Why is this article entitled «Bad times are good foresight times»? Quite simply: When the sun is shining, the economy is growing and there are no major conflicts ahead, then a strategic forecast for 3-5 years is less important. Then things are looking up for also companies with short-term oriented «fair-weather captains». The situation is different in times of crisis, when thunderstorms are brewing, and the headwind is blowing. Then the wheat is separated from the chaff, and it becomes clear which companies are fit for the future and which are not. How does future oriented leadership work in stormy times? That's what today's blog article is about.
The global outlook according to the World Bank
«The global economy remains in a precarious state amid the protracted effects of the overlapping negative shocks of the pandemic, Russia’s invasion of Ukraine, and the sharp tightening of monetary policy to contain high inflation. Global growth is projected to slow significantly in the second half of this year, with weakness continuing in 2024. Inflation pressures persist, and tight monetary policy is expected to weigh substantially on activity. Recent banking sector stress in advanced economies will also likely dampen activity through more restrictive credit conditions. The possibility of more widespread bank turmoil and tighter monetary policy could result in even weaker global growth. Rising borrowing costs in advanced economies could lead to financial dislocations in the more vulnerable emerging market and developing economies. In low-income countries, in particular, fiscal positions are increasingly precarious.»
This assessment comes from the World Bank and is dated June 2023, before Hamas' terrorist attack on Israel, which will undoubtedly further exacerbate the situation. Even though the report only expresses itself up to 2024, the situation has not calmed down after the pandemic, but on the contrary has increased uncertainty, and will probably gloom the economic outlook for a longer period.
How to deal with upcoming turbulences?
First of all, crisis years are just as natural as boom years. The Bible already tells the story of the seven lean years that follow the seven fat ones. This story has long been used to describe economic cycles. Stormy economic times are not a new phenomenon, they have always existed, and probably always will. In addition, every downturn and recession come to an end once, and winners and losers emerge thereafter. What is the key that separates the wheat from the chaff, who are the crisis winners and who are the crisis losers?
Actually, they are the same measures and characteristics as in «peaceful» years, only that the consequences and effects are much more pronounced. It is even more important for the leadership to have a clear compass in these times, especially:
- Strategic 3- or 5-year goals, which are future-ready by means of strategic foresight
- Forward-looking, rolling planning that adjusts to realities as quickly as possible
- Broad support for the goals, i.e., as many middle managers as possible who have internalized the strategic direction and not just read the document
- Clarity about priorities, i.e., what is first, what is second and what is third priority
- ...
These points are always important, but in times of crisis they can become vital for survival. That's why the companies that win in crises are usually those that have a clear strategic orientation and a desired positioning for the longer term. But, as I have experienced myself in my career, this is not enough in times of crisis. Dynamics can develop whose consequences are difficult to predict and have a much greater impact than usual. Managers also react differently in unfamiliar times. Some act early, others wait longer. And what is almost unanimously the case when there is a lack of preparation: those measures are taken first that can be implemented as quickly as possible and have a cost-saving effect. Thus, travel activities are often discontinued, staff training is cancelled, consulting mandates are suspended, external competencies are not hired, but developed in-house, etc. Instead of matching the measures to the strategic goals on the priority list, most often the steps that are easiest to implement and reduce costs are being taken. In the sense of future-oriented development, it would be more appropriate to consider the following when economic and financial goals are not achieved:
- Which plans are essential to stick to and which could be postponed?
- Which measures should be taken first and which last?
- How to ensure that all parts of the company act in a uniform manner?
- ...
Anyone who wants to develop a contingency plan from these questions can obviously only do so if there is agreement on longer-term strategic goals. When it comes to these questions, it is a conceivably bad moment to have to catch up with strategic goal setting. I often use the bon mot «If you don't know where you're going, don't be surprised if you end up somewhere else.» That sums it up here, too.
Why are bad times good foresight times?
Let me sum it up:
- Strategic Foresight ensures that the company is fit for the future and that, on the one hand, the elements relevant to the future are part of the strategy and, on the other hand, there is agreement among the management as to which scenarios are desirable.
- The strategy derived from strategic foresight and the plan-to-perform process ensure that the strategic goals are future-ready, broadly supported in the management team, and their future-oriented implementation is secured.
- From this, a logical contingency plan can be drawn up in advance, including an important ranking of planned investments and projects and a list of which cost-cutting measures should be given first and last priority.
Those who do not have sustainable, long-term goals and instead operate with annual planning will very soon reach their limits when it comes to designing an emergency plan. There is a high probability that such a company will take uncoordinated measures that are not harmonized and even contradict each other.
The example of IKEA
I would like to conclude this so far theoretical blog with the practical example of IKEA:
As a prerequisite, IKEA has had the same clear vision, mission (business idea) and HR orientation (HR idea) for decades, which are embedded in a value concept (IKEA culture). In addition, the company has always developed longer-term strategic programs, which were anchored and introduced throughout the company with great effort. In 2000-2010 this was a 10-year program, then for 2010-2015 followed by a 5-year and since then with 3-year programs.
IKEA has learned from the past to sustainably gain market share in the years immediately following an economic slump. How and why? First, because IKEA cut as few employees as possible and, compared to its competitors, was well staffed during the upturn and had comparatively few new, inexperienced hires to make. Second, because inventories at the end of a downturn were full rather than thinned out.
Based on this understanding, the Executive Board drew up a binding plan at the beginning of the noughties (for the period of the 10-year plan), at many percent behind the cash flow target which projects would be postponed and at what level which cost measures would be taken or not taken. A stop to employee training was set very far down the line (i.e., late) and staff reductions were virtually the last resort. In addition to the aforementioned reason, this was also done in accordance with the corporate culture.
I don't believe (or know) whether this paper has ever been formally renewed, but as a guideline, these resolutions have held up over the years and stood the test of time. As a result, IKEA has come out of virtually every crisis stronger and has established itself as a consistent crisis winner.
What is the situation in your company? How does your company deal with the current situation? Would you like to learn more? Comment, connect with me on LinkedIn, or send me a respective message.
PS Let the future be your guide - the best in life is yet to come.