Michelle Obama is experiencing mild depression. If she can feel depressed, I feel better about my own malaise, especially about the state of the US economy. Without additional fiscal stimulus, we will experience an economic depression, a situation where the economy lacks its own ability to recover. There are other things to feel terrible about – unnecessary deaths, inequality, school-age children falling behind, and another generation likely to incur long-term effects from sustained, high unemployment. All these painful experiences are worsened as the economy tanks further. It’s helpful to remember Macroeconomics 101. The level of our nation’s Gross Domestic Product (essentially our national income) depends on the addition of four terms. Consumption of disposable goods like food, entertainment, and clothing. It is the dominant majority of our GDP, coming in at about 69% in Q2 of 2020 GDP. Government spending on things like…
What if you made market and customer understanding as important as your organization’s financial information?
Financial information infuses company activities. From budgeting to closing the monthly books, from measuring progress to managing cash flows, numbers are to business what the ABC’s are to our reading. It’s no wonder then that companies large and small have invested heavily in their financial system, teams, and processes to generate financial information. Let’s call this entirety the Financial Information System. Numerical data is collected, processed, and stored in data warehouses, where it is then used to develop insight and inform decisions. While the Chief Financial Officer is in charge of this system, all employees play a role, whether they fill out expense forms, develop budgets, or make investment decisions. And all decision-makers are encouraged to use the processes’ information (e.g., making a presentation as a product manager about your category). A stellar CFO is like a great coach in winning the game…
Change is never linear. Don’t be fooled by obstacles to change or a reversal in a trend.
Liberal media sites often highlight the positive trend of solar and wind power. In contrast, Mr. Jenkins, a Wall Street Journal opinion columnist, concentrates his energy-related columns on the well-known flaw of solar and wind energy not being as reliable as fossil fuels. He suggests wind and solar will be niche energy sources. Jenkins is wrong. He has fallen into a trap called mistaken (and sometimes hidden) assumptions. Jenkins assumes the intermittency flaw is a constant. But battery technology is continually improving, and its use in power storage to solve the intermittency problem is spreading in many countries. Battery technology is advancing so quickly and effectively for automobiles that one can now reliably predict when petroleum-powered cars will become more costly to produce and run. No wonder Tesla is worth more than Toyota. There are always naysayers to change. The Kodak Board was…
Should businesses care about economic inequality beyond justice considerations?
Today is scary. Our lizard brains want to hold tighter onto what we have. But embracing a spirit of abundance and thinking about “we, united” versus “me, safe in my status” is exactly what is needed by business owners and leaders. Why should leaders worry about inequality beyond justice considerations? GDP growth. We live in a consumer-driven economy. Without a growing middle class, consumption will continue to grow slowly, as the wealthy have much lower propensities to spend, even in today’s luxury branded world. Today, the most prosperous people secure an astoundingly large and rising share of national income, while the worst-off show little to no growth in income (despite rising housing, medical, and education costs). The middle class is disappearing. Global data shows nations with more equitable income distributions have more rapid real economic growth. Young people’s inability to afford homes and…
The price of profits
Today’s youth pose burning questions about capitalism. For examples: How is it that we live in a country of extraordinary wealth but have low ratings on many societal quality-of-life measures, like infant mortality, affordable housing, food insecurity, and maternal health? How do we continue to abide by a system that generates untold wealth while risking natural calamities due to climate change? Wasn’t the point of technology to let us work less and live more freely? Instead, technology has created increased productivity that benefited incomes for the few at the top while the rest of us can’t even afford health care and a roof over our heads as gig workers. I studied economics after asking myself, “How is all this order – jobs, incomes, homes, and goods – created? What makes it all seemingly work?” I learned that capitalism is the mechanism that incentivizes…
An “inside-baseball” economic concept suddenly matters to all of us
Just a month ago, restaurants across the nation were closing their doors (at least to in-house dining). Pick one in your city and think about the ripple effects of its closing: It’s not just the restaurant owners whose income has fallen. The shutdown is also affecting the earnings of the staff, the food and alcohol distributors, the bakery, the linen service provider, the paper products supplier, the cleaning service, and the marketing agency that created ads for the restaurant. Plans with an architectural firm for a remodel are on hold, as is the contract with the general contractor and selected sub-contractors. The waiters, waitresses, and kitchen staff have stopped buying clothing and household furnishings. The farmers have stopped buying farm equipment. The marketing agency has laid off its staff, who have cut back their unnecessary spending. The beer manufacturers are dumping their beer…
Strategic Inflection Points brought to you by COVID-19
Andy Grove, the talented and legendary Intel leader, defined the term, “Strategic Inflection Points.” All leaders must embrace his recommendation to pay keen attention to such times in a company’s life. React too late, and your business will not catch up. In his words, strategic inflection points capture “what happens to a business when a significant change takes place in its competitive environment. A major change due to introduction of new technologies. A major change due to the introduction of a different regulatory environment. The major change can be simply a change in the customers’ values, a change in what customers prefer. Almost always, it hits the corporation in such a way that those of us in senior management are among the last ones to notice. What is common to all of them and what is key is that they require a fundamental…
Are we facing a V, U, or L-shaped economic future?
Will we have a V, U, or L future? Since the 2008 deep recession, we’ve had an upward movement of Gross Domestic Product and other measures of economic well-being. Growing income inequality and too-low wages were notable criticisms. But even these issues were being addressed. After all, there is no better anti-poverty program than a strong economy. Then came the COVID-19 pandemic. A business owner friend said it’s like a boxing match Round One when the first punch is a bout-ending knockout. He has never seen such a sudden downturn in his many years as a business-to-business CEO and owner. What will our national growth rate look like in the months and years ahead? There are three potential outcomes for the nation, a V-pattern (rapid recovery to pre-pandemic levels), U-pattern (slump followed by recovery), or an L-pattern (the economy stays depressed for years…
COVID-19 is a tsunami that will change markets. Are you ready?
Breakpoints are sudden changes in markets. Here’s a notable example. In the 1980s, the cost of Medicare was rising rapidly, and, at the same time, the Federal government was worried about resources to fund Medicare. (That was a time when federal deficits mattered, but I digress.) The two opposing trends—each getting stronger as time passed, neither giving way to the other—created a forced sudden change. In this case, the federal government rapidly changed Medicare reimbursement from “cost-plus” reimbursement to prospective payments, a set amount per clinical procedure code. The change was not just rapid but highly disruptive. Hospitals did not have cost-accounting systems yet, so imagine their plight with no insight into where their gross margins were being made or lost. Lengths of stay dropped dramatically, and medical supplies and product providers needed to deliver “better” offerings (translated into better financial results for…
Strategies for the Connection Economy Crisis
Who knew? It’s not the technology economy or the service economy that drives our nation’s Gross Domestic Product. It’s the connection economy, a sector that the COVID-19 virus has sadly brought into a swift and costly downfall, and likely business-altering event. The connection economy consists of activities where people convene proactively for fun, commerce, or learning activities. Sports. Education. Restaurants and bars. Movies. Sightseeing activities. Office, plant, and location work. In-store retail. Canceling an event has significant multiplier effects on industries that are part of the process. Consider the cancelation of the Final Four NCAA tournament. Plane fares, gasoline, restaurants, hotels, Lyft/Uber drivers, t-shirt companies, arena fees, and contract work all disappear. The cancelation of South by Southwest will cost Austin $355 million, and that does not include all the ad agencies and performance artists whose work disappeared. And these examples are merely…