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We recently met with thousands of executive teams to review their plans and budgets. In testing their thinking against our own deep research, we’ve identified a set of common blind spots. The insights we surfaced test conventional wisdom and form the basis for the enclosed Executive Guidance for 2009—not a comprehensive playbook, but essential information and actions to help our members make the wisest possible decisions as they review and revise FY 09 plans.

Improve Cost Discipline

Reduce Cost of Goods Sold and Capital Use, not General & Administrative Spending

• Focus on Cost of Goods Sold rather than General & Administrative expenses to achieve long-term cost discipline.
• Incorporate capital costs into SKU reduction efforts.

Protect Growth Initiatives

Elevate, consolidate, and protect innovation funding

• Name and protect explicit growth bets in the capital budget.
• Incorporate concrete innovation targets into performance expectations and reporting, even amidst belt-tightening.

Leverage Financial Strengths

Reenvision your value chain as a capital and pricing chain

• Foster innovations that target the shifting financial strength of customers and suppliers.
• Use the crisis to price for the true value of intangibles that customers under-appreciate.

Exploit Risk Opportunities

Embrace, don’t eradicate, the right risk exposures

• Harmonize executive risk tolerances and pursue those you are uniquely positioned to manage.
• Evaluate your contract portfolios with an eye toward renegotiating past (and changing future) contract terms.
• Robustly manage fraud risks by identifying and punishing incidents of misconduct early in the down cycle.

Make Critical Talent Plays

Use today’s crisis to court & cultivate tomorrow’s winners

• Seize the opportunity to close critical skill gaps with “not-in-play” talent.
• Reward relative outperformance (even if you must court the wrath of executive-pay watchdogs).
• Use the economic crisis to sharpen the acumen of future executives.
• Re-brand the employment value proposition to recoup productivity losses from suddenly disengaged talent.
• Embrace offshore centers as a source for critical skills and next-generation executive leadership, not just low-cost execution.