Time again to ‘Manage by Walking About’

Economic growth

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VUCADifferent times demand different skills.  During the SuperCycle, one could assume growth was a constant.  So forecasting meant a focus on better understanding developments down the value chain in the relevant product silos.  Then managers could be set ‘stretch targets’ to ensure they met expectations for revenue and profit growth.

But today, as the blog has argued in the previous posts in this series, the idea of constant growth has become an illusion.  Instead, we are moving into a VUCA world where, as Unilever CEO Paul Polman has warned, Volatility, Uncertainty, Complexity and Ambiguity will dominate.

Thus in the political arena it is clear that the major G-20 economies are now increasingly pursuing different goals, and have given up the effort to co-ordinate policy seen when the Crisis began in 2008/9.  Whilst today’s gradual bursting of the asset bubbles their stimulus programmes created is leading to increased uncertainty in financial markets, and confusion over the outlook for interest rates.

This has the potential to create enormous volatility in the short-term, as it means that markets will gradually resume – rather shakily, and uncertainly at first – their role of price discovery.

In turn, this brings us back to the issue of the inventory cycle with which this series of posts started on Tuesday.  Today’s higher interest rates and tighter credit markets make it even more expensive and difficult to finance inventory.  But once companies reduce inventory, they also immediately reduce demand.  Suppliers then notice a lack of orders and also cut back production. Similarly bankers begin to have sleepless nights about whether they will get their money back, and so tighten lending standards.  We have already seen this cycle turn in financial markets, where new issues of stock and bonds have gone out of favour.

This means there is a growing risk that when executives return from their holidays in September, they will  find the sustained growth promised by policymakers has once again failed to appear.  Whilst oil prices, still supported by central bank liquidity, may well still be at levels which have led to demand destruction.

History, as US humourist Mark Twain once wrote, “may not repeat, but it does rhyme”.  We are therefore unlikely to see a repeat of Q4 2008.   Instead individuals, companies and governments will need to readjust their thinking to the world of the New Normal.  The key need is to develop their own VUCA:

  • Developing a road-map for the future requires Vision
  • A strategic Understanding of the changes underway is essential
  • The planning process requires Clarity over implementation issues
  • Agility will be required to cope with unforeseen events

Today’s VUCA world is thus very different from that of yesterday’s SuperCycle.  It requires us to expect challenges rather than confirmation of existing plans.  As Quality guru W Edwards Deming wrote:

“If you wait for people to come to you, you’ll only get small problems. You must go and find them. The big problems are where people don’t realise they have one in the first place.”

Thus the philosophy of Managing by Walking About, rather than by email circulars, is once again likely to be key to future success.  Personal contact with fellow employees, customers, investors and other stakeholders will be the best way to survive the transition to the New Normal that is now well underway.

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