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All Businesses are subject to cycles. Some are created by the
company as a result of internal problems, politics or policies.
Many, however, are created by external forces which can include
competitive pressures, problems with suppliers of raw materials,
government policies or a turn down in the general business
climate of the country. These external forces are difficult, at
best, to deal with unless a plan is in place to assist the
organization operate through the period of time that the
uncertainty exists.
Issue
At some time, sooner or later, we will enter a period of
economic decline which may, in fact, evolve to be a recession.
This recession may be wide spread, or specific to certain
industries. If it is wide spread, it will probably affect your
business to some degree. If it is specific to your industry, it
will certainly have an impact on your results if you are not
prepared.
There may be a time when foreign forces have a great impact on
businesses in the United States. When the dollar gets stronger
versus foreign currencies, we are able to purchase products made
overseas for fewer dollars, and if we travel abroad, we will be
able to buy more units of foreign currencies for the dollar,
making our out of pocket cost less. As a consumer, that’s good.
If, however, we are engaged in a business that sells a major
portion of its products across a border, or supply materials to
that business, that’s not good.
Assume that we are in a period of time when the Dollar has
become very “strong” versus foreign currencies. When a business
that is based in the United States sells its products or
services across a border, in Europe, Asia, South American, for
example, it will not bring as many Dollars back to the United
States when it converts its foreign revenues to Dollars,
if the selling price of the product or service has not increased
in the foreign marketplace.
There are two basic problems that occur during these times.
First, you must be able to recognize that a change is happening,
and second, you must have a plan of action already in place to
deal with that change.
Some company executives wait until a change is recognized to put
a plan of action into effect. This may mean that they and their
management staff will have to “scramble” to meet the goals and
objectives of their plan no matter how good it is. Smart
managers know that a contingency plan to meet these conditions
must be available on short notice to meet the demands of the
situation. They also realize that an effective plan of action
will evolve from good management practices already in place.
Dilemma
If you are not able to predict when a downturn in the economy
will occur, or when outside forces will effect the economy, you
probably will not have time to adjust inventory, cancel
materials that are on order, or reduce costs associated with the
production of product etc. to combat the effect of the economic
change. The costs related to these parts of the business process
can, of course, be adjusted, but the implementation of a plan to
do so may take considerable time. As we commented earlier, it is
sometimes difficult to recognize when the downturn is coming
even with the best financial analysts giving their view of the
future. Most often, we are able to identify when a change
occurred by looking back in time not looking forward.
What Do You Do?
The first decision to make, is to decide to develop a plan of
action that will address the potential problems if and when they
occur. An effective plan of action is the end result of your
strategic planning which will identify opportunities and
potential threats, which may lie in the future.
The second decision is IMPLEMENT THE PLAN.
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