Contingency Plans For Sideways Changes



Contingency plans can focus on going forward: expanding sales and production. Or they can focus on the downside: cutting expenses in a slowdown. This article will focus on the sideways contingency plan: changing products, production techniques, sales channels—a change that is not about growing or shrinking.

Most economic changes trigger expansion or contraction, but changes in relative prices often trigger sideways changes. For example, falling gasoline prices prompted more sales of SUVs and less of small sedans. Rising labor costs and falling electronics prices lead to more robotics.

Sideways changes can be triggered by technology, such as products that talk to your phone, or miracle fibers in clothing. Social attitudes cause other product changes, including the shift to organic foods or green cleaning services. Government regulations also force changes in how business is done; just ask any banker. Competition can push businesses into different product lines, which many small businesses have done when big box stores entered their neighborhood.

The basic process for a sideways contingency plan is straightforward, but the details will vary widely from contingency to contingency.

The first step is identifying the possible shift and what would cause it. The examples above give an idea of the wide range of possibilities.

The second step is monitoring the underlying change. Take the robotics example. Monitoring would entail watching the price and availability of robots, as well as the all-in cost of employees. In other cases, social attitudes, competitive forces or government regulations would be monitored.

The third step is the outline the major changes that would be needed to implement the contingency plan. In many cases new expertise will be required, which could include the knowledge base of existing employees, or hiring people with different skills, or both. Capital equipment or new real estate may be needed. In some cases new suppliers will be needed, or new marketing channels, or different financing.

These action items should be categorized by cost and difficulty. Even before time to pull the trigger on the contingency plan, some steps may be so cheap and easy that they can be implemented immediately. In this context “cheap” can be out-of-pocket expense or net cost of unwinding the action. For example, if real estate is needed for the contingency plan, and the company has adequate capital, it might purchase the property right away. If the contingency is never implemented, then the land can be sold. It may be a decent investment, or at worst a small loss.

Within these plans, the level of detail should be just enough to enable quick action, but not wasted action. For example, let’s say that a new service offering would require three technical support personnel. That’s pretty much all that’s needed in the contingency plan. The exact education requirements and recruitment strategy can wait until it’s time to implement the plan, because the best place to look for such people may change between now and implementation of the plan.

Finally, these contingency plans should be reviewed annually. Is this contingency still viable, or has time proved that the world is moving in a different direction? Are the measures being monitored still the right measures? And are the action steps still the right steps?

The annual review has several advantages. Obviously it enable changes to the plan. More importantly, it keeps the contingency fresh in the minds of those who will have to implement the plan. Remember that a key reason for the contingency plan is rapid action when necessary. Without periodic review, this advantage is lost. Finally, the annual review is a backup system for the more-frequent monitoring of indicators. The ideal contingency plan includes monthly or quarterly monitoring of conditions that would trigger the plan. People sometimes get busy and distracted, and the annual review protects the company against that.

Contingency plans are vital in an uncertain economy. That includes forward plans, defensive plans, and these sideways plans.
