument deviation, an airbag that deploys without warning, and so on.

We have variances in our business planning, too. Here are tips on how to deal with them.

Sales projections

In the good old days, we were accustomed to talking about the 90/80/70 percent variance contingencies. The assumption was you began with a 100 percent optimistic sales plan.

If, after one quarter, it was obvious that you were overly optimistic, you would start working the 90 percent plan. You’d throttle back your cost-of-goods sold and net operating profit projections.  Usually, plans for capital expenses would remain in place, but with “delay” written next to them.

If, after two quarters, it was clear that your projected revenues wouldn’t be greater than 80 percent of your plan, you’d cut back across the board on things such as capital expansion, hiring employees, new lease commitments and so on.

Once you determined that your company was unable to exceed a 70 percent annual revenue target, you might start laying off employees, possibly eliminating entire shifts if necessary. You needed to enforce extreme cash savings measures too.

The nuances or variances associated with 2012 almost guarantee that manufacturing and service firms will experience these roller coaster rides.

Why plan at all under these conditions, you ask? Because this is truly the new normal. As much as we despise it, it won’t end anytime soon. Being prepared is almost a myth, in fact.

Intra-business stability

On Dec. 23, 2010, Air Force Magazine reported, American troops in Kabul, Afghanistan, were in their usual high alert and conducting assault training exercises at city central.

The training was to create a sense of internal “business as usual” operational stability among the troops. Likewise, any business operating from a contingency plan can continue to train and retrain employees to meet the unexpected.

Any procedure that might fit under the rubric of standard operating procedure needs to be re-examined.

Business slowdowns present a great opportunity to take on projects that usually fall between the cracks during busy times. One of our favorite projects at TEC is work flow, especially computer-to-computer or network-to-network.

I’d place website upgrades into that category. Good websites are upgraded three to four times a year. When was the last time yours was upgraded?

Seizing global opportunities

For the past year, the stock market has been reminding us in knee-jerk fashion that the effects of global events, primarily those dealing with the economy and banks in European countries, are so severe that they may as well be happening to our next door neighbor.

But dismal global reports are offset by continuing super strides in countries like China, India and, most prominently, Brazil. The challenge to the United States is how to let smaller businesses claim a piece of these growing pies. This is one solution to abating the 90/80/70 percent revenue syndrome.

Something more than determination is really needed. When I hear a company say, “We’re just a regional business and don’t have the wherewithal to go elsewhere,” it reminds me of a former TEC company that made the move quite successfully.

At the time, they were in the phone booth and telephone enclosure business, serving Ma Bell for the most part. Due to the onslaught of cell technology, phone booths became dinosaurs almost overnight. With perseverance, the company opened up Third World markets in places such as India, Indonesia, the Caribbean and Eastern Europe.

Net result? The business was saved. You might recognize the company’s name: Fortec.

Bring it on

It used to be that the only two things we could really count on were death and taxes. I think we can safely add a third one: the world of business nuance as seen in a string of unexpected variances.

Until next month, and a new calendar year, may these nuances work for you, not against you.