A REVIEW OF EVENTS FROM FEBRUARY TO MAY 2020
Prior to the acknowledgement of the recession, were warnings ignored or suppressed?
There had been some disquiet in the media about the possibility of another business downturn or recession prior to 2018. This foreboding of concerns continued throughout 2019 as more people started to question the business realities around them.
It would appear, these warnings were largely ignored because of the more favourable news being presented by those who saw no such problems. In addition, those with a focus on positivity, had agendas which meant they didn’t want to alert the general populace of any possible negativity.
Unfortunately, we seem to live in an era where people neither like to hear of anything negative, nor review history in a positive light. We know however, that there are many lessons which can be learnt by studying our history.
We know of course, with the advent of the COVID-19 virus, a recession is now upon us. Whilst many blame the virus, this event overshadowed all the other indicators that a recession was forthcoming in the near future.
The Recession from February to May 2020
In the first months of 2020, we had seen a varied range of responses, (depending on individual situations) from each enterprise. These responses ranged from panic and organised chaos, through to innovative solutions and actions, or “steady-as-she-goes,” as though nothing had changed.
The Downside of the First Three Months
From the very start, many organisations had displayed a lack of concept, or had failed to make any preparations for a potential downturn or recession. As a result, many of these enterprises did not have the financial resources available to “ride out” an economic catastrophe. We know this as fact because of the number of them that were unable to survive even the first three months, of government responses to the virus.
Other enterprises saw potential insolvency and wisely took steps to protect what assets and reputation they have, by calling-in Administrators. Many other enterprises are struggling to survive. Many of these are deemed “Zombie” businesses as they are only surviving on debt at low interest rates, or government support, or by slow (late) payments to their creditors and suppliers.
Management in some cases have shown a level of panic; this being a natural reaction of those unprepared and revealed their lack of understanding toward positive possibilities, which a recession offers. It is as though they foresaw nothing, and now believe that economic activity simply ceased overnight due to COVID-19. Although this situation is true for some, it is not yet a reality for others.
As a consequence, employee hours were reduced indiscriminately, or employees have been terminated without due regard for the consequences. By taking these actions, management is also showing they fail to understand the seriousness of the situation, in that business is now in a war-of-survival and only the fittest will prevail. This means:
- collecting outstanding invoices quickly, and in a manner, which does not draw attention to insolvency administrators now, or in the future;
- maintaining excellent standards in customer service;
- fixing and eliminating errors that cause mistakes which are expensive in time and/or money to repair and/or provide customers more opportunities to pay even slower than normal;
- updating the accuracy of all customer and supplier files;
- ensuring all trading agreements or credit applications and contracts are in order;
It is more noticeable that “people-to-people” communication, is now more difficult due to a lack of appreciation of its importance in the business environment. Due to a lack of investment in the appropriate technology and the under employment of personnel, it is almost impossible to speak with a person directly. This is a major problem moving forward. As management has emptied their offices of people, there has been little, (or not enough) provision for telephone interaction to be transferred to employees working from home.
Continued communication with clients and suppliers will be a key component for survival. Early planning for the provision of appropriate technology enabling smooth telephone redirection of contacts, while employees are required to work from home, will be essential.
We also note that many business models have proven to be totally unsuitable for business downturns and recessions. No business environment stays steady over time. It is not surprising therefore, to note concepts of “just in time” replaced with “just in case” purchasing. In addition, it is noticed that outsourcing of essential functions in many cases, has become less sustainable.
Short term support has been offered by governments, creditors and debt collectors to keep many enterprises going. Unfortunately, we have also witnessed the worst in human nature, with people milking or taking advantage of the benefits provided.
The Positive Aspects of the First Three Months
The actions of Governments have largely been laudable as they have shown a willingness, where possible, to support people who have lost their jobs and businesses which have been forced to close down. These actions were designed to mitigate the worst effects of the anticipated recession; at least for the short-term.
As business enterprises in specific industries or categories have disappeared, others have kept going as usual. It is the latter businesses which have proven, that with the right business model, at least for the short term, a business can continue to operate in adverse conditions. The performance of these businesses has been inspiring, as others have descended into chaos.
Those businesses which are surviving, have done so by understanding:
- a recession or downturn was a possibility and had planned accordingly;
- sought to proactively reduce debt owed by the business and the debt owed by customers;
- the importance of business disciplines;
- the proper use of technology and employment of quality employees as essential;
- the value of a positive organisational culture, etc.
Pleasingly, other businesses have adapted remarkably well via innovation and the willingness of their owners and managers in manufacturing new products and developing new services. Many of these businesses, have survived or done markedly well under the circumstances.
It would be fair to state that in the first months we saw a mixture of expected behaviours of the business community, which were both deflating and positive.
From a negative perspective, we saw how few businesses were prepared for any sort of business downturn. As a consequence, many current business models have been found to be unsuitable for the current economic environment. The evidence of this factor has been the financial fragility of these businesses, a number of which are now no longer operating.
We have also seen the panic by management to implement amended operating processes and an inability to understand the future negative repercussions of their actions.
Regretfully, we have seen the demise of many businesses with the consequence of increased unemployment. It is anticipated; there will be many more of these negative events within the next 12 to 24 months.
On the positive side, we have seen governments trying to mitigate the worst of the effects of the shutdown with direct financial contributions to individuals and businesses.
We have also seen how the business community has shown the ability to develop new products and services whilst adapting to the changing needs of their customers, and even acquiring new customers.
It will be interesting to note what happens in the next three months.
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