29 years ago, former Prime Minister of the UK, Gordon Brown, claimed that there would not be a return to boom and bust. Shame then, that we had a financial crisis in 2008, a coronavirus pandemic in 2020 and successive wars since 2022. We also had Liz Truss and her ‘mini crash’ precipitated by the mini-budget on 23rd September 2022. Most businesses could be forgiven for thinking that boom and bust and economic uncertainty are alive and kicking. A recent business school survey found that about half of leaders are focused on navigating this economic uncertainty, which was taken before the Iran conflict. With various countries at war and competing for resources or territory, we offer some of our thoughts on navigating economic uncertainty concerns successfully.
Economic uncertainty
Inflation, interest rates, tax burdens, rising employment costs, volatile consumer spending and regulatory changes all create uncertainty for the economy. When inflation is low, returns are more predictable, prices rise consistently and salary expectations move slowly. When interest rates are low, businesses have more cash to return to shareholders and invest in capacity. You get the idea. However, there is a greater than usual impact from external, macroeconomic factors than in recent decades. Trade wars, actual wars and political change all create uncertainty for return on investment and for predictable revenues.
As leaders grapple with competition, regulation and running their own businesses, their hands are already full. When you add on growing pressures from the outside, it slowly reduces the predictability of results. Unpredictable results cause unpredictable responses from owners, shareholders, boardrooms, banks and other lenders. In turn, this begins a slippery slope of further scrutiny, further management of expectations, further analysis and faster attempts to fashion a solution. In summary, strategy and organisation gradually gives way to tactics and chaos. For context, the other headwinds include supply chain volatility, closing the talent/skills gap, wrestling with AI adoption and cyber security threats.
Navigating economic uncertainty
Here are three business suggestions to help businesses to navigate economic uncertainty:
- Refer back to your strategic plan, use current industry and market research and be ready to react quickly to emerging opportunities;
- Review your risk management framework and risk register(s), update your succession plan(s) and dust off your contingency plans;
- Focus on cost efficiency and operational effectiveness, which will benefit your business in the long-term.
Each of these may seem straightforward but there is a difficult balance to be achieved.
When short-termism takes over
The first problem emerges if there is no strategic plan. Many businesses don’t have a plan or aim to achieve a basic set of financial targets. The tendency is to throw what you do have out of the window as profit and cash flow start to slip. Once abandoned, initiatives and investment tend to go with it. Privately-owned companies may not throw the baby out with the bath water but public companies and private equity just might. Essentially, we mean that short-term profit and cash can dominate the agenda.
Supply chains up and down the land faced some partially avoidable shocks due to war and geopolitical tensions. Those with robust, resilient and flexible supply chains and sourcing strategies have weathered the storm better. Furthermore, others failed to prepare for, or had any plans to mitigate, increases in energy prices or input cost inflation.
Programmes to boost cost efficiency and operational effectiveness get ditched because they don’t bring benefit ‘in-quarter’. Everyone understands that targets need achieving. However, not everyone necessarily pushes back that gain today is sacrificing larger gain tomorrow. “A bird in the hand is worth two in the bush” might be an appropriate analogy.
When your management team are under strain
In many businesses, the management team works long hours. Additionally, the UK has long had a problem with relative stagnation of productivity. So, the year kicked off with a plan (hopefully), some business goals and specific objectives for each of the management team. If the uncertainty materialises quickly, you still have a management team with objectives (often set in a HR platform), change programmes that are under way and day-to-day challenges. As the pressure to hit the numbers increases, time spent on their objectives and projects shrinks. This will make it harder to deliver some of those objectives and the change required, which also impacts performance reviews and remuneration.
So, what do you do about it? Since most HR systems are relatively inflexible, replacing the objectives for the year may not be possible. Your own, as CEO or Managing Director, may be heavily focused on financial performance. Those of your team may be less so, especially if there is no share-based remuneration for them. Ultimately, this can create an acute disconnect between hitting the numbers and re-focusing your management team. In such cases, we would advise some of the following steps:
- Find ways to reduce their workstack;
- Shorten meetings where possible;
- Prioritise what they should focus on;
- Quickly sign off ‘backfill’ requests when team members resign;
- Give them some control e.g. let them suggest ideas.
Think Beyond works with busy management teams and senior leaders
Navigating economic uncertainty concerns successfully is a key focus for senior leaders right now. Owners, investors and boards are focused on how you overcome economic uncertainty to achieve your targets. Think Beyond often works alongside busy leaders, which is why we offer flexible working days and hours. If you struggle to find the time, we make the time for you. We also travel to client premises to work at pace on your priorities.
If you would like to discuss short-term support, why not reach out online.
Alternatively, you can reach us by emailing us your name, company name and telephone number to discuss your needs.
Finally, why not check related content on planning and benefits of flexible project work.