Wednesday, March 5, 2008

Economic headlines + personal (anecdotal) commentary

Some fun economic headlines:
Oil jumps on surprise supply drop
Factories, services feel slowdown
US service sector shrank in February
Grim job market deals economy another blow
Lots of fun news. What might it portend?

What follows is anecdotal - just my observations of how business behaves. I've experience with only one company, so can claim no generality for these observations. With that caveat, here goes!

I've worked for a Fortune 100 company for just over 20 years. During my tenure, my employer has never experienced a losing quarter. This is a pretty darn successful company!

Surprisingly, it is hard to attribute this record of success to brilliant business processes. On the contrary, our biz processes seem to act to amplify external economic conditions. (I'd expect robust business processes to dampen external signals!)

When the economy looks strong, we go on hiring and spending binges.
When there are economic hiccups, we have fairly large layoffs/redeployments, hiring freezes, and silly "cost control" initiatives (I started buying my own pens several years ago - getting standard consumable office supplies is difficult!)

Now, this is a very successful company: not a losing quarter in at least 21 years!

I suspect that other companies have no more robust internal biz processes, and that most internal biz processes act, like my employer's, to amplify external economic conditions.

So what?
So - executives are now looking at fairly consistent economic bad news. How will they respond? They'll over-react! They'll cut headcount, cut procurement, cut output in anticipation of decreased demand. The effect? They'll feed the economic downturn, which will get worse as a result.

Maybe other companies have more rational internal biz processes than my employer's... but I doubt it.

Based on this, I'm betting things get worse before they get better.

Have a nice day.

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