Image Source: Shutterstock
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.
