Managing in a downturn
In this post, Jayne-Anne Gadhia, Executive Chairman of the Virgin Money group of companies, writes about managing in a downturn...
Despite a demanding economic environment, dented consumer sentiment and the profitability and share price performance of UK financial institutions taking a big hit, Virgin Money's performance through 2008 and now into 2009 has remained strong.
There are many reasons for this but when I boil it down I believe it is down to four key things. They are; strong partnerships, a wide range of great value financial products (that are easy to understand and sort out), efficient marketing and last but by no means leastsound cost management.
2009 is going to be tough there is no doubt about it and one of the first things most businesses do when faced with such a downturn is to slash costs to maintain margins. Senior and middle managers duly take out their fearless scissors and start trimming away at the edges, cutting costs here, cutting costs there...
What I find fascinating about that approach is it suggests cost management in good - or better - times has been poor. Cost management may not be the glamorous end of managing a business but it is essential and in all weathers, not just in the eye of the storm.
Thinking about costs as good and bad rather than fixed and variable will result in a lean business fit for purpose - in any sector. I tend to think of costs in this way and specifically I look for the relationship between cost and customer benefit. That is, will spending X pounds or dollars result in a better product, process, system or service (for example) that will improve the customer experience? If the answer is yes you have a decision to make. If on the other hand you have a budget proposal for an activity that will not deliver any ultimate customer benefit the decision must be a straightforward no.
Clearly you cannot and should not cut costs if it increases risks for customers - you need to do things properly and in the best interest of customers. Beyond that you should be getting your business in shape with good costs aplenty and stripping out bad costs to the extent feasible.
When building a business the intellectually stimulating and fun stuff is strategy, getting the culture right, developing products, building partnerships and doing deals. The truth is however, nothing exciting in business can be done well unless you have a strong foundation of customer-focused cost management. It is the platform from which everything else can work successfully and is essential when your business is flying as much as when it may be stalling.
Although 2009 is undoubtedly going to be hard I am cautiously optimistic about the future. Central to that for me is ensuring Virgin Money is well managed through the recession, however deep, and ready to come out the other side ready to capitalise on opportunities for the business as light at the end of the economic tunnel begins to shine once more.
