We’ve all experienced the same economic shock. It was both rapid and severe. Recovery will happen but many doubt it will be quick and seamless. Understanding the potential impact of how quickly and in what order you ramp up your resources will be critical to your near term performance,  Those firms who can incrementally outperform their competitors in recovery, will more quickly regain investor confidence.


Achieving this differentiated performance will require  a new management capability:
 
the ability to
simulate the impact of potential business decisions

This capability depends on quickly building a dynamic business model that represents how the key resources interact at the core of your business to drive performance.  This core represents what Kim Warren calls your Strategic Architecture.  This “Living Business Model” can be built in hours vs. days in the agile process described by Kim Warren at this link:  Agile Dynamic Business Models or watch this video Living Business Models

Essentially you need to answer three key questions:
  1. Why has our performance taken its current time path?
  2. Where will it continue to perform if we do nothing?
  3. How can we improve that performance going forward?
 

At a high level the process starts with selecting a key performance issue like customer losses or employee turnover and sketching its behavior over the recent time frame of interest.  Then you quantify it with the actual numbers to-date and project what they might be in the future, both “feared” and “desired” trajectories.

Working backward from this picture you ask what other resources influence this behavior. In the case of “customers” it might be demand side issues like a new competitor. In the case of “employee turnover” it might be supply side issues like workload hours above normal capacity leading to morale issues.

Then you figure out what’s driving each of these secondary issues.  It might be another resource or simply a management decision.

After surfacing these dependent drivers you connect them together from a causal perspective. In the software this is as easy as dragging an arrow between them.  It’s much easier than trying to build a spreadsheet model and it allows for circular  relationships!

Then run the simulation to see if it repeats the same historical behavior of interest and make adjustments to calibrate the model.

Finally you add the financial impacts of each resource into a simple profit and loss calculation.

Now you are in a position to try various interventions on resources, decisions, or handling external threats. You can now see the impact of decisions like:
  • How fast and in what order do I bring resources back on line?
  • Should I address the supply side first or the demand side or both?
  • Which of these decisions have the greatest impact on my P&L?
Having done your homework you’re positioned to make the most robust management decisions in the near term. Also you can continue to update the model to help make future decisions making it a “Living Business Model”.

I’ve used this type of simulation in my MBA classes at Elon to help students understand the dynamics of estimating needed resources to complete a project on time and on budget. It’s both intuitive and visual in nature.

Given the amount of down time with your employees you can assign this modeling exercise to your high potential folks and let them drive the process going forward. It’s a short learning curve and the modeling process is transparently self correcting.


Please stay safe!

If you have any questions please email me at: 
Don@LeverSource.com