Don't let a recession go to waste
As a rule, panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works - John Mills
Everyone talks about the upcoming recession. The range of the predicted scenarios is broad - from no recession to a recession with a soft-landing, to a full-blown one. I have no idea which one it will be, but in terms of what organizations should do now - it doesn’t matter.
Don’t let the looming danger go to waste1.
Even counting the pandemic, we had a good run. For many years, the money was essentially free, inflation was not a problem, the demographic was still in our favor and the world was relatively peaceful.
What an organization does when times are great? It fattens.
It’s in our nature to escalate when the evolutionary pressure is low. We see the world through rose-colored glasses. We spend money without scrutiny, hire more people than we need, invest in hopeless ideas, or just indulge in pure speculation.
Optimization is an afterthought at most.
It doesn’t take long to have too many resources (time, people, money, raw materials, etc.) entangled in activities that simply don’t make economic sense. They provide very little value to society.
We need a crisis to curb the excess.
Even if a recession won’t come, use the fear of it as fuel to act.
Crises make priorities straight. They clarify the challenges. They break the organization’s inertia. They make it easy to align. They quickly remove all the non-essentials. They can heal an organization by putting the focus on fixing the foundation, the reason for a company to exist.
In good years, an organization can function years while standing on clay feet.
Here’s a catch - we need a crisis big enough to terrify us but not one so grave that they destroy an ability to change.2
This is now the most important task for a leadership team in any organization: whatever recession scenario will happen, how can we make it a catalyst? How can we don’t let the negativity of looming danger choke the ability to act?
What doesn't kill you makes you stronger. It’s a cliche but even more relevant than ever.
A crisis can trigger more collaboration between siloed departments, but it can also trigger more turf wars. We can end up working closer together, or we can just blame others. Problem-solving or finger pointing.
Let us all be aware of in what direction we steer the response for a crisis.
History can show us that we can use a crisis well - as a response to World War II, after the war the creation of the Bretton Woods Agreement and the European Coal and Steel Community (among others) set the stage for a period of the greatest wealth creation and peace human race has ever experienced. On the other hand, the response to World War I, mainly the Treaty of Versailles, created an environment even more crisis-prone than before.
While those are extreme examples, they remind us that we are fully capable to respond to a crisis in two ways, one that creates future wealth and prosperity; and a second one that destroys them.
What should we do?
First, let’s do everything we can to avoid a recession.
At the same time make a list of things that - for your organization - are hard to change in good times but easy in hard times
Use the crisis as a trigger to work on them.
“Never let a good crisis go to waste ”, Winston Churchill
“We need crises big enough to terrify us, not ones so grave that they destroy our ability to change.” from “The Power of Crisis: How Three Threats – and Our Response – Will Change the World” by Ian Bremmer