Organizational consultant Hal Resnick compares safe flying to safely running a company.
Resnick, based in Ponte Vedra Beach, is president of Work Systems Associates Inc.
His 35 years in organizational development and training include work with EverBank, The Haskell Co., Lockheed Martin, Shell Oil and others.
He produces a regular newsletter and posts it at his worksystems.com website.
In his June newsletter, he wrote about "altitude, air speed and ideas."
Resnick wrote that in a recent meeting of the senior team of one of America's leading companies in its market sector, the senior vice president of finance developed an analogy comparing the financial health of a company to flying an airplane.
Resnick said he began by sharing the concept that flying an airplane safely has three requirements: altitude, air speed and ideas.
• Altitude gives the plane the height it needs to provide the pilot the ability to maneuver and take whatever action might be needed.
• Air speed gives the plane forward thrust and enables it to gain altitude.
• Ideas are what the pilot uses to maintain or increase altitude, air speed and set the course to the destination. "When an airplane has all three of these factors, it is on a safe course to its destination and the pilot is in control of the plane and the situation," Resnick wrote.
What if the pilot doesn't have all three?
Resnick contends if it has two of the three factors it can continue to fly safely.
• If the plane does not have altitude but does have air speed and ideas, the pilot can use the air speed and his ideas to gain altitude.
• If the plane has altitude and the pilot has ideas but is lacking air speed, the pilot can use his ideas either to gain air speed or use the altitude to find a place to safely land.
• If the pilot has altitude and air speed but no ideas, then he can use his existing speed and height to reach his destination, or find a safe landing along the way.
"These same factors can be applied to a business and used to assess its financial health," Resnick wrote.
• Altitude is analogous to the company's balance sheet, which reflects the current financial health of the organization. A healthy balance sheet provides resources for organic, or internally generated, growth; generates the leverage for external financing if needed; and provides a cushion for any bumps along the way.
• Air speed is analogous to the company's ability to generate revenue and operating profit. If the company is on a good revenue and profit trajectory, it can support its own growth and its balance sheet also will improve.
• Ideas are the strategic and tactical direction provided by the company's leadership to both increase air speed (revenue and profitability) and long-term financial health of the business (balance sheet).
"Just as an airplane can be flown safely if two of the three elements are in place, so can a business be guided to prosperity with two of the same three elements," he wrote.
• If a company has a strong balance sheet and good leadership ideas, but revenue and profitability have fallen off, it can use the strength of its balance sheet combined with good strategic leadership to change course, invest in new products or services or make a strategic acquisition. Just as importantly, the strong balance sheet gives it the time to make those adjustments.
• If the company has a weak balance sheet but strong revenue and profitability with good strategic leadership, it can use the strength of its operational performance to improve its balance sheet.
• If the company has a strong balance sheet and good operational performance but lacks ideas in how to continue to move forward, it can use its current success to develop a new strategic direction, add fresh leadership, or perhaps become a good candidate for acquisition.
Resnick said the model based on the airplane analogy has several compelling lessons for business.
• First, make sure leadership is operationally and strategically strong so it continues to have sound ideas for improving current performance and guiding the company into the future
• Second, maintain sound operational performance. Deliver products and services that generate revenue and revenue growth. Build operational efficiencies through continuous improvement to drive out leakage and enhance profitability.
• Third, take care to maintain a healthy balance between assets and debt. When a company encumbers itself with more debt than it can comfortably handle on its balance sheet, it pays more for debt service than it should and its degrees of freedom are limited.
"This spells trouble if unforeseen issues arise. It also limits the company's ability to take advantage of growth opportunities," Resnick wrote.
"These simple principles seem obvious. Yet, too many companies have fallen by the wayside when they do not heed the early warning signs that indicate weakness in any of these areas," he said.
Resnick said when a company takes care to maintain all three of the elements, it is strong in the current marketplace and has the capacity for significant growth and value creation.
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