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The Importance of Crisis Management in Your Company

Doug Staebler, CustomĀ Concrete – Westfield, Indiana

Most of our businesses were built on a series of business relationships that have developed over many years. They include customers, suppliers, subcontractors, bankers, insurance professionals, CPA’s, and attorneys. In addition to providing important guidance for our business, some of the relationships represent strategic relationships, that if disrupted could cause serious problems for our business.

We often focus on our customers because of their obvious importance in generating future business. However, in the process, we often fail to give adequate attention to other key relationships. We are busy dealing with more immediate problems, and often develop a false sense of security about the depth or strength of key relationships. We may not realize the value or importance of a relationship until it changes abruptly.

It is easy to take insurance or banking relationships for granted. Many have been in place for years. However, sudden changes can occur without warning. Banks merge on a regular basis. Lending officers are reassigned or leave the bank. Insurers withdraw from entire classes of business. A major loss suddenly makes your business unattractive to your current insurer. Conflicts of interest can develop when your supplier begins serving a competitor, and a choice must be made about which customer to do business with.

Unfortunately, any of these occurrences can leave us vulnerable, and create a serious problem if we cannot find a suitable alternative quickly. In many cases, the strength of our relationship may actually depend on one individual. Things change in a hurry if that person leaves for any reason. Failure to make adequate provisions could leave you scrambling to find insurance coverage, borrowing arrangements, or satisfy other critical business needs.

The key to preventing such a crisis is to dedicate a modest amount of time and effort to review the quality and effectiveness of key business relationships. These include key suppliers and subcontractors, bankers, insurance agents (property as well as group medical), attorneys, and CPAs. Begin by identifying those individuals or businesses that provide critical products or services to your business. Pay special attention where the need is single sourced, and where no alternative is identified. Consider how difficult it would be to find a suitable replacement for those products or services.

Consider the quality of services provided, and the degree to which they meet the needs of your business. Is the supplier keeping abreast of your business and its current and future needs, as well as the issues and trends that affect your business? Consider the stability of the supplier, and its ability to provide critical products and services to your business in the future. Is the supplier proactive in finding ways to make your business better, or coasting on past accomplishments?

A good example is the major changes we have seen in the business insurance marketplace. Not long ago, insurance carriers were cutting premiums to get business, and were not very selective in who they insured. We looked forward to renewals to see how much our premiums were reduced. That is now a distant memory. The past several years have seen annual increase of 25-30% or more, and many insurance companies have stopped insuring contractors altogether. Contractors with solid safety records were cancelled or seen insurers decline to renew their coverage. In this environment, the skill, experience, and connections of our insurance agents are more crucial than ever.

It is easy to take these relationships for granted. Over time, the quality can deteriorate. It is important for us to seek feedback from our suppliers. Is our business profitable for them? How can we be a better customer? Are there things we can do to make our suppliers more successful? What can we do to purchase goods or services more cost effectively? It is in our best interests to make our business as attractive to deal with as possible. The only way to achieve this is to meet with our key suppliers on a regular basis to ask for and offer honest feedback about the relationship. Examples include the way we pay our suppliers, fairness in dealing with disputed charges, and even our ability to create additional business opportunities for suppliers.

Consider developing a list suppliers, subcontractors, or professionals who provide important products or services to your business. Evaluate the effectiveness of each relationship. Is it better or worse than a year ago? Is the supplier meeting the needs of your business, and is the quality of its service, or products high? Is the supplier taking steps to meet your needs in the future? Be sure to seek input from the operational people who are most closely involved with the suppliers.

Additionally, develop relationships with potential alternative suppliers. They can provide an excellent source of information and second opinions about events and trends that affect your business. Potential suppliers frequently do business with our competitors and other similar businesses, and can often give us valuable assessments about our market. If a replacement must be found quickly, its much easier to work with someone you have known for several years, than to start a search from scratch.

Even if you are never faced with the need to find an immediate replacement for a key supplier, the time and effort can benefit your business by improving the performance of your suppliers, subcontractors, and others. Then, if a critical need arises unexpectedly, you will have a capable source to fill that role. Your commitment to meet a supplier or subcontractor once a week will allow you to meet with 10-15 of your key suppliers three or four times a year. It is far easier than scrambling to find a replacement under the pressure of a deadline, or in the midst a difficult business conditions.

 

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