13 Oct 09 Which way do we go?

Most of you will be embarking upon the exhausting process of business planning and budgeting – defining what the organization will and will not do in the years ahead.

The problem that you will encounter is that traditional business planning tools do not work very well during recessionary and post recessionary periods.

In short, the established business planning process assume certainty. And that is just what we do not have.

Whilst there is a reasonable degree of agreement (although not total), that the worst of the economic hail storm is behind us, there are divergent views of the recovery path that awaits us. I will draw upon the thoughts of two economists (from respected think tanks) to illustrate my point – and remember that both were writing at the same time – late September to early October 2009.

Outlook #1: The Sun Rises
In this forward-looking view, Kemal Dervis[1] provides us with a hopeful outlook. In summary, Dervis sees a world of growth, fuelled by:

Technology enabled increases in productivity and knowledge creation, particularly in the advanced economies.

Increasing speed of knowledge diffusion – again enabled by technology.

Resumed and increasing levels of investment – particularly in technology – from the “saving countries” in the emerging world.

Resumption of consumer-led growth, particularly in the US.

Outlook #2: Clouds and Storms
This view, offered by Adam Posen[2], is a catalogue of considerable challenges to renewed growth, especially in the US and Europe. Some of the potential stumbling blocks foreseen are:

The need to re-allocate human capital – for example from construction to exports in the UK and Spain – and away from automobile manufacture in France and Germany.

The recognition that some sectors – including financial services – may never recover to pre-recessionary levels.

Frictions or “grit” in the process of making loans available to businesses. Some banks have new masters and there are many banking balance sheets to be rebuilt.

So here we have it.

Two different views of the next decade – with distinctly different opportunities, challenges and implications for your business. And, to add a little food for thought, both are probably flawed in that they take primarily an economic perspective. As I have argued in earlier posts and briefings, we are entering an era where the shape of our markets will be less influenced (primarily) by economic and market forces but more by developments in the geopolitical environment.

But this still leaves the question – What do you do? - to which I would answer – Think pluralistically. In other words, instead of just considering one view of the future, consider some alternatives. And the two opposing views cited above are good starting points.

I will return to the issue of strategy and planning during the recovery later in October.

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References
[1] K. Dervis, “Growth After the Storm? A Longer Run Perspective on the Global Economy,” Brookings, Oct. 2009.
[2] A. Posen, “What Has Been the Lasting Damage?,” Peterson Institute, Sep. 2009.