Situation: A company is in the process of adjusting its customer and business focus in response to changing market conditions. Gross margin on projects that have been the company mainstay in the past have fallen significantly. The CEO is evaluating different adjustments to address this. What do you manage as you adapt to market conditions?

Advice from the CEOs:

• The company’s business model is shifting from a staffing agency to a product development model. This means that the business must be driven by a different set of parameters and metrics:
  • A different time/utilization mix.
  • Different personnel – the company needs managers.
  • Changes to the organizational chart and incentives.
• How does the company currently charge clients for Project Management?
  • Currently it is time and materials.
  • Consider charging on a percent of project cost basis. For example, 15% of total project cost. The pitch will be that the client will be able to reduce the overall cost of the project – ideally in both dollars and time – and that the company will have increased accountability for delivering these results.
• How will this impact the company’s cash position? How will the company retain adequate cash flow during the transition?
  • The current cash position is 4 months of projected monthly cash plus receivables.
  • If there is drop to 3 months, flag a yellow caution light.
  • Two months becomes a red light.
  • What is the backstop if the company runs shy – if, for example, some engineers are not very active? In this case, will deferral of unpaid vacation time and other options allow the company to survive without further draining cash? Have a meeting with key managers to evaluate the impact of this option.
• Consider looking at competitors for possible collaborations. This can be delicate because they may want to steal the company’s personnel and there are other risks, but sometimes promising deals can be arranged.

[like]