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Focus on customers, employees, 6 month cash flow: Ram Charan to companies
New Delhi, March 29 - In the times of Covid-19 pandemic and the ensuing crisis in several companies, management expert and business advisor to companies, Ram Charan has said that companies should focus on customers and employee safety first.
Ram Charan has listed out the essentials of doing business in a crisis scenario. He said that without the focus on customers and employees, the business will have a hard time recovering.
The second most important thing to do is make cash flow forecasts week by week for the next six months. Cash is the blood flow for business.
"I say this very forcefully: The need to do a cash flow forecast applies to all companies, large, small and midsized. I would say especially small and mid-sized. They're at the greatest disadvantage because they don't carry excess cash," he said.
"Even though we may begin to recover in 90 days, we will have cash issues when things begin to come back. You must plan for a minimum of 180 days from now," is the prescription he has given.
"This is not something you should have your accounting people handle. Unfortunately, many of them won't know how to approach it. They can't go about it mechanically, making projections based on the usual percentages," he said.
"You will have to create scenarios, make some assumptions that are major breaks from the past, and face up to some stark realities," Ram Charan has told companies cautioning them on harsh realities to come.
Ram Charan has prescribed five realities to pin down for making a cash flow projection for six months.
Number one: Let there be no doubt, with few exceptions, sales will decline by an order of magnitude. In some cases, as much as 50% or more. That's got to be in your cash flow model.
Number two: Most companies have receivables. But many of your customers cannot pay, or soon will not be able to pay. Try to collect as much as you can, as fast as you can. Start today.
Number three: For businesses that have inventories, they are going to accumulate. You must stop reordering immediately. Don't store perishables whose value will decline. Get rid of them, keep clean -- anything you keep that's not going to be worth anything six months from now is only going to depress you.
Number four: If you have production, shut it down unless it is needed to deal with the Covid-19 crisis. Stop hoping.
Number five: If you have a credit line, draw on it right away. Big companies, like AB InBev, for instance, have already done this.
Ram Charan also has a prescription for companies which have plenty of cash. "For those who are in good condition regarding cash-and by good condition, I mean that you have plenty of cash and can weather the storm for the next six months-you should prepare to go on the offensive when the clouds part and the economy begins to roll," he said.
"And you must have conviction that the economy will roll. So prepare now: How will you come out of the gates with high speed and high quality-and shape a new, post Covid19 game? What do you have to do now to shape the game? Prepare to double down on what will be new positive revenue growth, and allocate cash to it," he added.
On the offense strategy, he has advised that companies should imagine what the customers, or new potential customers, will need when this crisis wanes.
"What could you offer that is more or better, and why? Make changes to your product development priorities to take advantage of these opportunities now. To help, recruit new talent that you were not able to recruit before, as other players are suffering badly. Could there be a chance for you to buy companies? Think about that as well", he said.
"At the same time, be sure to protect your own talent. Get them busy on innovation, on creating ideas to become more productive and reduce costs-and better at connecting with customers. This is the time to have the customer admire you," he added.
On the defensive strategy, he has advised that in this crisis, almost every company will discover some things they have been doing that will not be needed in the future.
"Phase them out now. Change your organization's structure. Reduce the number of people who are engaged in those activities. Bite the bullet," he said.
"Overall, this is the time to take leadership with specific steps. Inspire people, but tell them what you think is the truth with no sugar coating, and let them help you think it through. Communicate with your people every week. And don't let this crisis go to waste," he added.
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