As Barbara Walters said, “This is 2020!” We’re in a brand-new year, though it can be a bumpy ride if you are not prepared. The economic, global, and geopolitical indicators point to a highly uncertain and potentially scary future. This article looks at key indicators and events which can shape things to come. We also look at what companies are doing to mitigate the pending risks and prepare for the “What if” scenario.
The following facts should give you pause, but also allow you to prepare for what’s ahead:
- U.S. Budget Deficit – The U.S. Budget Deficit was $587 Billion on January 2017; it has now surpassed the $1.0 Trillion point and is the highest it has ever been. The debt-to-GDP ratio keeps creeping up. Many economists liken it to climate change: we all know it’s a problem if we don’t do something about it, but we don’t know precisely when it will be devastating or how it will manifest itself. Imagine if you kept spending more than you made, while already having a large amount of credit card debt. Eventually you will have to take some drastic measures.
- Interest Rates & Inflation – Interest rates are the primary tool the Federal Reserve uses to keep inflation in check. Interest rates remain low and many economists have stated that ultra-low interest rates have helped propel the bull market. However, the Consumer Price Index (CPI) has been trending up year over year. This can have two consequences: As prices increase, consumers will pull back on discretionary spending thus impacting the markets. In addition, the Fed may counter inflation by increasing interest rates thus making debt more costly. Many companies have taken on greater debt loads because of low interest rates and could be faced with an overwhelming reality. This will also make the ballooning national debt more expensive to maintain.
- Trade Wars – One thing just about all economist can agree upon is tariffs and trade wars are discretionary tools which upset the balance of free markets. Current tariffs have imposed greater costs on the U.S. consumer further fueling fears of inflation. China’s growth has been 6.1 to 7.0 percent, and in the wake of further trade wars economists project that to slow to 5.5 percent. Compare this to U.S. GDP, which peaked at 3.5 percent in Q4 2017 and has now dipped to around 2.0 percent. U.S. GDP has been on a steady decline since the imposition of tariffs began and there is no certainty that it will end any time soon.
- Middle East Conflict – This factor has begun to be more intense and uncertain. Even considering the recent cooling with Iran after tensions escalated this January, conflict in the region has become increasingly uncertain. Unless you are a defense contractor, you can be significantly impacted by rising fuel prices. Despite the U.S. becoming more energy independent, higher oil prices impact the cost of everything from raw materials to Amazon delivering that box to your door. This is another element that can “add fuel to the fire” of inflation.
- Info Wars & Cyber Crime – Wars are less frequently being fought with armed conflict, and instead are moving to the arena of information, with data breaches harming businesses and consumers. Data security breaches are no longer caused solely by the lone hacker hobbyist, but also by teams of people backed by nation-state actors intending to cause unrest. This does not necessarily mean large incidents shutting down power grids or hacking into government networks. It can be as simple as creating economic panic by targeting trusted businesses and going after even less protected and vulnerable mid-sized businesses, which can be easier pickings due to lower spend on security.
- Other Nations becoming more capable – As other countries boost their capabilities in producing goods and services, they increase trade with each other and become less dependent on resources and products from U.S.-based firms.
- Climate Change & Disruptive Events – From more frequent floods to massive fires, weather patterns and disruptive events are becoming more intense and severe every year. They disrupt supply chains on a global scale and can be the ruin of any business if contingency plans are not in place.
Despite all of these significant indicators, we cannot fully control what may happen and we do not want to be in a reactive mode with our business or personal lives. It is important to recognize the potential realities and be prepared for the future. The following three areas of operations, technology, and people highlight steps companies are taking to prepare for the worst:
Strategic organizations are incorporating steps in their operations and practices to mitigate risks:
- Minimizing the reliance on debt – If an organization has incurred significant debt, they are now taking steps to either refinance and/or fund the business with working capital as opposed to taking on new debt.
- Build cash reserves and investments – Spreading yourself too thin can significantly hurt you if a recession or other disruptive event were to occur. Therefore, it is better to weather the storm than succumb to it by building up your reserves in advance.
- Assess your supply chain and identify risks of disruption – Knowing where potential risks are will allow you to develop alternative sources for materials and labor.
- Invest in leadership development and communications – Especially in larger organizations, investing in your leaders’ development and communications approach will promote a consistent message and open communications with your teams, divisions, and global leadership.
The largest risks to technology are security, resources, and reliability. Technology is critical to just about every company and should be as reliable as turning on a light switch. However, other bad actors recognize this as the Achilles heel to any organization. Some actions to consider:
- Create a security-focused team/resource – If you are a large organization you should have a dedicated team focused solely on security and data protection. If you are a mid-sized or small company, you should have either a dedicated internal expert or an external partner who is managing these efforts for you.
- Redundancy – Back-ups are no-longer enough in 2020 and beyond. Businesses only survive by their ability to operate. Therefore, making sure you have a business continuity plan in place and that it is periodically tested is crucial. It is not a matter of if a disruptive event occurs but when. Far too often it is more difficult to pick up the pieces of a company who said they had a plan in place, but never tested it.
- Secure Mobility – The number of mobile devices has increased exponentially, both business and personal, and they all may access your network. It is important to not only have resources focused on security but to deploy software and tools to protect the environment and cut off a device should it be compromised.
Absent everything else it still takes people to operate a business. Their training and development are key to their success. In addition, minimizing turnover lowers the cost of operations:
- Behavioral Recruiting – Determine the desired behavioral traits of the most successful people in your operations and model your recruiting base on those traits for each job profile. In the current employment market, hiring the right resources will pay dividends in the future by minimizing turnover and costs in the long run.
- Invest in development that builds high-performing teams – In today’s environment people are bold and brazen because they are shielded by their computer screen. Many companies are having a difficult time navigating the politics of the office. It is important to invest in employee development which fosters communications consistent with the company culture and builds empathy between co-workers.
- Build diverse teams – Diversity comes in many forms and does not have to mean just race. Diverse teams consist of people who share the same values but come from different backgrounds, learning, and life experiences. This creates teams with a common set of values but unique perspectives which can better solve difficult challenges.
We hope the indicators we highlighted do not come to pass, but we would be remiss to not point out the red flags before they hit us in the face. More importantly we hope that we provided you with actions you can take to shape a more prosperous 2020 for yourself and your business.
SAGIN, LLC is a professional services firm which provides services in consulting, technology and talent management. If you would like to learn more about these solutions you can contact us at: +1.312.281.0290 or firstname.lastname@example.org. Also visit us at www.saginllc.com