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Ambiguity Looms Large

Dr. Ipshita Basu Guha
Sep 2011

Surviving Economic Mood Swings

The economic trends around the world these days are fickle and worrisome. It is extremely challenging for common man to gather how things will shape up in the future. The investment plan assumptions of individuals are going awry and people are trying to grapple with the growing uncertainty. Businesses are also not remaining insulated from this ambiguity.

The present developments are renewing the fears of the gloomy state of affairs surrounding the 2008 downturn. There were some glimmer of recovery around 2010 but that seems to be short-lived. The fact of the matter is that greater and more complex forces are at play. Extreme capitalist motives compounded with inadequate corporate governance and informal collusion of few is creating utter disorder and chaos. Credibility of organizations and governments are being questioned and so is the veracity of the credit rating agencies of being unprejudiced. Bottom-line is trust and faith are at stake. This environment was not created overnight. It has systematically progressed over a long period of time and there are no quick fixes. Economy is not natural; it is created and nurtured by policies, plans, assumptions, decisions, people, and their reactions. In today's world, pure socialism, communism or capitalism is not acceptable. A potent combination of all is the call of the hour for most nations.

Business and enterprises are trying to exist in these continuously altering environments. They are frequently subjected to opposing forces which enhances and reduces their strengths and opportunities. The best of the innovative ideas or strategies can get quashed by some arbitrary policy decision which shoves a spanner in the whole process. Firms today are regularly fire fighting to keep from drowning. They are unable to make any long term decisions.

Let us face it these uncertainties are going to continue in the near future and no one knows whether the complexities will subside or multiply. It is time for MSMEs to seriously introspect upon their long term plans and goals. It is time for a reality check to explore the status quo, a detailed and honest SWOT analysis (by the owners themselves and not through consultants), the level of growth aimed at, and why. Are we spreading ourselves too thin while aiming for maximization or should we consider optimization as a better and proven strategy.

In the zeal of achieving phenomenal growth, there is a strong chance of going bust with the sudden economic changes. The possibility of the same is higher for MSMEs who need to have a pragmatic approach to business in these times. Being the “backbone of the economy”, MSME sector has to be resilient and strong with radiant health.

Let us explore what could be the possible choices available for the small and medium businesses to counter these turbulent forces and remain afloat.

Recourse

The idea of finding alternatives is to create opportunities and leverage the existing position. The recourse discussed is a generalized list having a broader focus and meant for implementation in routine business and not just while flying through a turbulent economic air pocket.

Expand or Diversify

Companies should religiously aim for some amount of expansion and (or) diversification. Yes, it goes against the rule of core competency which also creates lot of restrictions. Expansion can be horizontal or vertical which can give better control over market or procurement, cost or client advantage. Entering into a new unrelated business can also be beneficial. The risks here are spread out. In normal circumstances, both businesses would generate revenue and one might be more profitable than the other. The chances of both failing at the same time are comparatively lesser. In lean times, the possibility of one helping the other sustain would be higher. It is about not putting all your eggs in the same basket.

Sustained Management Control

Management information and control system should be ingrained in a business like the rising and setting of the sun. It must happen without fail come rain or hail storm. There is no excuse for procrastination or leniency. It is the system which holds the business together. The importance of control of resources like finance and human capital as well as inventory need not be reiterated here. Inadequate utilization of resources will quietly bleed an enterprise. The periodicity of reporting should not be too frequent or sporadic. It should be such that deviations can be detected timely and reversed. A strong monitoring system based on a periodic critical pointers report can be extremely useful. The important fact here is not to create bureaucratic hurdles and red-tapism.

Technology Adoption

This is the age of information and communication aided by technology which earlier could only be seen in movies. The abacus and calculators have now given way to small hand-held smart-phones. The quality of machinery is improving each day. Implementing them in business can improve the efficiency of firms and standardize product or service quality. Timely dissemination of information can be vital for business decision making. Currently there are tools which can process multiple variables and produce possible outcomes thus working as robust decision support system. The technology scenario is constantly evolving which is an indication that enterprises are embracing them. The growth of e-commerce and social media are examples supporting the above argument.

Eliminate Waste

How often do you see the desk drawers or your wallets filling up with unnecessary papers and items? It afflicts businesses too. This exercise should also be as regular as management control. Minor improvements in layout can impact the bottom-line. Bottlenecks routinely crop up in businesses. Left unattended, these spawn many more. Business process re-engineering is considered to be a significant activity but minor process improvements can be regularly attempted to remain agile. Storage and retrieval of documents and inaccurate record of inventory are two areas most prone to waste. One blocks space the other blocks capital both of which are essential resources for MSMEs.

Strengthen Communication

Clouds of uncertainty and lack of clear intent of business owners or management thought process can easily unnerve employees and shake shareholder faith. The creditors are going to get equally jittery. It is important for organizations to be honest and vocal about their intent. Business owners would scoff at this suggestion for transparency calling it unrealistic. But in today's technology age, you can fool some people some of the time but not all people all the time. Everyone needs to know how the business is doing, propose to function and react to changes in the business environment – basically they want to know that their bets are safe. Keeping everyone in the loop automatically creates a reverse force for the enterprise to keep check on itself.

Connect

Networking in business is not only to create contacts for sales or find employees. MSMEs especially as they are short staffed and often multi-task need “group therapy”. They need to be part of an association, forum or local business body. This kind of fraternity helps them acquire information about market trends, economic shifts, impact analysis of policies. It creates a platform for exchanging news and views. The associations help in imparting training, aid in problem resolution with local statutory bodies amongst other group activities.

Ultimate Goal – Sustainability

Economy will go through phases of crest and trough and so will businesses. What is important is that they try to function within an acceptable band with relatively lesser extremes. MSMEs' ultimate goal today is to sustain by securing itself and grow at a realistic pace. They often fall into the trap of greed to grow fast and inorganically jumping and skipping through steps sweeping aside checks and balances. The outcome in the long run is never good.

Many years back, in the days of only Doordarshan, a short story was aired. The character played by Parikshit Sahani is asked to walk on an open expanse of land and come back to the starting point by sun down. The area that he covers will be his own. Predictably, he tries to cover more and more land and finally by the end drops dead.

The frequent economic swings warning bells for businesses to get their basics and priorities right before the artificially supported structures fall like a pack of cards. The fundamentals of a business have to be rock solid and austerity should be followed at all times irrespective of rain or sunshine. By austerity, I don't mean miserly but restraint from over and unnecessary indulgence.

Is personal and instant gratification the basic truth of our business and enterprise? It is time for us to question ourselves – how much is enough? This will guide us in our business as well as personal goals. Honestly, many of us have more than enough to lead a decent life.

Our aim should be to attain Maslow's highest level and not languish like ordinary people at the bottom. We have to live a strong legacy for our progeny and not a world of materialistic misery. We ultimately need in life is a health, peace of mind, belongingness, respect and compassion.

1 Comments >>

Jeana

03 Dec 2011 (07:47:41)

Good point. I hadn't tuohhgt about it quite that way. :)

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