Economic Armageddon? If there’s one thing we can learn from history it’s that we never learn from history

Economic Armagendon

This economic downturn is a shock to the markets and the ramifications will be huge economic Armageddon!

I think the most damaging aspect of this economic downturn in Australia is that the only economic indicator that hasn’t moved but is about to is our unemployment rate.  We’ve enjoyed a fairly stable unemployment rate in the past 13 years, hovering between 5% and 6%.  I believe that’s about to end and we’ll see out unemployment rate skyrocket.

Unemployment rates aside, were are in an economic downturn and we will be here for a while. 

Will this really be economic Armageddon?

The thing is, this really isn’t surprising.  We’ve been through so many of these in our history and we will continue to have them into the future.  Every economy experiences these cycles.  The bit that is surprising is that we really never learn from the previous one. 

So now we are in the economic downturn, it’s an opportunity to put in place some mechanisms that ensure not only during this period but also when we come out the other end we can make sure we are at least in one piece but perhaps a little better positioned than before it all happened. 

What measures are you putting in place to ensure that you are going to survive and ultimately thrive? 

  • Price point
  • Operation structure
  • Productivity

Price point

Market share is ultimately a key driver to the success of any business.  Market share can be achieved through strategic and competitive pricing.

Is your plan or strategy to respond to market pressure by remaining competitive or will you hold your ground and offer value?  If remaining competitive is your option how will you combat price changes when your cost base has to increase. 

This is a slippery slope.

But it is an option and drastic situations sometimes require drastic measures.  But before considering buying your way out of a recession, do your numbers on how long you’ll need to hold your breath before normality returns. 

The GFC hit hard and lasted a few years.  We’re close to GFC levels and still falling.

Operational structure

Presumably, your operation is relatively efficient, with all team members adding value in some form or another.  Obviously, there is always an opportunity to create a leaner, more efficient team, but do you have the flexibility available to make the necessary changes needed to weather this storm?

Reducing the number of staff on your books has only a short term outcome. 

While it will reduce your baseline cost, it will also reduce your capacity to compete.  This could result in you being disadvantaged as you’ll have less capacity to handle the decreasing demand from the market, potentially leaving you in a less competitive position than you would have been beforehand.

Whilst your costs are lower, your revenue will be lower which is far from ideal. 

Productivity

Productivity is probably the only aspect of your operation that you could change significantly and maintain a positive impact.  Changing the way you operate through increasing output using your existing structure is one way of reducing costs significantly.  This allows you to compete on price without affecting your profit margin but also you can maintain a lean team and still produce the desired output AND maintain market share.

Increasing the throughput of your existing team, or even a reduced team, will reduce your cost base while maintaining your competitive pricing point and your market share.  There are always ways to increase productivity, you just need to find the chinks in your own armour.  

With the right numbers at hand and a decent amount of visibility of your business, you will find a win. 

There’s always a silver lining

A wise man once told me “there’s an opportunity in every crisis, you just need to find it.” 

The crisis that is underway and gaining momentum is likely to end in disaster for some, but not for all.  The result will be a thinning of the crowd and perhaps that’s your opportunity. 

I not suggesting we’ll see anything like what happened to Blackmores when Pan Pharmaceuticals shut down in 2003, but you never know.

Whether this is economic Armageddon, how well are you positioned for when the crisis is over and the competitive landscape has altered?  

Will you learn from history?

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