2009: The Year of Paralysis - How Business is Like Surfing

Now that we've turned the corner and closed the last chapter on the year 2009, I'm seeing many posts, tweets and status updates about people ready to say goodbye to the year that was. I will agree that 2009 certainly wasn't the best year for many (in the way we all usually measure success). For some businesses, though, 2009 was a critical and pivotal year for business.

For starters, most trials of any type usually produce something positive. The old adage, "what doesn't kill you will only make you stronger" tends to be true most of the time. Considering the trial by fire that 2009 was for many individuals and businesses, the tough times do serve to burn away the dead brush and make way for healthy growth to come. And, in some cases, the fire got so hot under some businesses that much of what was built (or, really, the unnecessary bloat that was piled on over the years) was burned away so completely that refinement took place; not unlike the way that impurities are scoured from gold to create a more pure and valuable form.

I was recently reflecting with my business partner on what this past year has brought (and what it hasn't).  We discussed how interesting it was that the year started with so much activity. Smaller, more nimble businesses were among our new clients as their CFOs and CEOs were about cutting costs and managing indirect spend categories in an effort to thoroughly ensure the careful stewardship of their organizations and to go about the hard tasks of making difficult decisions designed to weather this storm and ensure that the value of what they serve their market would survive when their market returned. Thinking about a matrix for a second, I'll put these leaders and their businesses in the lower, left quadrant -- SMB market leaders at the early part of the year that took advantage of cost reduction, spend management and looked after the health of their organizations.

At the other end of matrix -- larger companies and later in the year -- we found that most of them couldn't get out of their own way to make a decision. Was it the confusing signals coming from employment numbers, the stock market, the media? A number of false starts and no real turnaround to the economy? I think that's part of it.

Another part of it that we found so very interesting was how organizations make decisions. I'm not talking about the obvious differences between the bureaucracy of large organizations versus the lack thereof in smaller ones. This is something much more subtle; almost like the big (leveraged) organizations were so close to the edge that any decisions -- good or bad -- were not being made. Not unlike the avalanche survivor that can see a pinhole of sunshine as they're buried under the snow, yet so afraid to make a move toward it for survival in fear of the rest of what's around them caving in and taking their life.

And, so, we scratched our heads throughout the last quarter of 2009. Never in the nearly 20-year history of PA & Associates did we have a year in which we spoke with more prospects and issue more service agreements for review. Never, or at least as far back as my now 44-year old memory will allow, can I remember a time when CFOs and others considering our services were more enthusiastic about our approach, our references and our results. Yet, many of these same organizations never figured out how to push past whatever was holding them back; likely the fear of making any decision...good or bad. The paralysis had taken hold.

In my younger years I did a fair bit of surfing and windsurfing. Anyone that's spent any amount of time in the ocean with waves knows that swells come in sets; increasing in size and strength. Good surfers understand where to be at all times. This not only allows for them to catch the best waves, but also provides safety. As waves increase in size and power, they can also break further from shore. This requires paddling TOWARD a wave...and not away from it. Counterintuitive, until you've been caught in the impact zone and you get pounded. That's a feeling you never forget and are not keen on reliving soon.

A long way around to get you back to the point...2009 (and 2010 -- a New Year's celebration doesn't mean this is over) saw some organizations paddling to stay out of the impact zone. It expended energy, but their still alive to catch the next great wave. Others were paralyzed -- caught like a deer in the headlights as the monster waves mounted one after another and pounded them.These were the organizations that needed to paddle the hardest and many of them had the resources to do so. They froze in fear. Shaking their head from the last beating and coming up in the white water, they're big enough to weather another set. They're also over-analytical and fearful of making any decision, good or bad. The sets don't seem to be letting up any time soon. I wonder how many will paddle toward the waves and how many will wash up on the shore licking their wounds from the safety of the beach.

As always, your comments are welcome.

Panelist appearance on BlogTalk Radio: Spend Management vs Spend Intelligence

I had the fortune today of being part of a panel discussion on Jon Hansen's BlogTalk Radio show PI Window on Business. Jon's topic for today was around the topic of Spend Management and, specifically, the difference between spend analysis and spend intelligence. The panel consisted of two other business professionals; an author, speaker and consultant on management consulting and a professional that handles Sarbanes-Oxley compliance issues within businesses.

Hansen's idea for the show stemmed from an article titled Spend Intelligence: The Next Wave of Spend Analysis (Sudy Bharadwaj - Supply Chain Management Review 9/1/2006). The show covered a number of interesting points including the idea of there even being a difference between spend analysis and spend intelligence, the role of on-demand reporting and Software as a Service (SaaS), change management issues that organizations face in adopting a new, best practice approach and other interesting topics.

The show aired live on 9/24/09 and the on-demand audio is hosted below. I look forward to any comments you may have.

When it comes to parcel mode optimization, AP reporter gets it "kind of" right...

When The Associated Press reporter Samantha Bomkamp released her piece As consumers slow down, FedEx and UPS adapt (AP News, September 1, 2009), she got it kind of right. After all, sending paper overnight through the guaranteed services FedEx and UPS provide might be considered a luxury for businesses that have the alternative to use USPS or the "deferred" services that FedEx and UPS provide [see inset frame below for full article].

Bomkamp's contention is that consumers and small businesses that have relied on the overnight services (FedEx Priority Overnight and UPS Next Day -- both services offer next morning delivery of documents and packages by 10:30 am) have re-evaluated their spendthrift ways of days gone by when times were good and revenues plentiful. For those that still require the enhanced offerings for delivery -- including tracking, delivery signatures and guaranteed services -- the solution has been to opt for the carriers' less-expensive modes of delivery, such as two-day and three-day delivery services. And while there is no doubt that these deferred services are priced lower than the overnight services, the knee-jerk reaction to cost-reduction misses the mark as a cost-reduction strategy for those who need overnight delivery as a competitive advantage.

A trusted connection of mine who was formerly employed by one of the top-three global commercial real estate firms forwarded me an internal e-mail communication from the company's CEO that urged all employees to cease the use of overnight delivery services in favor of the slower, less expensive carrier offerings. Think about that for a minute. These are some of the most successful and driven real estate professionals in the world being asked to relinquish a competitive advantage of timely delivery of urgent and important real estate documents (offers, contracts, plans, payments, etc.). Competitors that get offers in ahead of others stand to gain an advantage.

It would seem that a better option would be to reduce the cost of the service that is required. In the example above, our organization attempted to position our logistics spend management service offerings in front of the corporate office to do just that. Bomkamp's article below discusses a small media relations firm in VA who's CFO was trying to strike a balance between reducing headcount and reducing indirect spend. He was able to make a mode optimization, like that referenced above, which saved the organization $14,000 annually. The firm reported that they employed a staff of 13. Not a bad savings, but not the optimum approach. I would doubt that his $14,000 in savings accounted for any of the thirteen's annual salary.

That said, we have been hearing this message for the last 24 months; its reduce expenses or reduce headcount. When the full costs of hiring (and re-hiring) are evaluated, reducing headcount is a backwards approach to cost-cutting. Granted the balance sheet effects are immediate and the modeling compelling, but the approach is short-sided. Services like PA & Associates' make more sense to explore prior to the last-ditch measure of cutting headcount. Ask CFOs if they have taken cost-cutting measures during the last year and they will report they wrung the general ledger dry of all expenses. However, when we dig down into many of the indirect spend categories we find that best practice procurement, strategic sourcing and true spend management techniques have not been employed. Its a mentality of, "we flip the light switch on in the morning and turn it off at night; we're going to get an electricity bill and there's nothing you can do about it". That's just not the case.

The economic downturn has produced two sets of cost-cutters; those who have made the easy and obvious cuts to survive and those who have fully changed their mindset on what it means to run lean. Our clients comprise the latter group and have employed our methodologies as best practice spend management techniques in multiple areas of their operations for real and lasting cost reduction and continuous improvement (spend management). Many are saying that we'll never be the same when things completely recover. I differ with them in that human nature is to resist change and opt for the path of least resistance. We will see some that will make lasting change and it will become their new culture. We will, however, see a large number of those that will go back to their old, wasteful ways when revenues return. How easily we forget.