RECESSION EFFECTS

"The global recession has driven 100 million more people below the poverty line and has caused 61 million more people to lose their jobs world-wide in the past two years, says a new U.N. report that Secretary General Ban Ki-moon was to present to the General Assembly on Wednesday."

Source: The Wall Street Journal, Joe Lauria, Wednesday, September 23, 2009, p A-5.

UNLOCK-IT-FORUM

This past Thursday THE STRATEGY EXPERT served as a Solutions Provider at the Unlock-It-Forum. It was great to find nearly 100 business leaders getting together to positively discuss the opportunities ahead instead of negatively talking about the past economy.

I told the leaders that the opportunities that are out there today are greater than anytime, perpahs in the past 15 years. The playing field is "flatter" and small and medium-sized oragnizations now have a realistic chance of earning market share.

I think leaders are beginning to think strategically and plan for the next growth stage.

PREDICTION COMING TRUE

Earlier this year, the government announced that if it did not move forward with the stimulus package, the unemployment rate could go as high as 7.5%.

I predicted that if the federal government did move forward with the stimulus package, the unemployment rate would go as high as 10% to possibly 10.5%.

This week the official unemployment reached 9.7%. Closer to my prediction than that of the economists in Washington.

CLUNKERS RESULTS

Well, the results are in for the Cash for Clunkers program that was supposed to revitalize the U.S. automakers. According to The Wall Street Journal, the top 10 models purchased in the rebate program are:

1. Toyota Corolla
2. Honda Civic
3. Toyota Camry
4. Ford Focus FWD
5. Hyundai Elantra
6. Nissan Versa
7. Toyota Prius
8. Honda Accord
9. Honda Fit
10. Ford Escape FWD

It appears you can have any domestic car you want as long as it is a Ford.

GOVERNMENT VERSUS BUSINESS

Business in the United States is almost like a “bad word”. To say you are in business conjures up images of flying in a plane and offering bonuses.

I am reminded of the fact that the U.S. government is also out of money and operating at a deficit and has been since before the economic downturn. In fact, the government is $11 trillion in debt. http://www.brillig.com/debt_clock/

While it is popular today to criticize business, there have been times in the past when the Federal government has needed the financial backing of business.

Let’s begin with the founding of the United States. During the Revolutionary War, the tobacco industry helped finance the war by using tobacco as collateral for the loans from France that were necessary to survive. Thus, the United States might not even be a country if it not for business. http://academic.udayton.edu/health/syllabi/tobacco/history.htm#industry

In 1877 JP Morgan and August Belmont, along with the Rothschilds, floated $260 million in U.S. government bonds. After the government ran into some problems with gold, JP Morgan bought $200 million work of government bonds with gold; thereby preserving the credit of the United States. {And he didn’t even ask for control of the government or fire the CEO – the President]. http://www.financial-inspiration.com/JP-Morgan-biography.html

There needs to be a strategic relationship between government and business and at the present time, the government seems to be taking advantage of the situation.

Do You Strategically Plan for What You Sell or What you Market?

Here is a sales and marketing strategic thought to ponder:

The percentage of visitors who say they come to Las Vegas to gamble: 5

Perentage of visitors that actually gambles: 87

Source: Las Vegal Convention & Visitors Authority.

Do you strategically market to the philosophy or the behavior?

KEEP ON ADVERTISING

For months now I have been advocating that now is not the time to stop planning strategically, conduct research, or decrease advertising. In fact, I have even stated on several occasions that those companies who continue to progress, will be the market leaders once the recession ends.

I am reminded of a study McGraw-Hill conducted during the last major recession (1980-1985. The study indicated that those companies who continued to advertise aggressively experienced a 256% increase in sales. That is significant.

Those companies that decreased advertising during that same period found that not only did sales drop dramatically, they had to work 2.5 times as hard and as fast once the economy improved, just to get back to where they were before the economic downturn.

In fact, when presence in the marketplace is decreased for 2 years, 40% of the targets don't even know you exist.

BIO AND NANOTECHNOLOGY – OUT OF BUSINESS

There are many who believe that bio- and nanotechnology are likely to be two of the largest industries to generate jobs, revenue and growth over the many years to come. Unfortunately, the U.S. and some state governments have been opposed to much of this (gene and embryo) research which has prompted many firms in this industry to migrate to other countries to conduct is research and development (R&D).

This week it was announced that much of the R&D efforts are struggling financially as it takes years of research and billions of dollars in funding before a product is often brought to market. Media reports indicate that 100 or more bio- and/or nanotechnology firms could go out of business this year due to the financial crisis.

One of my concerns regarding the stimulus package has been the fact that the initiative lacks a major focus on the jobs, the skills, the technology and the industries that are likely to be world leaders for the next 25 to 50 years. Allowing over 100 bio- and nanotechnology firms (companies that might be working on a cure for cancer) to go out of business while financial firms and car companies receive billions in financial assistance illustrates a lack of strategic focus and planning on the part of the United States.

Research and development incentives should be promoted. Venture Capital firms should be given tax breaks and incentives for participation in bio- and nanotechnology research. Colleges and universities should receive funding to help prepare students for these future jobs. And bio- and nanotechnology research should be supported and encouraged in the incubators throughout the United States.

Recovery?

For the past few weeks some government officials and industry experts have been indicating that the economy has “bottomed out” and things are improving but I have not seen any evidence of that out in the work environment.

Each morning I read The Wall Street Journal and today (April 24), I decided to read the entire paper by only reading all of the headlines first in order to get a sense or feel for the news – a survey of sorts.

The following headlines are from just today’s issue:
Industrials Prove Less Than Durable
Swedbank Shrinks In the Baltics
Profit Slows Down at India’s HDFC
Mizuho Financial Experts Expect a $5.9 Billion Loss for Year
AmEx’s Customers Leave Cards at Home: Net Tumbles 56% as Slumping Economy Hits High-End Consumers
CME Group Profit Drops 30%
Regional Banks’ Results Keep to Sluggish Pattern
Dollar Falls as Risk Returns
Microsoft Gets Stung by Global PC Slump: Software Giant’s Profit Falls 32%
Steel Woes Signal Shakeout, Prices Cut
Small Business Owners quit Taking Salaries to Stay Afloat
High Costs Hit the Trusty Tin Can
AutoNation Falters in Downturn: Earnings Drop 32%
Steel Industry Expects Further Losses
ABB: Engineering Titan’s Profit Falls 35% in First Quarter
Bunge: Company Swings to Loss
Royal Caribbean: Cruise Operator Posts Loss
EMC’s Profit Declines 20%
Amgen Curbs Its Projection for Revenue
UPS Earnings Hit By Downturn
Net at Three Big Railroads Is Off Track
Marriott Reports Loss as Revenue Falls 15%
McClatchy Co’s Loss Balloons as Ad Sales Fall
Chrysler New Bankruptcy Filing
Home Sales Fell 3%, Layoffs Rose in March
Fed’s Earning Fall 8%

Perhaps the word of the recovery has not yet reached corporations.

THE RECESSION CONTNUES...

I have read several reports this week indicating that the economic recovery has begun. While some key indicators are improving, there are other factors that indicate that the recovery is slow.

The Conference Board reports that economic indicators sank in March for the ninth consecutive month. Declines in new building permits, the stock market and labor market activity for March pushed the index down 0.3%, after 0.2% drops the previous two months. This suggests that the U.S. economy will continue to contract.

One indicator that I use of the economy is number of new jobs. When companies have the confidence to increase hiring, that is a sign that economic recovery has begun. With the exception of a few companies, hiring has not begun and in fact, many organizations are still downsizing.

Interestingly, since World War II there have been many business cycles. The current recession is just ending its 16th month, which ties it with the two longest recessionary periods since WWII.

Why Isn’t the Stimulus Package Working?

You may have noticed that I have been away for a few weeks, traveling again throughout Southeast Asia, where I have noticed that the United States is not the only one suffering from the economic crisis.

Despite the fact that nearly a trillion dollars have been set aside, industries have been supported by the government (auto) and major financial institutions (AIG) have received multiple bailout funds, the economy continues to decline. On Election Day the Dow was at approximately 9600 and today, the Dow is approximately 6600. Despite the fact that the government has announced the largest public works projects since The New Deal, unemployment has now risen to over 8% and is expected to increase.

Why have we not seen the effects of the latest stimulus package?

The answer to that question requires much more space than allotted there but I do want to address one fundamental flaw in the approach used by the U.S. government.

The stimulus packages are reactionary and not strategic.

Large amounts of money are being used to primarily pay-off past losses with a small amount set aside for today (infrastructure projects) and basically nothing allocated for the future. In essence, most of the money is being used to pay off past debt. When all is said and done, we will have supported many companies and industries only to have a country debt that is astounding, with no strategic ability to recover.

For example, Warren Buffett seeks companies that have little or no debt because he does not want his cash to be used to pay off the past. He would rather his cash be used to take a sound company to the next level. He wants his money to be used for strategic growth, not past management mistakes.

Strategically, we should be looking for opportunities to develop new markets, products and services that will lead our economy for the next 25 to 100 years. Funds, tax breaks, and tax credits should be set aside for innovation and creativity – for research and development on concepts such as biotechnology, nanotechnology and innovative transportation systems.
Using taxpayer money to pay off bad debt and management decisions that have failed instead of strategically stimulating the future could mean that the U.S. economy may not return to its 2007 level for 25 years or more. I have long advocated that the U.S. government needs to develop a long-term strategic plan. That needs appears to be reaching an urgent state.

TACTICS VERSUS STRATEGIES

In the United States, there is a great deal of pressure placed upon the CEO of a publicly traded company to meet analysts’ expectations on quarterly earnings reports. The Securities and Exchange Commission (SEC) require publicly traded companies to report all activity four times a year, with certain expectations with each filing. This requirement encourages executives to employ short-term tactics as opposed to long-term strategies. It also sometimes encourages executives to manage the stock instead of leading the company.

This is the wrong approach. Concentrating on the intended or expected outcome is the wrong focus of an organization. Concentrating on long-term strategies, which when successfully implemented will produce the long-term expected financial outcome, should be the focus of the Executive Committee. However, we are likely to see more short-term actions instead of long-term planning of our largest companies.

Because U.S. publicly traded companies are constantly focusing on the short-term results, they are often ill-prepared for cyclical changes in the economy, as clearly evidenced each day in the business section of the news.

YAHOO AND INTEL TV

Yahoo and Intel have announced a program to bring TV to the Internet. THE STRATEGY EXPERT™ has posted comments regarding this proposed launch on the BusinessWeek website. Click the link associated with this post to read the comments.

Strategic Marketing

During a recent discussion with a Doctor of Optometry, the doctor indicated that he would like to increase the number of patients without dramatically increasing his marketing budget. It seems the economic downturn has caused an approximate 40% attrition rate to his practice.

I asked the doctor if he accepted insurance from patients and he stated that he did, but the paperwork and coding for each one was a nightmare. {My impression was that he couldn’t live without the insurance companies and was having trouble living with them.} I then asked if his office tracked the number of people who called asking if the practice accepted their insurance. He indicated that it did not. I suggested that he have his office staff track the number of requests for insurance coverage for a period of time and then concentrate on learning those systems while decreasing the amount of patients from the smaller insurance companies that were so time consuming.

I told the doctor that this study would not cost his office anything in terms of the market study and he would be able to maximum his learning of the coding system and group similar paperwork together while serving potential customers that he is currently turning away. Surprisingly, the office staff for the practice had not thought about tracking the prospective calls that come in to the office.

Lessons Learned: Sometimes, increasing your customer base does not have to cost that much more money. Think about what you are not offering, in relation to what you are offering. Track and measure everything.

WOLGANG PUCK

I recently had the opportunity to spend some time observing one of the locations of world-renown restaurateur, Wolfgang Puck. I wanted to see firsthand how the restaurant operates.

First, some, but not all of the activity of the cooking staff took place out in the open where guests could view the activities. The pizza dough maker threw it in the air to the delight of the guests. He then handed the pizza to the baker who placed the pizza in a wood-burning oven. Others were busy frying food and of course the servers and managers were busy making sure things move as smoothly as possible.

There were several observations that were immediately apparent. First, this was a busy night at the restaurant and all tables were full and the wait-time was 45 minutes. Second, everyone had a job to do and worked at diligently at completing the tasks. Third, some mistakes were allowed. At one point the chef baking the pizzas accidently dropped one while trying to slide the pizza onto a plate. The head chef saw it, immediately moved the pizza off the counter and asked how long for a replacement so he could schedule the other orders for that table. They quickly moved forward past the incident.

There was one chef who was the lead chef and demanded the respect of the others. He would often inquire about an order and the person working on that portion would promptly respond with a, “90 seconds chef” or “coming up next, chef”. At one point there were several orders for pizza and the pizza chef was behind schedule. The lead chef came over and for about eight minutes he too helped make out the pizza dough before moving back to his final preparation and observation station. Management was not afraid to step in when necessary and help get the work done.

I could not help but think that this is a young person’s game as the activity was very fast-paced – particularly at the stove top section where those chefs were frantically busy cooking the many items that would shortly appear at the tables of the guests. Their level of concentration was and focus was evident.

I carefully watched the employees to see if they were having fun. I noticed that the pizza maker and the oven chef and the two of them regularly talked and laughed, even though they was working at a fast and steady pace.

Lessons Learned: Although the wait was long – most waited 45 minutes to get seated and then another 45 minutes before the dinner was served, one could clearly see the workings of a well-oiled machine taking place. Communication seemed to be the key to the success. The servers would communicate with either the chef or the person assigned to the station of finalizing the preparation and these individuals would inquire about certain dishes with each cook or chef who would immediately respond. Serving several hundred guests an hour requires a smooth operating organization, centered around mutual respect and communication and the Wolfgang Puck restaurant seems to have mastered this approach. Finally, management worked side-by-side to help ensure quality food was being provided. Providing a good, quality meal seemed to have priority over delivery time. Apparently, guests at Wolfgang Puck’s restaurant are willing to wait a little longer to receive a good, quality meal.