While security and data protection remain the main priorities for companies in 2020, other challenges exist. These important challenges are maintaining and attracting new talent, adapting to change and growing free cash flow. The current U.S. unemployment rate is 3.5 percent, which is great news for families. Unfortunately, this type of labor market makes it very challenging to find talent at all levels of an organization. Very few organizations have intellectual property giving them a monopoly, and first-mover advantages in the global economy are short-lived and quickly eroded. The greatest asset of any organization is its people.
When people are combined with your processes, a company culture is created. This culture is made up of beliefs and behaviors, and it can complicate the hiring process because it can't be ignored. We've all had very skilled employees who were simply not a good fit for the business. Spending the time and money necessary to identify, recruit and retain talent should be an ongoing investment that requires additional resources in this tight job market. Many organizations are turning to professional recruiters to obtain the right talent. Recruiters are like a dating service for employers, and their fees are insignificant compared to the value of landing the right talent. In reality, anybody awesome at his or her job is most likely valued, respected and compensated well by the organization, so they're not actively looking for new opportunities. We have to extract that talent from other firms, and online job boards like ZipRecruiter aren't going to make the cut.
In addition to finding and retaining talent, we must constantly be learning and adapting. The ability to obtain, analyze and act upon information quickly is often the difference between winners and losers. Employees must receive ongoing education to improve their skills, and the organization must remain adaptable to change. If the people aren't adapting, it will be impossible for the organization to change. The best companies aren't those that never fail, but those that are quick to abandon a failed strategy regardless of the money invested. Any Economics 101 class teaches the concept of sunk costs in decision making, but at all levels, the world is riddled with stories of projects that never die. Failed initiatives allocate human and financial resources ineffectively and fail to acknowledge failure. If you are a manager or leader, you must train your team in agility. We all know Charles Darwin's law of "survival of the fittest." What we don't think about is that "fittest" doesn't mean strongest, fastest or smartest. Instead, the fittest organisms and organizations are those that adapt to a changing environment.
Your collective ability to adapt will correlate to how well your firm can adopt or abandon new technologies, regulations and processes as your industry changes. While the endgame may not have changed over the past decade, it's very likely your processes have. As humans, we want tomorrow to look like today. In reality, we must internalize the idea that disruption isn't the new normal; disruption has always been normal, but it occurs far more quickly now. These changes put a strain on cash flow management.
The greatest measure of a business is free cash flow (FCF). FCF represents the cash a company generates to support operations and maintain its capital assets after cash outflows. Unlike earnings or net income, FCF is a measure of profitability that excludes the noncash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital. In other words, FCF is more valuable than net income because it accounts for investments in property, plants and equipment. If your business generates $20 million in net income annually, but you need to invest $19 million annually in your assets to be competitive, then the FCF is only $1 million. Adapt your people and culture, and look for opportunities or acquisitions to increase FCF as we endure another presidential election cycle. Lean into these challenges in 2020, and you' ll be better prepared than your competitors.
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