Passing the Stress Test
By Marty
Shindler
This article initially appeared in Studio Daily, and is
first mentioned in their newsletter of March 17, 2009.
We have seen it so many times. So have you.
We have seen a significant number of facilities in
production, post, visual effects and the related areas, close over the years,
even in good times. The overarching reason for this — in our opinion — is that
these companies fail to support their creative and technology teams with a
strong business team.
This is the main reason for failure. All of the others are
secondary.
The recent announcement about the closing of The Orphanage
has sent a shiver down the spine of many visual effects companies, movie
studios, post houses and others that are watching and even awaiting the
fallout.
While the specific reason or reasons The Orphanage orphaned
160 people may never be known publicly, there has been a lot of speculation.
This has included mismanagement, counting on a project to come through that was
delayed and ultimately did not come through, over leveraging their assets,
bidding on work at below cost, etc. The specific reason may not really matter.
It is over and the place is closed.
The problems that The Orphanage faced are not that
dissimilar from those faced all the time by many other visual effects, post
production and other organizations. The challenges at The Orphanage bubbled
over while those at other facilities rumble below the surface for long periods
before finally going over the edge. Others are just not as high profile.
These problems rumbling below the surface are more relevant
today than ever before, especially given the challenging times we are in. There
are other facilities in the marketplace with business and financial problems.
It is important that these problems not arise during a crucial time in the
delivery cycle for a major movie or during production on a TV series. The
potential ripple effects are tremendous.
This may ultimately mean that facilities will have their
management structure and finances reviewed by the studios before future work is
awarded. These companies will need to be able to pass the stress test, a phrase
that is especially prevalent in the news in the current economic climate.
The main problem is that most companies are reluctant to
admit they have a problem. Often that admission comes when it is too late.
Does an alcoholic admit a drinking problem or does it take hitting rock bottom?
You know the answer to that question.
Periodically, companies attempt to meet the challenges
themselves. That is not a bad course of action as a first step. Sometimes,
though, that results in the entire management team — if indeed there is a team
approach — following a common path because no one wants to be the voice of
dissent.
In our experience, we have seen some companies use short
term cost-cutting to stave off problems. Sometimes that works fine. Often it
is like putting a band-aid on a serious wound. Sometimes companies take an
unrealistic approach to ways that will hopefully transform their business. The
intention is good, but the approach is inadequate. A flawed decision-making
process will not self-correct.
This may not enable them to pass the stress test. Often
the “make up exam” is too late.
The following are but five general signs that you may not
be able to pass the stress test:
-
Lack of communication amongst the team members with important
matters falling through the cracks;
-
A feeling by the “entrepreneur in residence” that everything must
be done by him/her; but never feeling as though there is enough time to do even
a fraction of the to do list;
-
Reactive vs. proactive management;
-
The company is growing but there is not any clear path to
profitability;
-
Chaos sometimes reigns supreme.
Of course these are very general problems that may or may
not signal a stress problem at a particular company. Often the people running
these companies do not know if their problems are at risk of reaching a critical
level. Often they know they have a problem, but find them easier to ignore.
Sometimes they know how to solve them and it is just a
matter of making bold changes. But sometimes they do not, especially in this
industry where the company heads may be more artist than business person, or
perhaps are just too entrenched in the day-to-day minutia to objectively assess
the structural damage. That is when an outside consultant can pay huge
dividends.
In the meantime, five important general recommendations to
relieve some of the stress include:
-
Clearly define the exact roles for key members of management,
including the "entrepreneur in residence" and make sure that all important
business functions are adequately covered and that there are clear lines of
communication within the organization;
-
Understand when it is time to bring in outside help;
-
Never underestimate the power of marketing and never cut
significantly into the marketing budget when times are tough;
-
Prepare financial statements and projections on a regular basis,
including an analysis of the true cost to complete projects;
-
Learn from mistakes - hold a post mortem after each significant
project and at regular intervals during the course of the year, soliciting input
from throughout the organization.
There is never a guarantee of success, of course. If this
scenario rings true, the time has come to move forward diligently to prepare for
the stress test with the help of someone who can objectively evaluate the
situation.
The test is coming, not might be coming. Are you
prepared?
See the March 2009 newsletter which discusses the origin of
this article.
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