Editor’s Note: March 24 Ram Charan and other experts will share a new, multi-disciplinary approach—from communication to pricing to cost cutting—to help your management team fight inflation and win. Join us >
Keep your eye on some essential priorities. The most important thing is continued cash flow generation, forecast on a very conservative basis. With that, make your cash outflow forecast on most likely risks. Out of the net cash flow, the company should prioritize efforts in the following way:
Continuity of the business. What is required for the longevity of the business and winning against competition? It could mean advertising money, short-term innovation to justify higher product pricing, certain kinds of marketing expenditures, certain kinds of expenditures for reducing costs and breakeven points. Whatever capital expenditures or operating expenditures—CAPEX or OPEX—are necessary to preserve the future, while not destroying the present, that’s the number one priority.
Digitalization of the business. This is existential. If you don’t digitize, you die. You must never lose focus here, no matter what happens. Your ability to react quickly depends critically on real-time data and analytics. Pre-Covid, people were slow to do this. During Covid, those who had done the work really prospered, and those who did not were hurt. In an inflationary period, connecting your enterprise digitally so you have real data on your customers and their spending is mandatory. You must increase your speed of reaction to change.
Fixing bottlenecks. Eliminate friction and bottlenecks everywhere, especially in the supply chain. The drag on the business from slow cycle times and inventory in the pipeline will become more expensive as inflation grows.
Innovation—but more focused innovation. Overall, you must not lose the innovation mindset in the company. Understand what the consumer is willing to pay more for and focus efforts there. It is okay to be incremental unless something big comes in your sector that you can’t ignore. The greatest innovation mistake companies made in the 1970s was not to increase the price but rather shortchange the product (remember the shrinking candy bars?). That strategy backfired and hurt many brands for decades. Your products and services must remain fresh and new and show that they are of high value to justify a high price.
CAPEX for building capacity if you need it, and not ignoring maintenance. Many people postpone maintenance. Don’t. It will come back to haunt you at the wrong time. Think about how inflation will change not just your company—but your industry—and work backward from there.
Ram Charan is a world-renowned business advisor, author and speaker who has spent the past 35+ years working with many top companies, CEOs and boards. He’s also a recognized expert on China, having worked in depth with dozens of companies in the country over the past three decades.