The impact of the economy in recent weeks has witnessed a disturbing reaction. Denial and Disbelief. Auto Company and banking executives who are in crisis mode seem arrogant and unwilling to recognize long term issues and even consider dramatic alternatives. I have been in several meetings with entrepreneurial companies who seem to be waiting for their 10% to 30% sales declines, credit restrictions and profit erosion to simply return to the good old days. Individuals out of work are pursuing the same old tactics and not recognizing the realities of their situations and industries. The government is responding quickly with new proposals every day. However the efforts seem to be out of panic, unplanned and with little thought of the consequences.
There are some bright efforts of organizations recognizing realities and reacting:
- Many banks and the FDIC are trying to renegotiate some mortgages to keep them viable rather than face foreclosures and even greater losses for all parties.
- Some businesses are liquidating which should make other competitors stronger.
- There is great hope for the Obama administration and he seems to be appointing excellent, experienced, and motivated people regardless of one’s politics. One major concern is that the hope may subside once the depth of problems and timing of solutions is really understood.
- There is a double edged sword of consumers reducing spending but further impairing the economy.
- Some of the factors which created the economic crises, such as cheap mortgages, increased spending and debt, and risky credit instruments, are being reduced and modified.
However, it is clear that denial and disbelief are the dominant themes with much less real change than necessary. I recommend that institutions, organizations and individuals consider the philosophies of two proven but diverse programs in dealing with the economic crises. The first the Alcoholics Anonymous model. First, it preaches to recognize the problem and acknowledge publicly that we are in a crisis. Second, it preaches to attack the problem both at the roots and one day at a time.
The second model is Costco. They sell the key items people really want with the lowest possible cost structure. The American economy has depended on growth from the continued proliferation of mostly mediocre products. Many companies’ sales will decline 10% to 30% from 2008 to 2010. They simply must focus on what is most needed, most profitable and most competitively unique. Grocery stores, make up, apparel automobiles, electronics are examples of categories with almost obscene proliferation that need to recognize the costs and saturation of their markets. Some specific ideas that derive from these models are as follows:
1. Acknowledge the economy is different and plan for 10%-30% decline on sales, housing values, retirement funds etc. for 1-3 years.
2. Consider targeting the three E’s: energy, education and the environment for dramatic investment. For example, are we sure investing $25 billion in education is not a better choice than bailing out auto companies? Investment in these areas can provide employment, stimulate short and long term growth and create a stronger country.
3. Slash unproductive, duplicative, unprofitable models, products, and services.
4. Reduce costs, prices and expenditures 10% to 30% by assessing everything and in particular the structures of how we do things.
5. Retain the best people, resources etc. and allow them to be more productive, included and innovative through better communication, collaboration, out of the box thinking and openness.
6. Recognize the speed of change and the need to act appropriately.
7. Expand efforts to spin off entities and outsource activities to focus on core areas and achieve the best and most cost effective efforts.
8. Trade pay cuts for incentives such as performance bonuses and stock options.
9. Consider acquisitions, mergers and even bankruptcy to create more productive organizations
10. Predictable trends such as aging of the population, the internet, China, India, etc. need to part of every program.
