'You won't be fired for cutting costs too early'

MANAGERS ON MANAGEMENT:ASK DAVID Duffy, author of A Practical Guide to Corporate Governance, how senior managers and board members should respond to the economic slowdown, and he'll quote you - with the zeal of a convert - the words of former General Electric chief executive "Neutron Jack" Welch: "Nobody ever got fired for cutting costs early", writes Peter Clusky

Not that Duffy, executive chairman of Prospectus Strategy Consultants, believes that wielding the knife is automatically the best answer to tough financial times.

But what he does believe in is being prepared, being clear-sighted and making the right decisions on time. In that strategy lies not just survival, but opportunity, he says.

"It sounds so simple, but you need to have a really good understanding of your market. Some firms do and some don't. If the market's going down, you need to take a view on how much further down it can go, and then run a range of different scenarios: could sales drop 5 per cent, 10 per cent, 25 per cent, even 50 per cent?

"At the same time, you need to agree your decision path. When do we trigger the actions to be taken? When we realise that the fall in sales is not going to stop at 5 per cent but could become 10 per cent? That's why I quote Jack Welch. You won't be fired for cutting costs too early, but you could certainly be in trouble for cutting them too late."

Duffy has little sympathy with the suggestion that such a cold-blooded assessment may not always be practical, as the reality dawns that a little financial difficulty holds the potential for disaster.

"That brings us right to the question of corporate governance," he says. "Larger companies will have a board which ensures that these systems are in place. If the chief executive and the management team aren't thinking like that, you've got to ask yourself - as a non-executive director, in particular - if the right people are leading the organisation."

Duffy adds: "The reality is that you need a forensic assessment of the market and the competition. That's what a chief executive is paid for, whether it's a public or a private company."

Well-run organisations, he argues, will ideally take advantage of a downturn to emerge stronger. They'll be honest with staff; they'll work with the financial regulator where guidance is offered, and they'll take advantage of every scrap of market intelligence.

"The other thing we'd be saying to clients is to stay very liquid," he says. "In the current climate, you don't know how banks are going to respond if you need cash at short notice. You may not get the answer you expect. They may not have the money."

And how will the younger breed of manager, largely untested in the ways of financial survival and "right-sizing", handle the slowdown? "For people who've been through it before, it's just another downturn. They'll deal with it and move on," says Duffy.

"Those who haven't been through it before could perhaps panic, particularly people who've started their own companies and who don't respond quickly enough."

There is also "the added complication of the banks being very jittery at the moment about their own businesses", Duffy notes.

"As to younger managers in particular, maybe some of them need a few days in a special 'managing the downturn' boot camp, where they're told: 'Here are the things you can do. These are the levers. This is the impact they can have on the bottom line.'"

But according to Duffy: "You don't just get the knife out and chop. That's wrong."

• Each week, Peter Cluskey will ask senior figures in Irish business how relevant certain management advice is to their operations. Next week: Tom Begley, dean of business schools at UCD, on why managers need to delegate

Name:David Duffy

Company:Prospectus Strategy Consultants; www.prospectus.ie

Job:executive chairman

Management advice:If you don't plan for the upturn, your competition will.