“A Few Good Men” is one of my favorite movies.  As much as I love Jack Nicholson’s classic line, “You can’t handle the truth!” lately, I’ve been thinking more about a line delivered by Lt. Daniel Kaffee, played by Tom Cruise – “And the hits just keep on comin’.”

But, just like Lt. Kaffee had to make peace with Lt. Cdr JoAnne Galloway joining his Cuba trip, we must make peace with uncertainty and find the guts to move forward.

This is much easier said than done, but these three steps make it possible.  Even profitable.

Where We Begin

Imagine you’re the CEO of Midwest Precision Components (MPW), a $75 million manufacturer of specialized valves and fittings.  Forty percent of your components come from suppliers now subject to new tariffs, which, if they stay in effect, threaten an increase of 15% in material costs.  This increase would devastate your margins and could require you to reduce staff.

Your competitors are scrambling to replace foreign suppliers with domestic ones.  But you know that such rapid changes are also risky since higher domestic prices eat into your margins (though hopefully less than 15%), and insufficient time to quality test new parts could lead to product issues and lost customers.  And all this activity assumes that the tariffs stay in place and aren’t suddenly paused or withdrawn.

 

3 Steps Forward

Entering the boardroom, you notice that the CFO looks more nervous than usual, and your head of Supply Chain is fighting a losing battle with a giant stack of catalogs.  Taking a deep breath, you resolve to be creative, not reactive (same letters, different outcomes), and get to work.

Step 1: Start with the goal and work backward. The goal isn’t changing suppliers to reduce tariff impact.  It’s maintaining profit margins without reducing headcount or product quality.  With your CFO, you whiteboard a Reverse Income Statement, a tool that starts with required (not desired) profits to calculate necessary revenues and allowable costs. After running several scenarios, you land on believable assumptions that result in no more than a 4% increase in costs.

Step 2: Identify and prioritize assumptions.  With the financial assumptions identified, you ask the leadership team to list everything that must be true to deliver the financial assumptions, their confidence that each of their assumptions is true, and the impact on the business and its bottom line if the assumption is wrong.

Knowing that your head of Sales is an unrelenting optimist and your Supply Chain head is mired in a world of doom and gloom, you set a standard scale: High confidence means betting your annual salary, medium is a team dinner at a Michelin-starred restaurant, and low is a cup of coffee. High impact puts the company out of business, medium requires major shifts, and low means extra work but nothing crazy.

Step 3: Attack the deal killers.  Going around the room, each person lists their “Deal Killers,” the Low Confidence – High Impact assumptions that pose the highest risk to the business.  After some discussion to determine the primary assumptions at the beginning of causal chains, you select two for immediate action: (1) Alternative domestic suppliers can be found for the two highest-cost components, and (2) Current manufacturing processes can be quickly adapted to accommodate parts from new suppliers.

A Plan.  A Timeline.  A Sense of Calm.

With this new narrowed focus, your team sets a shared goal of resolving these two assumptions within 30 days.  Together, they set clear weekly deliverables and reallocate time and people to help meet deadlines.

A sense of calm settles on the team.  Not because they have everything figured out, but because they know exactly what the most important things to be done are, that those things are doable, and they are working together to do them.

How could you use these three steps to help you move forward through uncertainty?