Recession regression and pessimism porn

2009

With all eyes on the world leaders gathering in London for the G20 Summit to collectively address the economic crisis, the main thought affecting businesses managers the world over is whether any measures can be taken quickly to stop the rot.

So what do the leaders have to respond to? Yes, the systemic failure of the financial system, yes, the consequent decay in consumer spending and the fall in industrialised world trade. But, increasingly these problems are the symptoms, not the cause.

Arguably, there are two barriers to recovery now. The first is the deep rooted pessimism amongst executives that government solutions will not work or – if they do – that they will be too late to prevent an even worse recession. The second problem is the 'regressive' attitude of consumers and businesses.

The outcome we really need from G20 is to get across the belief that the end is in sight. After all, we know there will be an end - and very few people are suggesting that it is beyond 2010.

It is no longer just the lack of credit that is keeping business owners awake at night, it is a deep rooted pessimism about the future. The harsh reality is that many credit-starved businesses have already gone bust. Those who have survived have a deep fear of borrowing cash, one that no amount of quantitative easing will fix. But at the same time, the global drop in trade has meant that many small businesses want less credit, need less credit or don't exist anymore to have any use for it at all.

That means that the main issue now is the low level of confidence infecting the entire business community; paralysing investment and causing consumers to retreat which is fuelling the economic crisis.

Take the UK government's £75 billion quantitative easing action. In normal times this would cause a significant flood of credit, cause inflation and 'heat up' the economy as the money is released into the economy and gladly used by business and consumers. In the current situation none of this may happen because no one wants to borrow money so readily - always assuming that banks increase their willingness and flexibility in lending.

So this is an upside down recession, one affecting the financial community first and causing consumers to react and regress. Yes unemployment has risen to over two million, but it is not likely to hit the three million mark. So why are we experiencing a climate of fear and apprehension the like of which hasn't been seen since the 1930s?

Many people are actually better off than they were a year ago

Many people are actually better off than they were a year ago thanks to low interest rates, reduced mortgages in many cases and falling retail prices. But they are still retreating from the economy until the storm blows over. They are staying indoors watching and listening to news with the obsessed, rubber-necking fascination usually reserved for car crashes or porn addicts - except that the addiction is in this case is pessimism.

And it is the sheer volume of bad news, coupled with the self-evident uncertainty (or sheer incompetence) of governments that is serving to paralyse spending, creating a classic economic vicious circle.

But things are far worse in the business community where confidence is even lower and consumer expenditure translates into the longer investment cycle. Investment in business and inter-business activity are at a dangerous and profound low.

But what every the outcome of G20, there are still things that every businesses manager can do now to prepare for a bright and confident future.

1. Review the way business is resourced
This is a good time to look at resourcing. Staff may have been thinned out or even removed totally, but a skeleton team should be kept in place to respond to and exploit the upturn. Outsourcing is a very good option currently, outsourcing costs are down and they represent scalable, variable costs.

Many suppliers (e.g. marketing agencies) are so keen to build relationships that they will work on much reduced costs and they can add a lot of value to companies. But I've heard of companies that are even turning down offers of free work from suppliers - madness!

2. Externalise
The current crisis has caused a great deal of internalised thinking; but companies should be far more externally focused. They need to look at market trends, understand changing customer expectations and look at what competitors are doing (and be prepared to 'steal with pride'). They need to be creative – and creativity is free!

New ideas should be tested on customers. If the advertising and marketing spend has been cut then cheaper methods of staying in touch with customers must be considered. Mail shots e-newsletters and PR are a must. Advertising can be expensive, but communication need not be. Customers will be re-assured that a business is still there and energized.

3. Invest in products and services
Businesses may need to cut back on R&D, but this is not the time to stop. They need to use the information gleaned from external research to understand new market opportunities and where investment should be made.

Short- to medium-term expenditure should be prioritised. Long term spending can be put on hold until things pick up. Another idea is co-developing products and services with other organisations, while R&D can be outsourced too. There are commercial and academic organisations that make very good centres for development.

4. Change the psychology
The glass is half-full, not half-empty. It can be a fight out there, but leadership must maintain focus and morale. A motivated organisation is an effective one. Business owners need to show belief. The team needs to be focused on creating new opportunities in a positive working environment that believes the recession will end soon. People should be involved in future plans and in developing new strategies.

These are all positive psychology actions that will get the team up and ready for economic recovery.

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About The Author

Stephen Archer
Stephen Archer

Stephen Archer is Director, of UK business consultancy, Spring Partnerships. He is a chartered director and a consultant to FTSE 100 and multinational companies in the UK and internationally.