Saturday, March 21, 2009

What Shape Will the Recovery Be?

(from Issues for Growth Vol.18, No.5)
We keep reading about the most recent economists’ forecasts for the recovery। Will it be “V-shaped” and bounce right back off the bottom? Or will it be a “U-shaped” and drag at the bottom a little longer? Or will it be a very flat (___) U-shaped and bounce along the bottom for awhile, taking a year or two more to recover?

Business owners are hunkering down to ride things out – and speculating about WHEN the market will come back. But what if the market never comes back. The truth is that many markets never come back following a recession the way they went in. There are changes in volumes, competitive positioning, structure, etc. Industries decline or raise in importance.

The rhetoric at the political level is that the economy will be restructured with emphasis on new industries and de-emphasis of some older more-established ones. Where does your company fit with all of this?

Was the growth of 2004-7 an anomaly?

Consider this: What if we return to a world where credit is tighter, a world where consumers need a 20% down payment, better credit, higher rates, etc. before purchasing autos, homes, RVs, etc. What will that do to volumes in certain industries? You can extrapolate that over a number of industries. This thought process extends beyond the consumer side.

Consider a little exercise. We took a group of different companies across a number of different industries. Look at stock prices through the years of the 1990s and into the early 2000s. There is a relatively steady pattern of growth. Each stock had a fairly predictable trading range. Now look at 2004-2007 or so. You notice this very unusual spike of financial growth. This spike lowers in 2008-9 to levels that look a lot like the levels of the late 1990s. What if that is the true steady state – not that of the years 2004-7?

Management needs to build flexibility into planning

Companies are trying to understand what this new world might look like and how best to prepare to take advantage of opportunities. You cannot predict the future. However, you and your management team need to prepare your company. That includes looking at various possibilities of the future, determining what your company’s desired position might be, and focusing the team on the top things that will put your company in position to thrive.

How well is your company prepared to respond to these challenging times? Are you taking control of the things that you can? Are your actions strengthening your company - or weakening it? Are you building flexibility into your plans? Are your managers able to adapt quickly to rapidly changing market environments? Have you changed your approach to planning?

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