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former, they then have to decide whether price rises should be introduced incrementally over a period of time or all at once. Having pricing discussions with customers multiple times in quick succession may cause frustration for customers and could ultimately prompt them to send their business elsewhere.
Executives have also had to monitor competitor prices more closely and make decisions about whether they should act first or wait for their rivals to do so. Some have focused on loyalty programmes or volume-type rebate offers as a way to increase overall profitability and offset higher vendor costs and overhead expenditures.
Executives have also had to closely monitor expected changes in contract pricing, working with vendor sourcing, procurement and vendor management within their organisations to understand what contracts are renewing and whether negotiations have been favourable or unfavourable with similar contracts. Growing an entity’s network of suppliers is one way to increase bargaining power.
Projected cash flows With continued economic uncertainty, there has also been a shift in the types of expenditures needed in response to an organisation’s strategy changes. Executives are challenged with new decisions that impact projected cash flows, including: ● whether to renew or terminate a lease arrangement; ● the amount of technological investment needed to ensure a secure remote working environment; ● compensatory costs related to employee retainment, staff turnover, skills shortages and related recruiting efforts; ● costs related to changes in the organisation’s internal control structure; and ● new digital initiatives.
With certain planned initiatives, executives are making decisions about whether the time is right to proceed or to hold off until prices go down, including considering hedging arrangements to limit the volatility in prices.
Labour shortages Labour shortages are one of the most significant post-pandemic struggles in many countries. Executives may have to rethink the organisation’s approach to office space by re-assessing how and where people work and evaluating new opportunities to use technology to improve efficiency and effectiveness.
Managing this issue may require a new plan of action, such as the ‘lending’ trend of supplementing teams through co-sourcing with other companies in the industry and outsourcing from third party providers. For certain industries, implementing new outsourcing arrangements can enable around the clock production, potentially increasing output volumes and therefore overall profitability.
Since meetings quickly shifted from face-to-face to taking place on Microsoft Teams or Zoom, people can easily communicate with co-workers, customers, vendors, board members and stockholders from anywhere in the world. With this shift in communication style, executives have felt more comfortable about the effectiveness of the remote working environment. This pandemic trend appears to continue in some form for many companies.
Monitoring working capital Monitoring working capital is another measure that executives should take to manage costs and economic uncertainty. Working capital improvements will boost levels of cash, reduce transaction and operational costs, and lower levels of bad debt and inventory obsolescence. These measures could help organisations to overcome short term liquidity challenges, avoid a potential covenant violation, or mitigate revenue disruption.
Management of working capital involves the evaluation of the collection and payment cycles of accounts receivable and accounts payable. Data visualisation tools have become a powerful way for executives to interact with timely digital insight and deploy analytical techniques to effectively evaluate and communicate progress internally and externally.
Organisations may need to consider further cost reduction measures, including the consolidation of processes within separate business units through the centralisation of certain processes (e.g. vendor management, cash management and cash receipt processing). Managing business unit processes and infrastructure separately with individual business unit leaders potentially creates unhelpful diversity across systems and results in less than optimal efficient processes. Streamlining production and reporting should therefore be a major boon to the whole organisation.
In conclusion The effects of inflation in many countries cannot be ignored and the measures executives take will depend on whether they believe inflation is transitory or not. Either way, executives are faced with challenging decisions regarding price increases, employee retention measures, expenditure and overhead cost cutting initiatives, working capital management, technological improvements and potential process consolidation considerations. There’s a lot to think about – but there are plenty of solutions at hand too. ●