These charts represent the worst nightmare for any CEO. The key thing is to ensure the company does not fold; management must position the company to absorb the shocks that come with a downturn, especially if superficially created by a price war. File
January: Just got back to the office after taking a long Christmas break in Zanzibar. 2010 numbers are already looking good; I’m 50per cent up on 2009 profit before tax.
March: I think I’m going to throw up. The competition just dropped the rates on their products. Our whole strategy for the year was based on a double-digit operating profit margin premised on static product prices.
If we are forced to participate in a price war, we will not be able to sustain the projected margins, revenues will fall and financial analysts will tear apart our performance. I’m not going to yield to this. No price war. Our product is good and our customers will stick.
April: End of March numbers show a slight 5per cent customer attrition, but the sales team tells me there’s nothing to worry about. Our customers are driven more by service delivery and retail network than by product price. If we launch a new product every quarter, customers are bound to see why we are the market leader. The Chief Financial Officer is already revising our projected revenues downward. He’s such a pessimist; I really need to get him to work on an attitude correction.
May: The Pessimist has just left my office with the end of April numbers. Customer attrition is now at 10per cent and we can’t seem to ramp up new customer acquisition numbers either. Our revenue numbers are flat lining yet our costs continue to grow.
The Pessimist thinks the quickie solution is to reduce head-count since we grew employee numbers exponentially over the last three years as our revenues grew. I knew I should have listened to the Human Resources Director (HRD) when he said that we had a habit of throwing bodies at a problem instead of process-mapping new operations.
How do I tell the board that we might have to downsize when they had already raised concerns in 2008 about rising staff costs, which I shrugged off as being an industry wide phenomenon that shouldn’t worry board members. I feel sick. I really think I’m going to throw up.
June: Inflation has hit double-digit levels and petrol prices are rising through the roof. Kenyans’ disposable income is shrinking and of course our product takes a hit across the entire industry. I’m glad to see that smug competitor CEO (he-who-never-stops-smiling) hold a press conference and look concerned about the rising cost of living and how it will affect the projected revenues for their Q2 results. I hear his board is creaming him like butter for initiating the price war.
I had to cave in last month and drop our prices, something we have NEVER done and which resulted in my own board grinding me into sawdust. But they don’t understand, customers have started to move to the competition despite our [misplaced] confidence in our product proposition.
July: HRD just left my office. Revenue per Employee has reduced by 20per cent. The Pessimist who has now latched onto the downsizing idea brought this number to HRD’s attention. In both their opinion, a downsizing is not imminent, it is critical if we intend to achieve our net profit numbers projected for the next three years.
The Pessimist-who I have now renamed The Terminator_- has done a quick calculation and determined that if we sell and lease back our office building to and from our pension fund, the cash we raise can be used to pay off the downsized staff and ensure our Income Statement remains unaffected by the huge downsizing payout expense.
August: The Terminator presented the downsizing idea to the Board in the Q3 Board meeting. I made sure that it appeared to be his suggestion as I was not sure how the Board was going to take the proposals to reduce headcount by at least three hundred staff or 30per cent of total employees.
Mrs X (The board member who has the annoying memory of an elephant) clearly recalls the discussion in August 2008 about how our staff numbers were overheating and how the board cautioned management to cool down on recruitment.
Mr Y (The board member who was a former employee of the organization and miraculously got on the board thereafter) cannot believe that we want to sell the office building to pay off staff. He rants and raves about how what a dangerous precedent we are making and how we are setting up the pension fund to pay for management’s mistakes.
All the other board members are bonded in unanimity that management has forced the board to reluctantly make this call. The Terminator looks at me expectantly to come to his defense. What am I, stupid? I look down at my shoes, wondering why Juma my houseboy can’t seem to buff them right. I excuse myself and go to my private loo to throw up.
September: HRD has finalised on the Hit List. It’s not pretty. I know so many of the people on it, many of whom walked the difficult path to bring the company to where it is. How will I face them? I know, I’ll go to the United Kingdom via China to have a look at that new operating system we’ve been thinking about buying. That should get me out of office long enough for the dust to settle.
December: It’s over. At least the hard part is. My numbers will be flat this year but at least they won’t be below 2010 PBT. The Hit List is long forgotten and next year’s numbers will be even better as at least 30per cent of staff costs have been extinguished.
If revenues don’t improve, I need to find something to cut once again. Time to take The Terminator for a round of golf and get some ideas. He seems to have forgiven me that board-room snafu of a few months back!
