“If you put a frog in boiling water, it will immediately jump out. But if you put it in cold water and gradually heat it, the frog will not detect the danger and will be cooked alive.” Going by what is happening to businesses today, many people are like the frog.
Few people take note of the gradual changes in life and business. The recent case of the Central Bank’s takeover of EFC Uganda Ltd is a clear case of what happens when you try to solve the problem by “burying your head” in the sand!
Following the takeover, The Daily Monitor reported that “The decision to close EFC Uganda Limited was taken because the Central Bank has determined that the continuation of microfinance institution’s activities is detrimental to the interests of its depositors due to its failure to resolve its significant undercapitalization and poor corporate governance.”
We can restate the metaphor to read: “If you put a manager in boiling water, he will jump out immediately. But if you put him in cold water and gradually heat it, the manager will take long to notice the danger and will be pulled out before he is cooked alive.”
The Bank of Uganda pulled the managers of EFC before they were cooked alive! Without robust business intelligence, it is difficult to take note of small changes. Even the best managers cannot note the tide in time to take action.
Consider the case of Company X, a manufacturing firm that has been experiencing declining profit margins since 2019, when the Coronavirus pandemic hit. When profit margins decline, so many factors are usually at play, reducing sales volume due to declining demand as a result of a better substitute product, problems with the supply chain, increasing production costs, or declining productivity, among others. When the finance department raised concerns over the consistent higher-than-usual cost of materials, the production manager labelled them alarmists. Instead, management focused on short-term interventions to boost sales without addressing the underlying cost structure and operational effectiveness. Management hired a sales training consultant to retrain all the salespeople on how to sell with an emphasis on social media marketing and online sales.
The sales training intervention did not solve the issue.
With time, it became apparent that the gradual increase in production costs, and poor distribution channels affect profitability. Many leaders tend to overlook some departments and issues until it becomes too late. By the time the management realized the severity of the problem, it was too late. Imagine a production line operating at just 60% capacity! It is bad to discover the problem in your supply chain and delivery channels with stockout reports from the market! As you grow demand, you must invest in your production systems for increased output.
Ignoring gradual increases in production costs can lead to financial distress over time.
Addressing underlying cost structures early is crucial for maintaining profitability. Proactive monitoring and adjustment of cost-saving measures are necessary to prevent long-term financial challenges.
As a business leader, don’t delay taking action and die in water that is gradually being heated like a frog.
Copyright Mr. Strategy of Summit Consulting Ltd. 2024 All rights reserved.
