31 Jul 09 Recession: Understanding the business and psychological impact

Overview: Recession – Understanding the business and psychological impact

This briefing provides the results of a web-based survey conducted on this site between February and May 2009 to determine the real costs and impact of the recession – especially from the perspective of the psychological impact upon organizations’ human resources.

The key findings are:

• Respondents largely discount the possibility of a rapid economic recovery.

• Rather than just being an economic recession, severe misgivings were expressed regarding the values and culture that have developed in both the business world and society in general. These cultural attributes are seen as the real driving cause behind the economic downturn. We therefore face not just an economic recession, but a cultural recession.

• The psychological impact at the human level is worryingly high. Over 80% of respondents reported seeing multiple symptoms of stress amongst colleagues and over 70% self-reported experiencing multiple symptoms of stress.

In the light of these findings a range of coping and response actions for managers is introduced at the end of this briefing.

Introduction: Survey structure and objectives
When this survey was constructed, we were particularly interested to discover views of:

(a) How long the recession would last.
(b) What was its real cause.
(c) The perceived long-term business impact.

But, most importantly, we wanted to ascertain the human cost, not in financial terms, but in terms of the stress and anxiety that respondents saw around them and experienced on a day to day basis.

The survey was therefore structured to focus on these four key issues.

This briefing firstly analyses findings in respect of the economic dimensions – views on how long the recession could last and how deeply businesses’ products and services could be affected.

We then proceed to look at the perceived real cause of the recession – who or what really is to blame?

The penultimate section is arguably the most important and examines the human psychological costs.

Finally, pointers for the role of corporate leaders and managers in a recession are provided in the last section.

Recession: The economic impact
Two broad questions concerned us:

1. How long did respondents think that the recession would last?

2. What impact would the recession have on their business – in terms of what they offered to their customers?

1. How long did respondents think that the recession would last?
We firstly asked respondents to estimate the duration of the recession or “downturn”* in respect of the country in which they were based. In this study, 91.8% of respondents were located in the UK. Therefore, we report here views in respect of the outlook for the UK only as shown below in Exhibit 1:

* Note that “the downturn” was defined as “the period embracing either negative or sub 1% GDP growth”.

Only just over 8% of respondents thought that we faced a quick “V” shaped recovery.  Most saw a longer period of effectively, economic stagnation.

Respondents thought that the UK would fare comparatively well when contrasted with the global economy.  Respondents’ views on the global outlook are shown in Exhibit 2:

Here, respondents expect a lingering recovery globally.

In terms of returning to normal levels of profitability after the downturn ends, respondents were divided broadly 50/50 with just under 50% thinking that recovery of profitability would just take a year – of the remainder just over 20% were looking at three or more years to recover profitability:

2. What impact would the recession have on their business – in terms of what they offered to their customers?

Just under 10% thought that there would be no impact on offerings – the majority acknowledging that some adjustments would have to be made.  13.9% however felt that deeper changes would have to be considered in terms of the products and services that their businesses offered:

Recession: The real causes

Next, we wanted to understand what, in respondents’ minds, were the real causes of the downturn.  We gave respondents a range of suggested causes to choose from plus a free format option.  Respondents could choose more than one cause and the result is shown in Exhibit 5:

The results surprised us and point to more deep-rooted and widespread problems than we first envisaged. The survey results indicate that far from facing a conventional economic recession, society and business in general are both facing a cultural recession.

The findings point to the values that are perceived now to be a deeply ingrained part of government, the business world and even social behaviour as being the real instigators of the economic meltdown. In terms of the underlying cause of the downturn, over 75% of respondents pointed towards a “short-term profit focused culture”, but an analysis of supporting comments from respondents showed us that cultural shortcomings were seen to exist within most, if not all, elements of our society.

Recession:  The human cost

The last section of the survey introduced the need to look beyond the financial cost that the downturn is imposing on business and society. In this section we try to look at the human cost – particularly in terms of anxiety and stress.

There were two perspectives that we wanted to examine. The first was the degree to which respondents were seeing symptoms of stress amongst their colleagues. The second asked if respondents themselves felt under pressure.

Exhibit 6 looks at the question of stress amongst respondents’ colleagues:

If any of these symptoms were experienced in isolation they may cause mild to moderate concern, but when experienced in combination they can make for worrying reading. For example, over 80% of respondents noted multiple symptoms of workplace stress amongst their colleagues. Only 2.5% of respondents did not see any of these symptoms amongst their colleagues.

We asked respondents how well equipped they felt do deal with these issues. Encouragingly, just over 31% felt that they could handle this challenge on their own. A further 48% thought they could help with access to some specialist support. Finally, just over 7% thought that they either could not help or would need access to significant levels of specialist support.

In Exhibit 7 below we can see that a similar picture emerges when looking at respondents’ personal reaction to the downturn:

These results show respondents’ own, personal reactions, to the downturn.

Again the results give cause for concern – 70% noted multiple symptoms ranging from “lack of focus” through to “depression”. A small number, only just over 8%, had not experienced any symptoms.

Taking Action:  More than waiting for green shoots

Obviously, more needs to be done than waiting for “green shoots”.

Leaders must now consider how they are going to face the strategic, cultural and the psychological implications of this downturn.

Whilst many of the issues being observed and experienced by people in the workplace stem from pressures both personal and professional, business leaders must play a critical role in supporting their employees through this difficult time.

This research points to at least three inter-linked key tasks for business leaders.

The first is the management of businesses through a potentially protracted period of either negative or negligible economic growth that we refer to as “the downturn” in this report.

Businesses now need to strongly consider the competitive strategy that they need to operate in such an environment.

The second task is to respond to the major cultural concerns that this exploratory study has surfaced. As we have already mentioned, there are opportunities for leaders to ensure that their businesses’ culture and values are clearly separated from “the root causes” described in this report.

The final task is of course helping employees to deal with the psychological implications of the recession and the uncertainty it brings. Without attention to this dimension, there could be considerable costs both in terms of individual anxiety and loss of business efficiency.

There are at least two broad courses of action for business leaders to consider at this stage. The first concerns the issue of business strategy itself. The second focuses upon the human impact of the recession.

Looking firstly at business strategy, there is great uncertainty regarding the recovery path that the advanced economies will follow. The newspapers are full of reports of “U”, “L” and “W” shaped outlooks. Additionally, it is held that recessions are times of change and “creative destruction” – new opportunities will eventually rise from the ashes.

From a strategy perspective there are two actions that businesses can undertake to help manage this period of transition and ambiguity.

Firstly, businesses should consider the impact of two alternative scenarios – the first a relatively rapid “U” shaped recovery, the second an extended “L” shaped outlook. Both will require different responses. Having a thought out plan for each now will help businesses respond rapidly.

Secondly, new opportunities will appear as we move out of recession. Some of the respondents have echoed this view in their responses to this survey. It is important now to set up projects to sense how customers’ needs are changing so that this new knowledge can be brought back inside the organisation. This early capture of knowledge and experiences will form a vital foundation for the crafting of new strategies going forward.

Both these exercises provide an opportunity for staff engagement and act to demonstrate that the organisation is constructively tackling the challenges of recession.

The second broad course of action focuses more directly on the human costs revealed in this survey.

There is now obviously the need for managers to actively look for the symptoms of anxiety and stress. Once symptoms are identified, if they are tackled appropriately it can have a direct and positive impact on issues such as employee mental health, productivity, staff recruitment, retention and customer relations.

Managers who have been coached in how to identify the signs can often tackle it at source. Research consistently demonstrates that managers with an ‘open door’ policy and those who ‘walk the floor’ and get to know their team will have lower instances of stress and related issues in their teams. Managers need to be aware of their role in managing and influencing their teams. Coaching managers to understand the significance of stress and its impact and how to create a ‘culture of communication’ is critical.

In conclusion, in the current economic climate, stress and related symptoms are on the increase. It is vital for the health of both the individual and the organization that managers are trained to be aware of the signs and are supported to act swiftly and appropriately to reduce the triggers to the stress that they have control over.

If you would like to talk about the actions that businesses can take to mitigate the impact of the downturn please do contact me.

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Tags: economic downturn, economic recession, human resources, psychological impact, symptoms of stress

27 Mar 09 Navigating the Recession: The waves of change

A clear point emanating from my earlier posts and, importantly, discussions with business managers and leaders is that we cannot afford just to “sit this one out” and expect the business world (and in fact the world in general) to be in exactly the same shape as it was before when this recession comes to an end.  It is becoming clear now that we are at the threshold of a new world and things will be very different.  The recession scenarios provide us with a mechanism to see what the new worlds could look like, but in this post I would like to start to explore what the process of transition to the new world itself might look like.  When looking at the transition process, I will adopt the perspective of your businesses customers and clients, in other words the phases of change that your clients and customers will go through.

In this post I am going to put forward a proposition for debate that as we go through this journey from recession to recovery there will be multiple behavioural and structural shifts to look out for.  Each will provide challenges but also, and more importantly, will provide new opportunities for your business.  I will describe 5 of these waves of change in this post.  Remember that some will run sequentially and that some will run concurrently.

Phase 1:  Shock and Horror.

Whilst there was some talk about 24 months ago of an impending economic “blipage”, nobody thought it would ever be this bad.  The accepted thinking appeared to be at worst that we would have say a slowdown period of 12 months and then we would get back to growing in a predictable world.  Nobody thought that capitalism might be brought to its knees.  Therefore, when the news broke last year – particularly when Lehman Brothers went down on 15 September – we were all thrown into a state of shock.  It was as if the bottom of our worlds had been pulled away.  A good way of looking at this is to think about that old, but classic, motivation model Maslow’s Hierarchy of Needs.  It was as if the bottom layers, the foundations, had been stolen.  For this reason, people and organisations act a little irrationally during this first phase.  As security is threatened, we need to do something to protect ourselves and this usually means making immediate cost-cutting decisions many of which might not be in the long-term interest of either the individual or the business.  In shock there is the over-riding desire to do just something.  An example is that 74% of Americans intend to cut back on eating out and entertainment [1].

So this is where we are now. In an irrational period.  From a business perspective, it is a period to make temporary adjustments to match these new behavioural patterns.  But it certainly is not the time to make long-term irreversible decisions.  As I try to show in the first illustration below, this is a temporary phase.

And my guess is that we will come to the end of this phase in late 2009.

Phase 2:  Acceptance

Phase 2 is important for three reasons.

1. It represents almost certainly a longer period than the first phase.
2. It is the period when customers adjust to accept the fact that we are (probably) in for the long haul.  Expect therefore more reasoned decision making that will hold for the medium term.
3. During this period the behaviours of Generation Y (the children of the “baby boomers”, Generation X) will be shaped permanently.  Remember that in the last real downturn, Generation Y would have been in nappies (diapers).  What they see and feel during this period will have a permanent impact.  It is the first time that their world will have been shaken and their beliefs and assumptions challenged.  Long-term behavioural changes will appear, such as a move away from external, tangible displays of wealth.

At the time of writing this entry I would say that we are just about to enter this phase – a phase that may last for 3 or more years, but as I show in this second illustration, the impact is far more permanent.

Phase 3:  Emergence

At some point the stimulus packages and measures that are now being put in place will bear fruit.  Confidence will be restored.  Demand will increase.  New demands and needs will appear, but these will have been materially shaped by experiences (that are now largely unknown) that will have occurred during phase 2 – Acceptance.  New customer segments will appear. But the effect may not be so dramatic in the long-term in terms of customer needs.

Phase 4:  Restructuring

I opened this post by saying that we can’t just sit this one out.  One of my propositions is that certain developed economies need to undergo second order macro economic changes.  The UK is a good case in point as I have observed earlier with its near 22% of employment in financial services.  These macro economic changes should produce new opportunities and needs to meet as new employment champions appear – just as financial services did in the early 1980s when manufacturing went into decline, at least here in the UK.  This phase, as new employment sectors appear, will be more permanent in its impact.

The first 4 waves of change are all shown with a subjective view of their period of influence in the illustration below:

Phase 5:  New Influencers

Here we go out into the medium to long-term, beyond the illustration above.  And I have in mind 3 to 10 years out from now.  During this period the winning BRICs (the emerging economies of Brazil, Russia, India and China – if any of them do make it) will really have the position to reshape both the business world and capitalism itself.  The mechanism to do this (G20) is already being put in place and remember that by 2019 China could control 13% of the world’s banking system and 16% of the global stock markets[2].

Conclusion

So now is not a time to sit back and wait – it is a time to sense, inter-act with customers and learn.  I propose that our customers will go through 4 – 5 waves or phases of change.  Of these 2 will probably have a permanent impact.  The first of these is the “Generation Y” effect within  Phase 2:  Acceptance. Here, attitudes and behaviours could be shaped for a lifetime.  Finally, the second phase to have a permanent impact is Phase 4: Restructuring when new (as yet unidentified) employment sectors emerge.

So now is the time to sense and explore these proposed waves of change.  Before your competitors do.

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[1] The Daily Stat. Harvard Business Publishing. April 1, 2009

[2] DB Research (2009) China’s financial markets: A future global force? March 16

Tags: business strategy, capitalism, customer strategy, economic recession, lehman brothers, marketing strategy, recession, scenarios

27 Feb 09 Strategy and the Future World: Why the next three months may hold the key

Those of you who have been following my scenarios will know that I hold that future, not the past or even current events associated with the current financial crisis, will determine the shape of the the future business world.

In my scenarios as described in 2009: Signposts to where? – I refer to a range of shaping events that will separately, or in an inter-related manner, form the shape  of the future world.

These are the events to actively monitor.

In all, there are five shaping events.

The Real Issue
The real issue is that a range of these shaping events could be triggered over the next three to four months and alone or together they could have a tumultuous effect.

The five shaping events, which over time work together in an inter-related manner, are:

#1: Industry Contagion a widespread domino effect as the crisis spreads from the banks into the major employers of at least the developed economies.  The loss of an iconic employer could place massive pressure onto politicians to impose what others would see as protectionist policies.  Such a move would be a big step to a divided world – The Jigsaw in my scenarios.

#2: Banking Future Shocks the view being that not all of the bad news is behind us. More is to be revealed.

#3: Global Fragmentation in other words the emergence of protectionism.

#4: Energy arguably one for the medium term. At some point we will face an oil supply crisis following a lack of investment in production infrastructure.

#5: Conflict The unhappy fact is that there is a correlation between recession and social and national – upheaval.

My point is that three of these shaping events could be triggered in the next quarter.

Firstly, industry contagion. Both GM and Chrysler stand on the edge of an abyss. By the end of March, Chrysler must demonstrate progress to viability if it to received more state loans[1]. Massive corporate failures in Detroit could result in over 3m additional unemployed in the US alone[2].

Secondly, some observers feel that there is even more bad news to emerge for western banks especially from Eastern European operations[3], [4].

Thirdly, we have the spectre of conflict in the form of social unrest particularly in Eastern Europe that could, at an extreme, challenge democracy[5],[6].

These, I suggest, are the events to monitor now.

Each has the power to reshape our world for a generation. Ultimately, it may well not be the economists that define the future shape of our world but public reaction to these shaping events.

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References
[1] J. Reed, GM future in doubt after $31bn loss, FT.com, Feb. 2009.
[2] R. Scott, Automaker bankruptcies would cost up to 3.3 million U.S. jobs, Economic Policy Institute, Dec. 2008.
[3] N. Roubini, Roubini Interview On The Severe Global Recession And The Risks Of A Financial Crisis In Emerging Europe, RGE Monitor, Feb. 2009.
[4] A. Evans-Pritchard, European banks’ toxic debts risk overwhelming EU governments – Telegraph, Telegraph.co.uk, Feb. 2009.
[5] A. Aslund, Baltic Protests and Financial Meltdowns, Peterson Institute, Feb. 2009.
[6] S. Wagstal, Analysis – Variable vulnerability, FT.com, Feb. 2009.

Tags: economic recession, financial crisis, meltdown, protectionism, recession, scenarios, social unrest

26 Feb 09 New Regulation: Implications for Capitalism II

On 23rd February Jean-Claude Trichet, President of the European Central Bank, gave a keynote presentation to the Committee of European Securities Regulators (CESR)[1]. Whilst this presentation was a clear signal of the shape of “regulation to come for the banking sector, there might be some important clues from this presentation, if we couple it with Federal Chancellor Merkel’s address to the World Economic Forum’s 2009 Davos meeting[2], as to the future shape of at least Europe’s view of “Capitalism II.

We could start by looking at Chancellor Merkel’s speech.

There are certain key phrases that can give us clues as to what the pillars of “Capitalism II might look like.

These are:

The crisis is as a result of irresponsible speculation …
Trust is an indispensable cornerstone of the economy.
… we need a credible means of limiting new debts once we have seen off this crisis.
We must not however leave it at these quick and decisive crisis measures. As politicians of great responsibility we are obligated to learn the lessons we need going forward we must shape the ‘post crisis’ world.

It is clear that an agenda is being assembled that will embrace more than a stiff dose of regulation for the banking sector. The final section of Chancellor Merkel’s speech was devoted to the introduction of five elements of central importance. The elements, which might form the pillars of “Capitalism II, are:

Element #1: Restrained Capitalism. The state is seen as the guardian of social and economic order. Whilst market forces must operate, there are clear limits, capitalism must act with social responsibility in mind. This is a clear middle course between total deregulated market forces capitalism and traditional socialist models.

Element #2: International Financial Stability. A globally coordinated regulatory system to stamp out less restrictive regulatory regimes. One approach is needed to stop organisations seeking out the most favourable regulatory regime.

Element #3: Global Openness. A clear drive against protectionist practices. As I have argued in earlier posts, this will be easier said than done if, and when, industrial contagion spreads.

Element #4: Sustainable Consumption. Care for the environment.

Element #5: Defeating global poverty. The responsibility that developed countries owe to the under-developed.

This paints a clear picture of what some would call “responsible capitalism.

Whilst Trichet’s address is aimed squarely at the financial system, there are some potential parallels, notably in the call for:

• incentives that encourage profitability in the medium to long term, not the short-term.
• risk minimisation and
• stress testing to ensure the long-term viability of the enterprise.

If we couple Merkel’s “Five Elements, especially Element #1, with Trichet’s themes we could see a situation where the new regulations, or at least expectations, extend beyond the banking and financial services sectors.

This is the main theme of this posting.

It may be unwise to assume that the focal point of new post crisis regulation will remain restricted to the banking and broader financial services sectors. If we do experience substantial industrial contagion in other words the collapse of substantial employers outside the banking and financial services sectors regulation or new disclosure requirements may extend to such substantial employers”.

What could we expect?

Well, the emerging menu may include:

• Restriction of short-term focused remuneration packages.

• Publication of long-term objectives.

• Demonstration of stress testing business plans.

• Extension of the responsibilities of non-executive directors to embrace resilience management.

• Measures to ensure employment stability.

• Formalised social responsibility objectives – that are to be reported against.

But that’s just after a couple of minutes reflection. No doubt you will have other ideas!

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References
[1] J. Trichet, Remarks on the future of European financial regulation and supervision, Feb. 2009.
[2] A. Merkel, Special Address, Jan. 2009.

Tags: capitalism, economic recession, recession, regulation

25 Feb 09 Recession: Looking for stress points

In my last posting Davos 2009, Recession and Business Strategy: Quo Vadis? I included some straightforward questions to start the process of “stress testing” your business strategy.  In this posting I would like to explore the issue of “Stress” from a different perspective, which has a distinctly human element.

Unfortunately all the dials (or most of them) are pointing to a period of prolonged economic recession.  And we cannot be sure, with any degree certainty, what the post recession world will look like. As I explain in my recession scenarios,we could face four completely different worlds.

This means, probably for the first time in our lives, that we will have to live through a period of extended business and strategic ambiguity.  Some observers tell us that we are entering a depression that could last for up to 10 years.

We know too little, from both strategy and human perspectives, of what the challenges are for living and managing in a such a period of extended ambiguity.  Together with my colleagues, I am interested in exploring further the strategic and psychological implications both of this economic downturn and the prospect of a long period of “strategic ambiguity”.

I would therefore be grateful if you could spare a few minutes to complete the following survey.  It can be completed anonymously and only the aggregated findings will be published.  The results will help us to gain a deeper understanding of the challenges that we face. To participate, please click on the button below.

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Tags: business strategy, economic downturn, economic recession, human perspectives, survey

11 Feb 09 Davos 2009, Recession and Business Strategy: Quo Vadis?

Davos: Are the muddied waters clearer? [Updated 25 February 2009]

I thought that I would save my next blog entry on the strategy implications of economic recession until the conclusions of the World Economic Forum meeting in Davos emerged.

I wanted to use the output from Davos to review my trajectory of change, introduced in the 23rd January blog entry.  Regular readers will know that I have produced four scenarios that, I feel, encompass the broad range of futures that lie ahead of us in the current financial crisis. These scenarios were introduced in my Executive Briefing 2009: Signposts to where? and you can download the full working paper here, after registering, which is incidentally regularly updated as we progress along the bumpy road that is the future.  I have released the latest version on 25th February which includes more implications in respect of recession and business strategy that should, I feel, be debated at senior management and board levels.

The scenarios are reproduced again below:

The scenarios are driven by two forces that act along a continuum. Running from north to south we have the degree of global co-operation that actually appears to solve the current crisis, and running west to east we have industry contagion, broadly how far the crisis creeps out from the banking sector to infect other industries.  The fate of GM and particularly Chrysler is a good example of “industry contagion”.

My last trajectory of change proposition (published on 23rd  January) is shown below:

Looking at Davos and associated events (including the latest losses in the UK banking sector), it is clear that we are now standing at the edge of, or starting to wade into, the River Rubicon. The Rubicon is the divide between the two left hand scenarios (Focused Change and Globalization Ahead) which imply a relatively quick economic recovery and the two on the right Capitalism II and The Jigsaw – that imply a deeper, longer economic recession. We currently have two views on how wide the Rubicon really is. The IMF has scaled down its 2009 forecast for world economic growth from 2.2% to 0.5%. However the IMF is in the (relatively) optimistic camp, forecasting a significant turnaround in 2010 with even the UK moving into positive growth[1]. In the other camp, we have the view that we are in for a longer slump[2], [3] supported by the prospect of more bad news from the banking sector[4]. There is growing evidence that this may be the case, with some arguing that the UK is positioned to experience the great depression[5]. The view, that we are in for a long-term recession, has received some support with the Bank of England’s 11th February announcement that the UK’s economy will probably shrink by 4% year on year in quarter 2 2009.

Possibly the bad news is being fed to us in reasonably digestible doses?

We can also see the first troublesome shoots of protectionism from workers’ protests in the UK to the Buy American content of the American Recovery and Reinvestment Act[6], [7], [8].

These observations, coupled with continued ambiguity of the level of global co-operation emerging from Davos[9],[10], has led me to the rather unfortunate conclusion that we may be heading broadly towards The Jigsaw as an outcome scenario. I have updated my trajectory of change as shown below and you can see that I have added a broad landing zone:

So what does this mean for strategy?
It is still too soon to judge with any certainty what the outcome will be. As described in my working paper, we need to experience the world’s reaction to one or more shaping events to know where our ultimate destination will be. This means that we have to consider seriously what life will be like in both Capitalism II and The Jigsaw.

However, at least one action is on the immediate agenda and that is to consider the impact of a prolonged economic downturn and I’m talking about a period of negative or very low levels of economic growth over a 3 to 5 year period within the developed economies. Just going back 12 to 18 months, many organisations had formed their strategies on the assumption that the developed economies would suffer a brief, 12 month period of shallow growth or stagnation. Pinning one’s hopes on such an outlook now looks surprisingly shaky.

We now have to look at how watertight our boat is to cross the Rubicon, a journey that could take 3 to 5 years.

This means that you should consider stress testing your business strategy.

To start, consider these questions:

Issue #1: Core Customer Resilience: In a prolonged recession how resilient will your core, most profitable customers be? Will geographic differences emerge? What leading indicators of resilience can you put in place? Will you have to consider a new, more resilient customer group to focus on?

Issue #2: Customer Needs: Do you anticipate that your customers’ needs will change as we progress through an extended downturn? What are the implications for your products and services? Remember that currently most consumers and organisations too are just entering the initial shock phase. Their medium to longer-term buying behaviours will not yet have emerged. So you will have to be particularly adept at tracking changes. It could be that your customers’ needs will move through four cycles of change:

(a) Shock as customers face the reality of a protracted period of contraction, an experience that many will not have experienced before. Expect short-term, knee jerk decisions.

(b) Adjustment as customers change, after a period of reflection, both their businesses and lives to the new reality.

(c) Recovery as national stimulus programmes start to bite and

(d) Emergence as customers adjust to the new employment and economic landscape (to use my scenarios – life in The Jigsaw or Capitalism II). This observation, especially for the UK,  is based on the view that ultimately a new employment white knight will appear to fill that gap left by a reduced financial services sector.

Issue #3: Distributors: If there are others in the supply chain between you and the customer the final user of your product or service how well positioned are they to survive the onslaught? Do they need additional help from you? Should you consider other channels? Will, for example, Internet based distribution enjoy a further boost if customers look for a cheaper alternative?

Issue #4: Suppliers: Again, how resilient are your suppliers? Can they help you to keep up with changing demands from your current customers? Can they support you if you focus upon a new sector?

These are just four introductory questions to start the process of recession testing your strategy or seeing how watertight the boat is for a long distance river crossing.

But this only covers how we get across waters of the Rubicon. I will explore what the land looks like on the other side in later postings.

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References:
[1] IMF World Economic Outlook (WEO) Update — Global Economic Slump Challenges Policies, January 2009, International Monetary Fund, Jan. 2009.
[2] M. Wolf, Why Obama’s new Tarp will fail to rescue the banks, FT.com, Feb. 2009.
[3] P. Boone and S. Johnson, “Speeches, Testimony, Papers: Baseline Scenario, February 2009, Peterson Institute, Feb. 2009.
[4] Roubini: Anglo-Saxon model has failed, FT.com, Feb. 2009.
[5] N. Walayat, UK Recession Watch- Britain’s Great Depression?, Global Research.ca, Feb. 2009.
[6] G. Rachman, When globalisation goes into reverse., Financial Times, Feb. 2009, p. 13.
[7] G.C. Hufbauer and J. Schott, POLICY BRIEF 09-2: Buy American: Bad for Jobs, Worse for Reputation, Peterson Institute, Feb. 2009.
[8] E. Prasad, Buy American?: Global Considerations for the Proposed Stimulus Plan Clause, Brookings, Feb. 2009.
[9] C. Giles, P. Larsen, and G. Tett, Lack of inspiration unites Davos delegates, FT.com, Feb. 2009.
[10] A. Edgecliffe-Johnson, No consensus on restoring trust in business, FT.com, Feb. 2009.

Tags: business strategy, economic recession, economic recovery, marketing strategy, recession, scenarios, slump, world economic forum

09 Feb 08 The real risk to business

Have you noticed how there is a preoccupation with the risk of recession in the press and management discussions?  It is as if an economic recession is the only impediment that may be in our path.

The real risk to business however sits not outside but within the organization.

And that risk is the failure to take an increasingly multi-faceted view of the potential problems that a Globally based business may face.

We all work (and that includes me as a “one man band”) in a Globally inter-connected world.  Problems in one part of the world will eventually hit me.  And that Global inter-connectedness or should I say inter-dependency which has mushroomed over the last decade, fuelled by the drive to outsource and offshore, has created a great source of vulnerability for all our businesses.

Rather than look at the next economic forecast, take a look at the 2008 Global Risk Network report published in January by the World Economic Forum.  When you’ve downloaded it, move to look at the illustration on page 23.

Now ask yourself – Did your organization consider these risks when preparing its business plan?  Have you considered a scenario that embraces these factors?

Merely taking a “monocular” view of risk and the outside world may prove to be the biggest failing for many businesses.

Tags: Business Planning, business risk, economic recession, global risk