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.