A More Proactive Posture in 2022

Greg Romero of Romero Solutions Group is a member of XPX Greater Boston
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Written by Greg Romero – February 11, 2022

As I look back at 2020 and 2021, one thing that really stands out is the sheer scale of uncertainty that family business (and other) leaders faced through the pandemic.  In this environment, leaders went to extraordinary lengths to adapt their businesses in reaction to a myriad of forces impacting them.  As the dust begins to settle from the pandemic, much uncertainty remains, but I believe there is a real opportunity for family business leaders to consider how they can return to a more proactive posture in 2022.   In today’s article, we explore further.

Wait, are you suggesting I have not been proactive as a family business leader during the pandemic?  You better believe I did everything in my power to protect our firm and our employees!!!  What do you mean by reactive?    

Great question!  I simply mean that Covid forced the federal government, businesses and consumers, alike, to make extraordinary decisions they would not have made under more normal circumstances.  The downstream impacts and uncertainty created by Covid have been felt far and wide.  A few notable examples include supply chain disruptions, transportation issues, the extraordinary Federal stimulus and its unknown impacts, inflation (see my July 2021 article), labor uncertainty and rising wage expectations, Fed asset tapering and prospective interest rate hikes, proposed tax law changes, remote work availability and expectations, etc.  Some firms were better positioned than others in this environment, depending on their industry, geography, scale, financial strength, competitive positioning, internal capabilities, leadership and even luck.

Playing devil’s advocate, one might suggest that the strong M&A market in 2021 is a great example of how business leaders were in fact proactive.  This is a fair point, but looking through the lens of family business owners I would say that at least a portion of these “strategic” deals were reactionary.  Some owners who had previously deferred retirement were saying “I’ve had enough,” while other transactions were fire drills to get ahead of potential tax law changes, which still may or may not go into place.

Ok, but you would agree that much uncertainty remains in 2022?

Clearly much uncertainty persists.  Supply chain issues will likely continue for much of 2022 (if not beyond).  At the same time, it is unclear how long elevated inflation will last (n.b., latest YOY CPI reading of 7.5% on February 10, 2022) and how much the Federal Reserve will raise rates this year to help contain inflation.  The tight labor market continues and wage growth remains elevated.   Remote work or a hybrid model, where feasible, is becoming a structural expectation in some industries and companies.  Elevated energy prices are also back in the spotlight, as are the impacts to businesses, commuters, and homeowners alike.  Geopolitics (e.g., Ukraine) and political election cycles add another unknown to decision-making.  Proposed additional government spending (e.g., Build Back Better) and associated tax law changes are still a big question mark, as well.

At the same time, consumers are taking note of sustained inflation and the need to raise rates to offset.  As illustrated by Gwynn Guilford in the Wall Street Journal on February 10, 2022, “The average U.S. household is spending an additional $276 a month because of inflation that is rising at its fastest rate in 40 years, a new economic analysis showed.” [1] If consumer demand softens materially, especially in combination with persistent supply chain issues in 2022, the economy will feel the impact, but when and to what extent is TBD.

So amidst the continued uncertainty, how might I be more proactive? 

Thank you for asking.  Now is a great time to consider what additional strategic and tactical steps you can take to make your business more sustainable and competitive longer term amidst the continued uncertainty.  In their book Built to Last, Jim Collins and Jerry I. Porras do a great job of illustrating the need to focus on “clock-building” instead of “time telling.” [2] You may have had plans for your company that were disrupted or dramatically changed due to the pandemic.  In light of the emerging new world, what potential improvements are needed for your ‘clock’ (i.e., the family business) to achieve your prior goals, both strategically and in the day-to-day management?  Maybe the events of 2020 and 2021 require a new playbook altogether.

For another perspective, Arianne Cohen provides color in her Bloomberg Businessweek article on February 9, 2022 of how business leaders are increasingly using scenario analysis as part of their planning process: “To adjust to this turbulent environment, leaders are turning increasingly to a strategy that was previously reserved for unlikely or extreme events: Rather than follow a plan, they identify a handful of scenarios that might arise and then one or two responses each might require.” [3] Said another way, business leaders are laying out scenarios for various points of uncertainty that have the potential to impact their business (e.g., extent of continued supply chain issues in 2022 and beyond) and are identifying action plans for different scenarios playing out.  This allows you to proactively “pivot” as you get clarity on the prior points of uncertainty.

Ok, thanks.  Can you offer a few tangible examples of how I can be more proactive within the family business in 2022?     

Sure, here are a few areas within your business to potentially focus:

  • Revisit Your Core – Understanding the abundant disruptions through Covid, are your family business’ core purpose (i.e., why are we here) and values still clear to shareholders, management and employees, alike? [2] Is it possible that Covid changed the core of the company?
  • Conduct a ‘State of the Union’ Review – Whatever your goals are (or where before the pandemic) for the company, consider taking a fresh look at your company’s internal capabilities, competitive positioning and evolving markets.  This will help you to make better decisions on both a strategic and tactical level.  What risks do you face and what opportunities are on the horizon?
  • Reassess Financial Health – How is your financial position different today than before Covid? Are there any ways to improve revenue or cut costs?  How has the strength of your balance sheet changed?  How does your cash flow compare to before the pandemic?  How will rising rates impact your financial health?
  • Strategic Planning – You may have put your strategic planning process on hold during the pandemic or may historically have used a less structured planning process. As we enter the new world, now is a great time to take a fresh look at strategic planning.
  • Assess Sustainability – Understanding you may have different goals for the company, a critical component of managing a family business longer-term is understanding the company’s sustainability beyond a particular leader or possibly a specific product life cycle. If you are considering the business through a longer-term lens, think about how to make your ‘clock’ more sustainable.
  • Review Efficiency – Are there opportunities to improve the efficiency of your business processes, administration, operations, etc.?
  • Assess Adaptability – During the pandemic, how would you rate your family business’ ability to adapt or change? In what ways might you improve the adaptability of your organization in the future, so your firm can more easily pivot in the future?
  • Measure Performance – How has the company historically measured performance (e.g., KPIs). This might be great time to revisit.
  • Evaluate Organizational Health – What steps could you take to improve the health of your organization. In his book, The Four Obsessions of an Extraordinary Executive, Patrick Lencioni illustrates nicely the characteristics of a healthy organization – “A healthy organization is one that has less politics and confusion, higher morale and productivity, lower unwanted turnover, lower recruiting costs than an unhealthy one.”  How healthy is your organization, and what systems or mechanisms could you put in place to improve your organization’s health heading out of the pandemic? [4]
  • The Family Dynamic – Have family business relationships strengthened or been strained during Covid? Do shareholders (and other key stakeholders) see eye-to-eye on how to take the company forward post-pandemic?  Are family members in the right seats?  Was your governance structure sufficient during the pandemic or are their areas for improvement?

Thanks, you’ve given me a lot to think about.  Do you have any final thoughts on being more proactive in 2022?

Sure. It is important to remember that each family business operates in a unique economic landscape and within a unique family dynamic.  Clearly many unknowns exist as we get out the gate in 2022 and as the fog starts to lift from Covid.   Some family businesses are coming out of Covid in a healthier position than others.  This said, I think there is a real opportunity for family business leaders to get more on offense, factoring in the uncertainty.

Please do not hesitate to reach out to discuss this topic or other areas relevant to your business. I take great pride in helping family businesses and other closely-held companies problem solve and create value across strategy and business operations. My direct work line is (978) 883-3522 and my email is greg@romerosolutionsgroup.com.

 

Sources:

1 – The Wall Street Journal, U.S. Inflation Rate Accelerates to a 40-Year High on 7.5%, Gwynn Guilford, February 10, 2022.

2 – Collins, J. & Porras, J., Built to Last: Successful Habits of Visionary Companies, New York, HarperCollins, 1994.

3 – Bloomberg Businessweek, The Crisis Management Strategies That CEOs Now Use Every Day, Arianne Cohen, February 9, 2022.

4 – Lencioni, Patrick, The Four Obsessions of an Extraordinary Executive, San Francisco, Jossey-Bass, 2000.

Updated: February 16th, 2022

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