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There is a lot of talk these days about how this period of prosperity
cannot last forever. This is certainly a true statement, because
nothing lasts forever. The fact is that many public companies
have already begun to report reduced earnings. There are many
explanations for this.
1. Companies that sell to Asia or Europe have already been
experiencing a recession. Those with heavy investments
in the Far East have certainly been having severe problems
for the past few years. The Japanese stock market is
down over 60 percent from its highs in the early 1990s.
The strong American dollar (until recently) has forced
U.S.-based exporters to make difficult choices concerning
market share and profitability. The issue facing many is,
given the price pressures, should they sell at reduced
margins and keep the business, or is selling at low margins
not worth the effort?
2. The absence of inflation on a global scale has helped
some companies, but hurt others. Oil drilling companies
and companies in other businesses involving the production
of commodities have been in a significant recession
for quite some time. Some agriculturally based businesses
have been so successful at improving productivity that
they have excess capacity and their production is far
above what the market needs.
3. Overbuilding of capacity in some very capital-intensive
industries has resulted in a Darwinian selection process
among competitors. It is very difficult for these companies
to adjust to weak demand and rapid technological
change.
4. Companies that have a relatively fixed way of doing business
have been unable or slow to respond to the new
methods of doing business that have come about because
of technological changes. These new business models
have affected the supply chain and attitudes about outsourcing,
and have redefined or actually created a relationship
between the original supplier and the ultimate
customer.
5. Disintermediation has drastically affected all supplier/
customer relationships. An intermediary is a middleman,
someone who is in between. A traditional wholesaler or
distributor buys from the manufacturer and sells to the
retailer, who in turn sells to the consumer. A retail store
is an example of an intermediary. Sometimes the intermediary’s
only contribution to the process is buying in
large quantities and being willing to sell in smaller quantities.
In effect, these intermediaries are inventory managers
who provide extended credit terms.
Technology is permitting a direct relationship between
the manufacturer and the customer. We can buy
cars and airline tickets on the Internet, and we can trade
stocks and bonds as well.We used to get all of these things
through intermediaries—car dealers, travel agents, and
stockbrokers. The reduction in the role and value of these
intermediaries is called disintermediation.
Action Plans for Success
So the question that arises is, ‘‘What happens if there is a recession?
How will it affect the company, and what should we do?’’
1. Don’t panic or overreact. Think strategically, with perspective.
Across-the-board expense reductions are usually
counterproductive. They penalize the most efficient
departments, result in higher-level people doing less productive
work, and exacerbate the problem of keeping
your focus on the most profitable place for your investment
dollars.
2. Refocus on your customers. What do they want from you,
what do they expect of you, and why do they buy from
you? What is the real value that you offer? Examine how
technology will enable you to reposition yourself in the
supply chain. Help your customers lower their inventory
and reduce delivery times.
3. Enhance your marketing efforts. The best opportunity to
gain market share is when your competitors are reducing
their sales forces, trade show appearances, advertising,
and promotional efforts. Potential customers are more
willing to consider a change, and your competitors’ presence
is being reduced.
4. Identify and pursue new applications for your organization’s skills and capabilities. There are many companies
out there that are not perceived as traditional customers
for your industry. Go after them. You may be the only one
who will. Change is an almost universally accepted fact of
life these days, and any organization that resists change
will fail. We are all someone else’s outsource. What kind
of businesses would consider your products or services
valuable?
Who are your competitors? They may not all be companies
that look like yours. The list of competitors may be
changing constantly as companies and supply chains are
redefined. Competition is defined by contribution and
value added, not by the physical appearance of those who
compete. The biggest threat to Barnes & Noble bookstores
is Amazon.com. This is a classic concept called
marketing myopia that was first identified many years ago
by Theodore Levitt of the Harvard Business School.
5. Collect those receivables. Enhance your cash flow. This is
everyone’s responsibility. The faster the money comes in,
the more money you will have available, sooner, for reinvestment.
Sell off underperforming assets, including inventory,
fixed assets, and products, to raise and redirect
cash flow.
6. Have your management team do a S.W.O.T. analysis. This
is an incredibly valuable corporate self-assessment of
where in the global economy your company currently is
and where it needs to be. S.W.O.T. stands for strengths,
weaknesses, opportunities and threats. Such an analysis
enables the company to identify and focus on all of the
positive and negative issues that need to be dealt with.
This should be an annual effort that precedes budget
preparation.
Strategic Issues and the Global Economy
Our domestic economy has not experienced any noteworthy inflation
for quite a few years. The inflation indexes—the consumer
price index (CPI) and the producer price index (PPI)—are statistical averages that reflect real economic events. However, they also
tend to mask divergent trends that the casual observer may not
detect, but that in fact have considerable impact on certain sectors
of our economy. The prime example here is the serious decline
in the price of oil, and its reversal again more recently.
As a result of the strength of our domestic economy, the dollar
has been very strong relative to other currencies. As a result,
imports have become less expensive. However, our competitive
position globally is subject to very inflexible price ceilings. If the
dollar weakens, the impact on the statistical averages, and also
on the domestic economy, will be very bearish.
Imports will become relatively more expensive. The higher
levels of inflation shown by the indexes might cause the Federal
Reserve to increase interest rates, leading to a much lower stock
market, declining individual net worth, less consumer spending,
and more business caution—in other words, a recession.
Incredible technological advances in information, manufacturing,
and agriculture have improved our productive capacity
and the efficiencies of our business practices to an extraordinary
degree. Technology, corporate ambition, and competitive pressures
have caused the business relationships in which our company
is involved—its sources of supply and its customers—to be
truly global. To be successful, we must revisit the fundamental,
age-old business questions: How do we add value to our customers?
How well do we serve them? How efficiently and effectively
does our company perform? | 
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