The morale of the Titanic story in our context is that the people in charge of the ship responded to the danger too late. They did not have any alternative scenarios and consequently did not have the time to activate a plan B, i.e. an alternative course or to stop. Perhaps there is also an iceberg in the horizon of your company, but you just have not spotted it yet? The economic climate is changing, so perhaps now is the time to consider your plan B. That way, you will be ready when the iceberg appears in the horizon.
What is a plan B, and what is it not?
Plan A is the classic strategy for reaching the company’s defined strategic targets. Plan B, on the other hand, is a number of initiatives and calculation of their consequences. The company should be able to launch these initiatives quickly when plan A fails. By their very nature, these initiatives cannot be fully fledged as you cannot know what the future holds. However, plan B should be more than simply an idea catalogue. Your initiatives should be 80% ready for activation as soon as the need is there. And the consequence of each initiative should be calculated as accurately as possible.
In short, plan B is a consequence calculation and an indicative action plan, which may include the following:
- Ensuring capital reserves for cushioning the business
- Significant scaling-down of market expansion to reduce NewBiz costs by 20%
- Reduction of current footprint by X stores to reduce operating costs by 20%
- Dismantling the layer of middle managers in support functions to reduce support costs by 15-25%
- Outsourcing the inventory function to reduce logistics costs by 15%
- Renegotiation by the short-term loan obligations to ensure more freedom from banks and financial institutions
- Dismantling the bottom 20% of the customer base in terms of profitability
In other words, plan B is not a new company strategy. It is defined initiatives with individual calculations of consequences. Initiatives that can help you reach the original strategic target via a slightly different route than originally planned if, for example, your company’s main indicators change as a result of a change in the market.
If you do decide to make a plan B, there are a number of pitfalls to be aware of. It is important to ensure that the initiatives do not merely describe adjusted ambitions but that they are operational and can be executed with minimum adjustment. As CxO, you also run the risk of being so focused on plan A, i.e. the original strategy, that you end up activating plan B too late. You should be able to launch your plan B quickly. For this reason, it is critical that your initiatives have been pre-approved by relevant stakeholders. Otherwise, it will be impossible to launch the initiatives quickly.
What does your iceberg look like?
How do you know when it is time to look to your plan B? As there is a clear expectation that we will see a market response within the foreseeable future, it is relevant to pay extra attention to the typical signs of danger. In addition to major disruptions in the market such as Brexit, danger signals that could be signs of an iceberg ahead would vary depending on company type and industry. However, examples of general indicators could be:
- Turnover stagnates because sales and marketing activities are losing effect
- Net profit is down because fixed costs are increasing out of sync with the rest of the business
- The core business is not generating sufficient growth, and new business areas are unable to compensate
- Working capital is under pressure as investment plans no longer fit the strategic ambition
- Productivity is down because improvements initiatives do not produce the desired effect
If you have noticed one or more of these tendencies in your own company, it could be a danger signal that your plan A will not be able to get you to where you want to go. Which initiatives that will be able to get you there will depend on how early you detect the danger signals. The earlier, the less drastic the initiatives need to be. In other words, there are a lot of benefits to look more closely at the leading indicators instead of just the lagging indicators.
From captain of the Titanic to modern-day airline pilot
For alternative inspiration for your plan B, you could also look at how a modern-day airline pilot works. Before the plane has even left the ground, the pilot has not only planned its course towards the desired destination. The pilot will also have planned up to several alternative routes in case of unforeseen events during the flight. This will make for a safer trip for everyone on board as the pilot will be able to make a quick decision once the plane is in the air, and there is a need for an emergency landing, avoiding a violent storm or handling other events that came out of nowhere.
In a similar fashion, you should take a closer look at the robustness and flexibility of your plan A and prepare a plan B that take external factors into account. Plan B should be regarded as consequence scenarios and not as one cohesive transformation. It is crucial that you are able to act quickly.
Our best advice to you as CxOs is, in other words, that you see yourself as airline pilots and are proactive with a plan B ready in case plan A fails. It beats being the captain of the Titanic.
Originally published in Børsen Ledelse