The three major business lessons from 2015
In this blog I wanted to explore why that might be and some of the lessons that can be learned.
When the great recession started is a matter of debate, according to the US National Bureau of Economic Research it began in December 2007.
When it ended, if it has, is a matter of even greater debate. The same Bureau has it ending in 2009.
However, writing in the Huffington Post, Andrew Fieldhouse of the Century Foundation said: “Now, five years after emerging from recession, the best metrics of economic health suggest the economy is only between one-third and half of the way to fully recovered. The US is still 7 million jobs short of where it needs to be for full recovery and that is true for all developed economies.”
So six years on from the “official” end of the recession I think there are three lessons all businesses should learn and 2015 has conclusively demonstrated that most of them have not.
Lesson 1 – You can only cut so far
One of the economic mysteries has been how well companies appear to have done. Profitability still seems to be there. But when you look at how that profitability has been achieved, it has not been by growing revenue, finding new markets, or launching new products but by cutting costs as hard and as fast as was possible.
Careful examination and elimination of unnecessary costs is something all businesses should do all the time. It’s what makes companies efficient and competitive. But it can go too far and there is plenty of evidence that it has gone far too far.
Boards need to focus all their efforts on how they can grow their top line, not on what they can do to take out cost. They need to focus on where are the new markets and the new products that will deliver profit.
Lesson 2 – Your first breach of public trust may be your last
VW was undoubtedly one of the most trusted brands in the world. Overnight it went to being one of the least trusted. And what is more it has not just tarnished its own brands but the ethics of the entire industry have been questioned.
VW may well have a strong enough balance sheet to survive but I doubt if it will ever get back its consumer trust. Smaller companies such as TalkTalk may suffer more.
Some will not survive.
Many of these problems are the result of Lesson 1 not being learned. Boards need to ensure that the value of the company are clear and are lived. Too many companies have wonderful value statements but then do all they can to encourage their staff to chase profit at the expense of doing the right thing. The fate of corporate whistle-blowers shows how little many boards value being told the truth, until it is too late.
Lesson 3 – The jobs are going and they are not coming back
Those 7 million jobs in the US have gone for good. The recovery has been, and will continue to be, jobless. Automation is taking over from people. The effects of this are largely an issue for politicians but boards need to understand the impact of intelligent automation and start to invest and restructure. Do you really need to recruit a thousand graduates every year if there will only be jobs for 100?
I would love to see boards debating these issues but I fear that most of them will continue down the old route of focusing on the short term.
Their businesses may not survive for much longer.