I can almost exactly repeat some of the comments I made in December 2020 about the prospects of 2021 that the global economy will experience an unprecedented short term boom.
Is this Deja Vu? Not quite - in many ways some industries have been more badly damaged, the shortage of people (in Australia) is much worse and the global (and domestic) transport and logistics crisis is much more. If it were just demand led we’d all be happy, but supply constraints create a very uncertain short term., by which I mean the next 6-9 months,
Those in my TEC groups and those who listened to my guest, British behavioural economist Roger Martin-Fagg, we know the $17 Trillion pumped into the global economy since early 2020 will only be absorbed eventually by inflation. In particular the demand stimulus in the US, Europe and indeed Australia is still roaring through - with full employment.
Admittedly if you just read the depressing newspaper headlines or you had actually lost your job or were locked down in Melbourne, it would have been difficult to see light at the end of the tunnel.
So is this the end of doom and gloom?
Not quite yet. It doesn’t mean the bounce-back will be even. COVID-19 has accelerated business model disruption. Matt Tice, author of the book “Insurgence” reminds us that we have a choice – to be predator or prey. Grant Leboff, the expert on “Sticky Marketing” makes the point that B to B sales has changed forever.
So 2022 will see winner and losers. Some– international air travel, business conferences, further education will not bounce back and already we are seeing the demise of several bricks and mortar retailers. Construction in my local state is set for several business failures and restructuring crises.
What to watch out for
1. Business failures and stress
2022 is very different from post GFC times but there will still be business failures.
The most predictable are in industries that have been significantly damaged, subject to massive shifts in business models, such as the bricks and mortar retail sector. Slightly less visible are businesses that already were basket cases, but COVID-19 support delayed the execution.
But the biggest risk are those businesses that look healthy but have forgotten about working capital and that Cash is still king. From my years in the credit insurance industry, many business failures are caused by not being paid on time by customers especially in an upturn! This can destroy supply chains.
2. Changes in buyer, supplier and competitor behaviour through shifting business models
COVID has affected everyone; no business is immune to a rethinking and reflecting process. The period in first half of 2022 will be characterised by executive teams getting together and resetting their business strategy. Refocusing on core, considering diversification or extension. Learning from other industries, which is why the TEC model is so effective. In effect, to some extent, changing their business model.
3. Availability of Talent
With the clients I work with we are already seeing the beginnings of a fight for scarce talent.
This leaves business leaders with challenges on how to hold on to key positions before the bounce back takes place, possible inflationary wages and the need for clear career paths.
Things to do
1. Be strategic. Now.
I’ve heard a few CEOs question the value in discussing strategy because of the continuing uncertainty. I sense they have an outdated idea of what a strategy should look like. There will never be a return to value of a five year plan but having a long term strategic objective is critical. I’ve been advocating for several years that a long-term strategic objective should lead to a road map, but not a detailed plan. From this we can focus on the short term while keeping an eye on where we are headed. I’ve taken my TEC groups away for 2 day retreats at the end of January to ensure their next 12 months are founded on strong strategic foundations.
2. Retention strategy
Remember your best people always have choice. 2020 with travel restrictions and working from home has made everyone reflect on what is most important to them. Maybe it’s something they have discussed more than usual with life partners. Who do you want on the bus? Make it clear to them why you want them and understand what they are thinking. Be proactive if you really have to pay some key people more. Trudy MacDonald reminds us that loyalty doesn’t count for much if someone is uncertain of the future.
3. Review the potential changes to your customers
Don’t make assumptions about your customers; spend time finding out how their thinking is changing. It will be. Consider how you can use your expertise to influence this thinking – to ensure your long term relevance and viability. Recognise the value in digital channels to reinforce personal relationships. Grant Leboff says we all have two businesses now – your core business and a media publishing business.
4. Manage your cash flow risk
Be proactive in your risk assessment. Model forward cashflow, don’t leave it to chance. If you are forecasting an upturn consider cashflow financing as part of an overall financing strategy. Credit assess your customers, use available credit information and get insurance cover if you are very exposed to unexpected customer business failure. Scenario plan your largest customer going bust. Talk to your customers about their trading position
5. Design an agile leadership model
Expect to pivot. Expect to respond to unexpected changes. If you have too long a plan to get from A to Z you’ll be knocked sideways before you get there. Plan and execute the plan to get from A to B, then work out the next step. This requires a whole business model of roles, accountability and communication. One of the best examples of this was Alan Mulally who used a weekly business plan review process for the whole of Ford Motor Company when they turned it around in the late 2000s. The Story is told in American Icon. One of the most copied models is Pat Lencioni’s Organisational Health model described in “The Advantage” and linked to that models from “Scaling up” by Verne Harnish and “Traction” by Gino Wickman.
If you are a business owner who needs to refocus on these issues there are some simple models we can use to help. Just reach out to Jon Lindsay
