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Time to meet recession with resilience

28th Aug 2019
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Kevin Philips argues that while it is tempting to batten down the hatches and restrict the flow of information in times of recession, responding to such primitive reflexes can actually be counterproductive.

There might be a recession coming soon, or it might come later. Economists are notoriously bad at recognising recessions until we’re in one. But we do know, at least, that another one will be along eventually.

Given this certainty, what’s the best way to deal with a looming downturn? For most people, the instinctive response is to prepare as if for disaster: nail up the windows, batten down the hatches, tighten belts or whatever the metaphor of choice might be for stockpiling resources, cutting spending and reducing exposure to risk.

Our instinctual response makes sense in the context of storing food for a long winter or in anticipation of a famine, but in a more complex world than our ancestors faced some of these reflexes can be counterproductive, particularly the instinct to stop spending.

Deloitte, for example, reports from its latest survey of European CFOs that companies that reinvested more during the last recession, particularly those that were more advanced in the use of ICTs, achieved higher growth rates during the recovery. They attribute this success to thinking ahead and planning to take early advantage of the opportunities that inevitably arrive with a recovery.

Similarly, McKinsey partners writing in the Harvard Business Review say that during the next recession they expect companies to invest in, and rely increasingly on, digital tools to improve quality, simplify operations and boost productivity.

A recession, then, is an opportunity to invest, thoughtfully and strategically, in tools that will boost your organisation’s resilience and agility. Some of the most valuable tools are those that are able to improve communication, transparency and accountability across the company.

For example, depending on their needs and culture, some organisations centralise during times of trouble – others choose to disperse. Whichever choice they make, visibility is key. Decision-makers need to know what is happening at every level in the organisation, employees need clear direction from their managers and leaders, and teams need to communicate clearly across the organisation.

Whatever level of confusion and mismatch organisations might be able to get away with in good times they cannot afford it when things get tight. In particular, they need to take full advantage of the combined brains of everyone in the organisation: to gather and use all the resources of knowledge, skill, talent, experience and creativity they have.

In some ways, this is common sense. But then again, we all know common sense is not all that common, particularly when people are feeling worried or fearful. One of the most dangerously self-defeating reactions is to start hiding or withholding information, usually in the entirely misguided belief that giving people access to an accurate picture of reality will cause panic or encourage defeatism.

There’s a great example of this in the acclaimed TV series Chernobyl. In the first episode, local party officials agree on the night of the explosion at the nuclear reactor not to tell the local townspeople what has happened – for their own good. It was nearly two days before the town was evacuated. Other lies, omissions and concealments contributed greatly to human suffering in the wake of the disaster.

Tempting as it might be to tell ourselves that concealment of information was a disease peculiar to Soviet-era Russia, we all know it’s not. Again and again, leaders withhold or soften the truth about problems facing their organisations – whether out of shame, fear, belief that they can fix it on their own, outright denial or some combination of all of these.

The truth may indeed hurt but avoiding it always hurts more in the end. Leading people successfully through difficult times requires the courage to share the truth and to seek, then accept, input from the rest of the organisation.

Only when everyone in an organisation has access to all the information they need can they truly apply themselves to fixing problems, developing new ideas and creating new opportunities. Choosing and using digital tools that facilitate information flows throughout the organisation is essential to building the resilience that’s needed to weather tough times.

So if you find yourself worried about the future, put your instinctive reactions on hold. Pause; reflect; look ahead – and then choose the actions and investments that will strengthen your organisation rather than weakening it.

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Hallerud at Easter
By DJKL
31st Aug 2019 16:42

In a recession I only have one rule- do not run out of money.

Investment is fine but should err on the prudent side, during the 2007/2008 downturn and aftermath we still invested but we did so on fast payback projects; if we could not recover the spend in 18 months we did not spend.

In effect one dusts down the university textbooks and open at the chapter on " Investment Appraisal in times of Capital Rationing", because if you work in the SME sector, and cannot go chasing stockmarket funding, you are very dependant upon debt funding and the worst time to ask to borrow a bank manager's brolly is when it is raining.

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