Editor's Note: I have had a number of conversations recently with business owners and professional service providers about the current operating environment and the possibility of operating in an inflationary environment as we move forward. While some believe the current situation of rising prices is a short-term blip, there is also the prospect of higher inflation for the foreseeable future. The supply chain issues (higher prices, long lead times, and shortages) with commodities like steel, aluminum, copper, chips, etc. have led, in some cases, to customers double- and triple-ordering to secure predictable future supply.
I can recall the
last inflationary period in the 1980’s, shortages led to long lead times which desperate
ordering which led to higher and higher prices. It becomes a vicious cycle.
Most of today’s
business owners and senior executives have enjoyed 30 years of low inflation. Most
are astonished when I tell them that in 1981, I had a 19% mortgage interest
rate (thankfully for me, it was subsidized by my employer). Prices and
costs were changing monthly and unpredictably.
Managing through an inflationary period
requires different skills. That is the
reason that many of our clients are doing scenario planning – assuming various levels
of inflation.
With great uncertainty and multiple different views of the
future, a company needs to do scenario planning, so that it thinks about the different
possible views of the future and how it would move or adapt to best position
itself and for its leaders to “rehearse” possible actions.
The Mead Consulting Group utilizes
scenario planning to help clients build flexibility into planning and execution
and to help leaders think in broader terms. While scenario planning was once
conducted primarily with our larger clients, today, over half of our clients
(owner-operated, strategic, and private-equity- backed) have discovered the
benefits of scenario planning. - DPM]
If your business or industry is predictable, you need not
continue reading. If, however, there is uncertainty about the future
of your markets or industry, then your company should examine the way it plans.
I would submit that there is little predictability in most industries.
Making assumptions gives us a false sense of security and
puts blinders on us. What is the old line about the word
"assume" making an "ass out of you and me?" Not to be
profane, but traditional strategic planning totally botched the economic
downturn/recovery after the recession of 2008. Traditional strategic planning
is based on assumptions. The planning group makes certain assumptions about the
future - about variables such as economic, political, social, technological,
regulatory, environmental, etc. Making assumptions is just another way of
saying we are attempting to predict the future.
Really? I would suggest that there are situations where
economic, social, political, technological, regulatory, and environmental
factors will drive fundamental change in every business and industry of every
person reading this e-Letter. It's really only a question of degree, pace, and
timing.
Various organizations could have avoided significant market
pain by utilizing scenario planning. Without being overly critical, these
organizations were complacent - and they made assumptions about the future that
proved to be very wrong. Each was disrupted - overtaken by forces that were not
within their traditional industry competitive analysis.
Have the courage to consider the tough questions. How
will your business be impacted by the following short list?
- Economic
- Is the US facing a long period of inflation?
- Supply chain issues? How long before it normalizes?
- Longer-term sourcing issues
- Will increasing labor rates make China less competitive? How will
outsourcing look in 5-10 years?
- Impact of climate change
- Technology - How much will
technology change your industry?
- Social
- Power continuing to move to the consumer (away from institutions)
- Buyers have equal or greater knowledge than sellers
- Changes in
culture, attitudes
- What short-term and long-term impact will the "green"
movement have on markets, products
- Changes in work environment, employee, customer behavior that
result from Covid19?
- Demographics
- Is your customer base affected by demographics?
- Labor shortages - Will you be able to hire the right skillsets?
- Aging population in certain markets
- What does the negative birth-rate and aging population mean for
European economies like Greece, Spain, Italy, or Iran and Iraq. Now the
U.S. is facing similar signs with lower birth rates, lower immigration, retirements,
etc.
- Baby boomers retiring, selling businesses, eldercare, etc.
- Pandemics (This was not
on many lists 3 years ago)
- The impact of Covid-19 now and the possibility of the next pandemic
-
- Regulatory - The list is
endless...
- Health care
- FDA
- Trade
- Tax reform (Elimination of subsidies, elimination of deductions
Some organizations may say scenario planning is too difficult
and elect to take a simpler course. Most organizations perform
traditional strategic planning or business planning/ budgeting because it is
comfortable and addresses a short timeframe. However, we now know that the
world is uncertain and interconnected. Companies can no longer ignore
uncertainty or try to assume it away. As author H.L. Mencken is
quoted, "For every complex problem, there is an answer that is clear,
simple, and wrong."
That is your opportunity. Since 2008, we've seen the number
of our clients that are doing scenario planning more than triple. Companies
that are scenario planning are examining different possibilities of the future
and determining their competitive responses. They are modifying the trends and
information that they monitor so that they can develop "early
warning" signs. These companies are building flexibility into their
planning and adaptability into their leadership and culture.
Check out the full scenario planning series on our website.
For more information on how you can take your planning
process to the next level, contact me at (303) 660-8135 or meaddp@meadconsultinggroup.com
No comments:
Post a Comment