5 tips for leading through inflation
The pandemic has left scars for some businesses, but overall Vistage members are optimistic. The 2021 Q4 CEO Confidence Index showed that 74% of CEOs are projecting increased revenues for the year ahead.
Despite the positive outlook, there are challenges. And inflation tops the list of concerns. The effects of inflation are not exclusive to manufacturing and the supply chain. According to the Survey, increasing wages accounted for 72% of rising costs.
Savvy CEOs are finding silver linings and creative solutions to drive higher revenues while retaining employees and changing customer relationships. In a recent member roundtable for The CEO Pulse: Inflation Resource Center, three members share their approach to inflation.
1. Never waste a crisis
COVID has given business leaders plenty of reasons to panic. Instead of getting alarmed, Marco Petruzzi, CEO of Dovetail Furniture based in California, looks for opportunities. He focuses on “playing a better game” and better understanding and communicating with the network of independent sales reps who represent the business.
“We are really trying to nail down the communication with them. They’re our face, even if they’re not part of our company,” he said. “We’re thinking long term about how to gain market share by staying on message with our value proposition to our customers.”
Petruzzi uses these three questions to guide his strategy:
- How do we maintain better relationships than everybody?
- How do we maintain great customer service?
- How do we listen to what our customers are saying?
2. Look for low hanging fruit
In Tennessee, Becky Sharpe, CEO of International Scholarship and Tuition Services, looked for “low hanging” fruit. One of the first things she did was to review contracts with top vendors and seeing opportunities to price freeze, end or renegotiate.
“We had a lease that ended and with skyrocketing real estate prices, we took advantage of ending that lease,” she said. “So our challenge now is to maintain corporate culture and collaboration while we’re working on a flat-screen.”
3. Be open to possibilities
While prices soared, interest rates were at historic lows. So Brian Burns, founder, partner and owner of Cutting Edge Countertops in Ohio, saw this as a possibility for controlling expenses.
“Our banker came to us and said, “Hey, interest rates are down. You guys are a good client.” They proactively approached us to reduce our rates on our loans,” Burns said. “I know interest rates are now on the climb again, but that was something we were able to take advantage of. It helps now and really into the future.”
4. Fine-tune your relationships
Letting go of clients can be challenging. But customers who aren’t the right fit drain resources that could create more profitable opportunities. Burns dropped a top 10 account because they couldn’t keep up with changing costs.
“Their process to get price increases approved was so slow and cumbersome that we decided to part ways before we really even got to that point,” he said. “Frankly, business is really, really good in our industry and there was bigger fish to fry.”
Petruzzi’s customers are accustomed to net 30 invoices, but with months-long delays, they began getting upset with paying for furniture not received.
“We have had to be flexible with payment terms, which has been painful to a certain extent,” he said.
5. Reconsider employee wages
Sharpe offered a rather provocative entry point to the wage compensation conversation: Make salaries transparent.
“It makes us nervous, and we don’t like to talk about money, but I think that we have an opportunity here to think about: ‘Are we really paying, especially our lowest-paid employees, a living wage?’” Sharpe said.
For example, where Sharpe operates in Nashville, young professionals in their early to mid-20s cannot afford to live within a 15-, 20- or 30-mile radius without additional support. It’s a much deeper issue than entry-level wages.
Burns said his company had 10% overall wage inflation and nearly all went to hourly employees with almost none to leadership. The team made up of many long-time employees was phenomenal, he said. But Burns acknowledges that wage pressure will happen at the supervisor, management and executive leadership levels.
“We’re becoming a little more analytical and objective on wages. We’ve contracted with an outside firm to evaluate our wage scale top to bottom,” he said. “They’ll provide us the data so that we can determine what percentile we want to see our new hires and our people with five years, 10 years and 15 years [of] experience.”
5 tips for leading through inflation
Compensation consultant Rena Somersan on wage compensation in the face of inflation [Video]
The CEO Pulse: Inflation Resource Center
Category: Business Operations
Tags: Business Strategy, inflation, wages