Enterprise leaders continue to suffer "screen shock" as more bad news rolls in from worldwide financial markets and news sources.
At the same time, many big firms are revealing how they plan to cope with the potential downturn of a double-dip recession. Following is a brief summary of some key suggestions emerging from top-line executives and financial experts:
Accept the facts of the situation. It may be tempting for top managers to resist the bad news we're getting every day. Don't do it, says R. Scott Raynovich, editor in chief of Investor Uprising, a sister publication to Internet Evolution. "Everybody's running around looking for solutions: Cut taxes! Raise taxes! Kill S&P! But all these miss the point," Raynovich said in a blog on Monday. "You have to ask yourself: Do you want to blame somebody, or do you want to prepare yourself financially for a long era of debt deleveraging, which is the reality of the situation?"
According to Raynovich, the essence of the double-dip downturn is a "global debt bomb, which is working its way across the world like a financial market boogie man." Companies must deal with that reality.
Avoid quick fixes. There's no indication that short-term financial finagling will boost a firm's position. In this case, the bad example is Groupon, which recently restated its financials in light of the SEC questioning its methods. Thanks to using what the Wall Street Journal calls a "controversial accounting metric," Groupon has egg on its face and has had to reissue its IPO registration statement.
In today's troubled financial times, this kind of move doesn't generate the kind of credibility companies rely on to calm jittery investors.
Expect tried and true models to fail. Cablevision's CFO has articulated how the current economy militates against corporate strategies such as ring fencing via purchasing competitive suppliers. The credit crisis will make it tougher to rely on leveraged finance in any of its shapes and forms.
Don't expect cuts alone to generate growth. This tenet seems to make sense. But many firms will be challenged to find ways to innovate and grow despite cost cuts and clinging to cash. In this regard, suggestions abound in the area of technology. The key here is not just trimming existing systems and processes, but redesigning them. Use of cloud computing, datacenter consolidation, and resource sharing, for instance, seems to be streamlining expenses dramatically for some US government agencies. These kinds of measures are naturally a fit for the private sector as well.
In this vein, technologies that promote business analytics and optimization are likely to show up on the radar of many firms that may have postponed hard thinking about them up to now.
Look for opportunities. While it's tempting to devote resources to meeting the financial crisis head on, some firms are being careful to avoid becoming obsessed with it. The CFO of drug company Perrigo, Judy Brown, has tried to view the opportunities lurking behind bad financial news and to pursue its own strategy despite the headlines. Brown says that when there's a gap between what's happening in world economies and what's happening in the markets, it's best stand back and consider "the bigger issues," instead of responding to the "shock" of what's turning up on the office monitors.
"You need to bet on the future without being reckless," says Tom Nolle, CEO of consultancy CIMI Corp. "There is always a temptation to immediately try to cut costs, but that will simply commit you to a kind of 'reactive shrinkage' of your business. So what you do is to look beyond the dip to the recovery, and try to position yourself so that in the early phases of the recovery you are poised to gain market share."
Watch the big picture. It may sound corny, but in the US, in particular, it may be vital for executives to focus on factors other than immediate corporate betterment. Collectively, US firms can affect change where politics has failed, some say. In an article in The Atlantic, author Derek Thompson says a lack of growth is a greater issue for US economics than debt. He wrote yesterday:
Yesterday's selloff spoke volumes about a lack of faith in US recovery... [Investors] saw multinationals and financial companies with record-high profits sitting on their cash, moving offices overseas, attracting foreign customers -- anything but hiring Americans. And most importantly, they saw a debt ceiling debate that seemed to take place in alternate universe to our growth crisis. A reasonable explanation for the market's collapse is that investors saw an economy too sick to grow and a government too dysfunctional to act on it.
It won't be easy for enterprises to weather the financial storms ahead. But with vigilance and wisdom, many experts think it will certainly be possible to survive and perhaps even thrive.
Please join us here for an Executive Clan chat to discuss this topic on Monday, August 15, at 1:00 p.m. ET.
— Mary Jander , ThinkerNet Editor, Internet Evolution