Contingency Plans
In strategic planning, we sometimes look at threats that will harm your business. We avoid looking at every threat, since good strategy is about opportunities more than threats, but there are still some threats that may be worth examining. In general, these are threats that will substantially reduce your likelihood of success, but they also include existential threats to your business. When examining threats, remember that some threats are very specific to your company, while others threaten your industry (often due to supply issues or displacing technology), and a few, huge threats, are a problem for the entire economy.
Some threats will reduce the likelihood of your success.
Contingency plans for each of these types of threat will vary somewhat. The more specific a threat, the easier it is to avoid. A simple step to deal with a company specific threat about hurting our customers, for example, would be “Don’t hurt our customers”. Industry-specific threats are often more difficult to avoid. One way to avoid these threats is strategic re-positioning. Another way is to expand into new areas that you can serve with your strategic competency. You can consider both of these useful options in strategic planning. Economy-wide threats are virtually impossible to avoid, and the knowledge that everyone else is likely to be suffering isn’t much consolation for that. In each of these cases, contingency plans can be useful for the worst threats you face.
Economy-wide threats are virtually impossible to avoid, and the knowledge that everyone else is likely to be suffering isn’t much consolation
As you probably know from Simplified Strategic Planning, there are five basic steps to consider when you want to reduce the impact of threats.
- Prevent
- Limit exposure
- Early warning
- Contingency plan
- Hedge
A similar set of steps is worth considering for contingency plans.
1. Stop the threat
If a fire breaks out at your business, you’d first attempt to put it out if possible. If you can’t do it by yourself, you’d get help by calling the fire department. This step should be examined closely in more specific threats, because you probably have a greater ability to simply stop the threat.
2. Seek alternative sources of revenue
Before cutting too deeply into your business, consider ways you could easily get more revenue. Are there markets you have avoided because they are less profitable? With many threats, an increase in revenue from a less-profitable market can help offset losses in other markets.
3. Set a threat level measurement.
This step is often overlooked, but scaling your contingent responses to the level of the threat is a great way to assure you don’t hurt yourself. For example, in a short, mild recession, you may limit hiring and try to keep your workforce stable, while in a deeper recession you might look at cutting your workforce. Setting your milestones before things get worse will help you to take a rational, scaled approach. Having milestones will also help your team understand where you are as you navigate through the threat.
4. Limit threatened operations and expenses.
These steps will be about assuring survivability for your business. You’ll want to maximize profitability and revenue by scaling back operations to match the anticipated demand. Some strategic programs – new products, marketing, new facilities – will definitely be put on hold. Less profitable market segments may be a good target for downsizing, especially if they are associated with high fixed costs.
The hardest part of these steps is to limit operations and expenses without greatly diminishing the value you create for customers. If that is unavoidable, you may need to decide which customers will be getting less value as you wrestle with the threat.
5. Sell assets
This is the most drastic set of steps, in most cases, because the assets you have should be those required to do what your business does. When shedding assets, give priority for assets with high associated fixed costs (not depreciation) and any assets that contribute less to the value you deliver to customers.
Assuring that your contingency plans contain these 5 types of steps can greatly improve their value. In our experience, companies with well-considered contingency plans end up improving their competitive position when handling industry-wide and economy-wide threats. This makes contingency plans an important part of your competitive strategy toolbox.
Do you have contingency plans for your biggest threats? This can be an important benefit of strategic planning.
If you’d like to use Simplified Strategic Planning to create a contingency as part of your strategic planning, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process. Then you can focus on the content of your strategies. If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings. Furthermore, they understand how to best use your planning time. Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.
Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission
Author Robert Bradford