Tim Wood Powell     The value of knowledge

“The death of one company is a tragedy; the death of one million is a statistic.”

Originally said of catastrophic human events, so it is too with “The Economy”.  It’s too easy to get lost in the quantified abstractions of the aggregate, and thereby lose focus on the realities that drive individual business enterprises.

If “The Economy” exists in any sense as an economic reality that can be acted on, it’s only in centrally-planned top-down economies.  On the other hand, in a free-market, unplanned economy, “the economy” is the sum of the activity of individual firms.  Firms in turn are the sum of individual businesses or products.  Product markets are aggregations of individual customers.  Customers are aggregations of individual transactions.  Up to that point, it’s like fractal geometry—there’s always another level deeper you can go.

So while it’s sometimes a useful shorthand to say the economy is expanding, contracting, or WHATEVER—it’s really a gross oversimplification.  As such it blurs the actual reality, and causes unintended consequences—for example, lulling us into a sense that all is hopeless until “the economy comes back.”   It’s almost as if we ascribe supernatural powers to this abstraction.

As mentioned in my last post “The Tough Get Going“, there are companies making profits NOW.  There are companies hiring NOW.  There are companies entering new markets and developing new products NOW.

However, there is also the lingering sense that we are entering a new stage of our economic life.  That unlike other recessions, in which things eventually bounced back, we are entering an “Economy 2.0” in which things will be substantially different than before on a more or less permanent basis.

Many firms will not see this in time—or even if they do, will react too slowly.  These firms will not survive as we know them—no matter how long they’ve been in business or how well-known they or their products are.  These firms are already going out of business, being bought at bargain prices by more heads-up rivals, or being partly taken over by the government.  This has already happened to several Wall Street banks, and Main Street firms may not be far behind.

On the other hand, others are moving quickly to meet the new realities of Economy 2.0. The New York Times of March 7, 2009 says “Job losses hint at a vast remaking of the US economy.  Companies are abandoning whole areas of business.”   John Silvia, chief economist at Wachovia Bank, is quoted as saying:  “There are going to be fewer stores, fewer factories, fewer financial services operations.  Firms are making strategic decisions that they don’t want to be in their businesses.”

How do you suddenly start thinking about lopping off certain business, and going into other ones?  In effect, “strategic planning” (as it was known in the more leisurely Economy 1.0) has become an ad hoc, event-driven, and essentially real-time activity.

And a vitally important activity—such that your firm’s survival could depend on it.  If you fail now, your failure will not be seen as a tragedy—something to be learned from.  There will be no business school cases about what might have resulted had you done things differently.

If you fail at this point, you’ll just be a statistic.  There’s not much of a silver lining here, other than that you will have plenty of peers to commiserate with.

Success in times like these is far from impossible…but it depends on clarity of vision, sureness of purpose, and swiftness of action.

Are you ready?

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