Preserving Cash without Losing Sight of the Big Picture: A CEO’s Guide to Navigating Economic Uncertainty
Preserving cash during turbulent times is a critical task for CEOs, but they must also ensure that they do not become penny wise and pound foolish as the repercussions of that can last long after the turbulence subsides. Here are a few things CEOs and other senior leaders should keep in mind to ensure they strike the right balance of “getting through” a downturn and playing the long game:
- Prioritize investments: Identify which investments are critical for the business’s survival and growth and prioritize them. It is crucial to distinguish between essential expenses and discretionary spending to avoid cutting essential investments that could negatively impact the company’s long-term success.
But how do you know (really know) what is critical? We work with leaders to identify and align around the organizational capabilities (things the organization must be able to do) to drive their strategy, assess the gaps, and prioritize investments so they can be absolutely sure their next investment will go the farthest to driving the strategy. A capability model can link investments directly to strategy so these decisions become a lot easier to make, particularly when they are critical.
- Avoid reactive cost-cutting: “You cannot save your way to prosperity.” Smart corporate leaders avoid reactive cost-cutting measures that may provide temporary relief but could harm the company’s long-term success. Instead, they approach cost-cutting proactively and strategically, identifying areas where they can reduce expenses without negatively impacting the business.
- Focus on operational efficiency: Leaders should focus on improving operational efficiency to reduce costs while maintaining or improving the quality of the products or services. They can achieve this by optimizing processes, increasing automation, scaling back to meet demand reductions, and exploring new technologies.
- Monitor the impact of cost-cutting: CEOs must continuously monitor the impact of cost-cutting measures to ensure they do not harm the company’s long-term success and that they are doing enough to sustain the business during the downturn. They should have a plan to revisit and adjust cost-cutting decisions if necessary.
- Invest in people: During turbulent times, investing in employees’ training and development can help the company emerge stronger and is a great way to retain your best talent. CEOs must ensure they strike the right balance between preserving cash and investing in their employees’ growth. This is a good time to get creative about developing people. Stretch assignments, job shadowing, and expanded roles are great ways to develop people without spending a lot of money. Executive coaching for a senior leader may require investment, but it also may be exactly what is needed to help that leader think differently about leading in tough times. This can be invaluable even when things normalize.
By adopting these approaches, CEOs and other corporate leaders can preserve cash smartly, without becoming penny wise and pound foolish and ensure their organizations survive and thrive through turbulent times. Want to strategize about where to cut safely and effectively? Call us. It’s what we do.