As Rahm Emanual said, “Never let a good crisis go to waste […] it’s an opportunity to do things you could not do before.” The Covid-19 crisis offers leaders of services businesses an opportunity, today, to reinvent and reimagine their organizations.
In a 2010 HBR article, “Roaring Out of Recession”, Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen studied the strategies that companies employed during global recessions, and found that of the companies studied, 17% fared particularly badly, while 9% flourished. The companies that flourished responded to the recession by examining every aspect of their business, reducing costs through operational efficiency, and investing comprehensively in the future.
These companies took advantage of a zone of permission that exists in times of crisis to disrupt themselves; they addressed long-standing organizational issues, reinvented business models, and invested in strategic initiatives that helped them emerge stronger than ever before. Their efforts were more than a nice-to-do – survival depended on it. Today, business leaders have the power to determine which group they will part of as the economy turns post-Covid-19: the winners or the losers.
In this article, we’ll look at some of the typical factors that hinder performance in small to midsize services businesses. Then, we’ll consider five questions for you to explore with your team to help you position your business to thrive post-Covid-19.
Inefficient operations. One of the biggest challenges for services businesses is ensuring operational efficiency: keeping project margins and cash flow under control, ensuring disciplined project planning and management, and closely monitoring spending along with revenue and utilization. Finding opportunity in the Covid-19 crisis, Lauren Services made a push for operational efficiency and it’s paying off. “We’ve made a lot of significant and difficult changes in the last two months,” says Partner Dustin Edgren, “As a result of these changes we are confident we can ride out this current crisis and be well positioned going forward.”
Unprofitable clients and projects. More revenue doesn’t always mean more profit. If a business doesn’t focus on profitability it won’t be profitable. This sounds obvious, but it is often overlooked in the business development and sales process. The people selling the business don’t know which clients and project types are most profitable or valuable, and under-price projects.
Lack of diversification. Growth means new clients, expanding into new sectors, and developing new offerings. Even if growth is not your goal, diversification creates business resiliency. In 2014, recovering from the mining sector crash, engineering consultancy BBA Inc. realized that they needed to change to be able to weather downturns. “Our strategic plan looked to diversify significantly across sectors. We also saw the need to balance our large projects with multiple small projects. All this had the effect of increasing our client base and range in size of projects,” says Partner Nick Hawley. “We are now far more resilient, proven by our response to the Covid-19 pandemic,” and, they have doubled in size.
Lack of organizational alignment. As defined by John Gabaroo at Harvard Business School, “Organizational alignment occurs when a firm’s organization is aligned with the firm’s strategy, so that the firm’s structure, systems, staffing, etc., supports its strategy.” There is no right or wrong way to set up an organization, and copying a successful business isn’t the answer – what is critical is properly aligning resources with your business strategy.
Lack of people alignment. Employees are the greatest asset in a services business. Owners, executives, and employees must be aligned around the business strategy, executives and functional managers must feel ownership over the strategy that they are expected to execute, and employees must understand what the vision is and what it isn’t. If growth isn’t your goal you must have a compelling purpose and value proposition for employees to balance a lack of career advancement opportunities.
Of course, while leaders confront these existing challenges, they are also grappling with emerging issues, such as managing a remote workforce, implementing return-to-work plans, and shouldering ever-increasing workloads and emotional burdens. To both address short-term priorities and take advantage of the zone of permission created by Covid-19 to improve profitability, create more resiliency, and, if desired, grow and build enterprise value, leaders must define what success looks like and develop a roadmap to get there.
Service business leaders are understandably wary of investing time in planning – it feels slow and inflexible, and takes their most expensive talent away from selling and delivering business. But planning has never been more urgent or critical, and is essential for navigating change and disruption. Think of a strategic roadmap not as a precise blueprint, but as a simple, clear guidance tool to keep you, your partners, and your employees moving in the same direction towards shared goals.
To help you create a roadmap to thrive post-Covid-19, consider these five questions with your team:
What are our expectations as owners? Consider your expectations as owners. If your priority is to maximize income while in the business, the strategy will be different than if you want to grow, build enterprise value, and position the business to thrive without you. Many owners are motivated by the profession itself and have no interest in leading a business. Reflect on this individually, then share perspectives with your partners.
What is our starting point? Consider the areas for improvement that existed pre-Covid-19 as well as emerging issues. Reflect on those areas that are hindering profitability and growth. Don’t try to solve anything. Instead, identify, understand, and align around the challenges. Have each member of your senior team write down the top three challenges from their perspective, then share and discuss.
What are the best opportunities to apply our strengths? Consider what you’re great at and which sectors and service areas offer the best opportunities to leverage those strengths. Watch this video for a simple method small and midsize businesses can use to identify their best clients or project types.
What does thriving look like? Consider what success looks like at the end of 2020. For businesses highly impacted by the crisis, a six-month timeframe may be sufficient, for now. Have each member of your senior team complete this statement: “I will consider 2020 a success if, by the end of the year…”, then agree on a short-list of outcomes. For businesses on stable ground, look further out.
What must we get right this year? Consider the three or four things you must get right this year to achieve your desired outcomes. Is it improving operational efficiency? Is it investing in your finance function to ensure you have the data you need to make good decisions? Is it leadership development for your people managers? Have each member of your senior team identify one or two things you must collectively get right then agree on a few priorities.
Service businesses have an opportunity to turn the Covid-19 experience into meaningful change. Business has been disrupted and won’t necessarily go back to normal. The businesses that use the zone of permission to confront challenges, identify opportunities, clarify their direction, and align their people around a simple, clear roadmap for change will come out ahead as we emerge from this crisis.
Thanks to Tony Franceschini, former President and CEO, Stantec; Ron Monk, Principal, Kerr Wood Leidal; Nick Hawley, Partner, BBA Inc.; and Dustin Edgren, Partner at Lauren Services for sharing your valuable insights.
Published byAli Grovue
Strategic Planning Facilitator | Leadership Development Consultant | Naval Officer | Former COO & ED