As someone who has managed through recessions, real estate down turns, the highest and lowest interest rates in American history, stock market corrections, 9/11 and the most recent fiscal calamity, this Blogger CEO has had to make many tough decisions and quickly for our company to remain in business and financially sound. It hasn't been easy and sometimes painful rightsizing and off shoring has been necessary to cut expenses; but the goal must always be to remain standing to fight another day. Sometimes that means taking two steps backward to take one step forward. Since our company has been in business for 24 years, when many others do not even make it through the first few years after opening the doors, it would be fair to conclude that for the most part the actions that we took to deal with all of the issues we faced were correct. Could we have done somethings better; of course, but the fact is we are still in business and focused on our company's growth and development.
What this Blogger CEO has learned through it all is that it is not good to have all your eggs in one basket. And for that reason over the years, we have focused on diversification in an attempt to ride out the business cycles. The logic is that when one business is down another might be up to help weather the storm. All of this boils down to resource allocation. Management ultimately needs to decide where it will put company money; whether specific to a department, division or subsidiary. Though emotional ties often get in the way, this should be done related to Return on Investment. At the end of the day, if a company invests a dollar, the question must always be, where will that dollar achieve the highest return in profits to the company.
There is both a short and long term view related to investing company money. Certainly some amount of funds must be invested in existing core businesses. However, it is important to ascertain their future growth potential. If margins are shrinking in a core business because of too much competition, then it may be time to implement a diversification strategy, both to protect the company from business cycles; but also to obtain higher profit margins. Most important, the CEO of the company must always see the train coming to avoid being run over by it. The CEO that fails to see the train in time will lose control over his or her destiny one way or another.
When implementing a resource allocation strategy that takes money away from core businesses and invests it in new businesses, it is very likely that employees working in the core business will be very resistant, if not hostile to the changes taking place. Some who are short sighted may even leave the company. They may see this resource allocation adjustment as an attack on the business that is near and dear to their hearts because they are too close to it. The CEO's job in that case is to make all employees understand that the growth and development of the company is in every one's interest and that it represents the best opportunity for promotions across business lines.
Diversification and Resource Allocation happens every time a new annual budget is formulated and approved. Senior Managers are always picking and choosing where they want to put money. Companies in business for many years, probably are doing a pretty good job of it. Those companies that fail to put money where it will provide the best return on investment, probably will not be around for long.
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