Defy the False Prophecies of a Recession

“It was the best of times; it was the worst of times . . . . “A Tale of Two Cities, Charles Dickens, 1859.

Nostradamus was one of the best-known prophets of the past.   Here we are more than 160 years later, and those words still resonate.
If not the economists, the journalists tell us to brace ourselves for a recession.

We’ve heard warnings of a looming recession for the past three years and before.

We learn this week that the average unemployment rate in the USMCA trade region is at 4.25% (5% in Canada, 3.5% in the USA and 4.38% in Mexico).

Do you realize that is below what economists regard as full employment?

Unemployment has been steadily holding at well below 8% for the past 40 years, except for a three-year period following the Financial Crisis.

We have heard the warnings before, and they were false. We are not returning to any kind of ‘new normal’ any time soon.

We are facing a future of hope that is surrounded by uncertainty, unpredictability, and inconsistency.

So, what else is new?

Businesses around the world are remembering past recessions. Those that face them with gusto come out the other side much stronger.

What will they do differently this time because of the new economic realities?

Here I share the three fundamental options available to businesses of all sizes to blow past the uncertainty until a sense of stability (at least, we can hope!) can be achieved again.

This is not comprehensive; they are the Top 3 Priorities we often work with clients on through the ups and downs of economic cycles worldwide.

I. Establish the Conditions for Agility

Having agility is the ability to ‘take quick action’. Resilience is the ability to ‘bounce back’ stronger in the event of a setback.

Instilling the conditions to achieve that is job #1 for every business manager and executive if they are to thrive.

Knowing your criteria to succeed and thrive will help you determine those conditions and expose any risks you may face. Yes, there will be risks, but this modern approach is necessary for success.

There is financial, operational, and strategic agility and resilience. They are not mutually exclusive.

Financial agility and resilience mean having a strong balance sheet, cash flow, and financing options in reserve should an opportunity appear.

Cash flow is king — manage it aggressively.

Building a strong balance sheet is essential for robust financial management. It is not only important when a recession may be looming. It matters every month in every economic cycle.

Strategic agility and resilience mean diversifying the strategy for products, customers, geographies, staff, suppliers, and ecosystem partners. Agility and resilience in your strategic plans mean having the flexibility to redistribute and reallocate resources as needed, especially your focus, finances, people, assets, work distribution, supply chains and more.

Studies have shown that less than 20% of large, medium and small businesses can quickly and effectively cut their losses by ‘failing fast’ — knowing to let go when a product, initiative, market or business idea is simply not working.

Additionally, decentralizing decision-making speeds up the process further and lets your teams get on with it.

Operational agility and resilience are the toughest and most important to get right. This is where your capabilities lie — skills, capacity, and action — for the execution of strategies to achieve the financial and strategic objectives.

When uncertainty lies ahead, the first reaction is usually to cut employee numbers and reduce operating costs. That is not my first recommendation here.

Taking a pragmatic and detached assessment of how things are aligned, considering where the business is going, will pay dividends. A self-assessment, detached from the results, will yield valuable information to lighten the decision-making process. It asks thought-provoking questions, such as:

  • Is holding on to non-essential assets or personnel creating value, paying dividends, or improving cash flow?
  • Are fixed costs truly ‘fixed’, or is there room for negotiation? Any fixed cost reductions will enhance the bottom line.
  • Are your processes and systems effective, or are you burdened with the high cost of ongoing problem-solving? Less time is available during uncertain times to be spent in problem-solving mode. Problems slow you down, they’re expensive and not productive.

Establishing the conditions to thrive during a recession or boom period is the priority of every executive and manager. Without the right conditions, decisions are made that will not deliver the expected outcomes; then ask themselves, ‘Why?’.

II. Adapt to Build Resilience

In uncertain times adaptability matters much more than continuous improvement.

Adaptability is what enables change and raises the bar on quality at a time when everyone is looking for value.

Understanding your team’s adaptability quotient means having “the ability to determine what’s relevant, to forget obsolete knowledge, overcome challenges, and adjust to change in real-time.[i]

The ability to adapt helps build on resilience and agility because it is supported by continued learning that prepares people for an uncertain future.

People with a high degree of adaptability are receptive to possibilities with open-mindedness. They want to hear the perspective of others and have the least resistance to change.

Adaptable leaders and employees are better equipped to support their business’s needs as they change and grow — and they’re in high demand.

As customer demands, market trends, and technological advances continue to evolve, organizations must have the ability to adjust and adapt to change to stay competitive.

III. Assess your Strategy in the Context of Capabilities

There is little as misguided as driving decisions and strategy from the top down; while understandable, this is what the top business schools teach.

The importance of crafting a strategy based on ‘strategically coherent capabilities’ cannot be overstated here. Having the SKILLS, CAPACITY and ACTIONS to execute should be the central context of a strategy.

If all three elements are not present, like the three-legged stool, it is time to find them. What is most often lacking is capacity. Just a few more work hours a week should fill the gap. Bullshit!

In any sort of business, the managers are the ones who best understand the challenges and opportunities before them, not the head office or the strategy office.

The managers are best positioned to acquire the skills necessary, build the capacity to do what is necessary and take the actions to get the results.

That presumes a strong sense of accountability and ownership. Nothing less will do. It is up to senior management to create that environment.

What the past 40 years have demonstrated with compelling evidence is that centralized decision-making has numerous disadvantages, such as

a) Creates unnecessary bureaucracy — it resembles a dictatorial form of leadership where employees are only expected to deliver results and outcomes — they are merely implementers of decisions.

The result of such actions is a decline in performance because the employees lack the motivation to implement decisions taken by top-level managers without the input of lower-level employees.

b) Lack of control — Executives are under tremendous pressure to make decisions, yet they lack control over the implementation process. The failure of executives to decentralize the decision-making process adds a lot to their workload. I wonder if they realize that!

Management seldom has the capacity to oversee the implementation of the decisions they download. Therefore, executives may make too many decisions that are either poorly implemented or, at times, ignored by employees.

c) Bottlenecks — Centralized strategy and decision-making result in work delays with ongoing back-and-forth reporting, with executives not exposed to the day-to-day routines of the businesses they are charged with to be successful. This means that the employees will be less productive if they continually wait for guidance. Bottlenecks ruin productivity!

d) Employee Loyalty — Employees become loyal to an organization when they have the latitude to initiate value-adding activities in the work they do. They can introduce their creativity and suggest ways of improving/adapting performance or effectiveness.

In centralized organizations, most of the work performed is conceptualized by senior executives. This limits their creativity and loyalty to the organization due to the rigidity of the work.

Work rigidity is a key source of burnout. Burnout is often attributed to over-work when in fact, it is more due to ‘wrong work’.

In summary, these priorities deserve your attention if you are to defy the effects of a possible recession impacting your business. Without a recession, you will be much further ahead using these recommendations.

You will be positioned to raise the quality of your business, have the agility to respond to changes, build resilience in the event of an unexpected setback and deal with business risks while creating value.

In the coming years, businesses will be all about value and quality. 

Uvidi Management Solutions provides advisory, coaching and training solutions to help your business excel and deal with problems in areas of

  1. Strategy
  2. Quality Management,
  3. Change Management
  4. Risk Management

We can help you put the recommendations discussed here in place in your organization.

[i] As defined by Ivey School of Business

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