"Why Aren't Companies Hiring?" Part IV

In addition to the adversity and financial strains suffered by firms during this period of economic weakness, there exists significant uncertainty on many fronts. As mentioned in the last post, many businesses would find any further economic weakness to pose a formidable challenge. Although economist forecasts are predicting a weak economic recovery from here, economic forecasts have proven less than accurate the last couple of years. Furthermore, it could prove especially difficult to predict how any one company's demand would be specifically impacted by further economic weakness.

In addition to the uncertainty over future economic conditions, there is a broad array of factors and issues that create uncertainty. Some of these factors and issues have to do with proposed legislation, such as the environmental legislation, health care reform, various financial reform provisions, and other possible legislative acts. All of these issues pose a lot of questions right now, as none are finalized yet each hold the potential for increased costs as well as changes in "the ways things are done."

In addition to these legislative acts, there are probable increases in taxes, as well as changes in tax methods forthcoming. Again, both the financial impact as well as the inherent change create uncertainty.

Cumulatively, this high level of uncertainty both in future economic conditions as well as legistlative and other changes, appears to be one filled with potential challenges and increased costs. Even if the economy follows the economist consensus of a gradual weak, but sustained recovery, these economic conditions could prove challenging for many firms, especially those already financially impaired.

This uncertainty factor is highly significant with regard to companies' hiring, or lack thereof, as further discussed in the next post.

Part V to follow...

SPX at 979.62 as this post is written

"Focusing On Things We Can Control"

Recently I have seen a phrase mentioned by a couple of different Fortune 500 firms during conference calls. While discussing their financial results, they have mentioned that they are "focusing on things that they can control."

When I first heard this phrase it struck me as odd. I inferred from the phrase that they were trying to convey diligence with regard to managing in an uncertain environment.

However, in our current period of economic weakness, effective management during uncertainty and "uncontrollable" circumstances, is paramount. While no one says it is easy or straightforward, my analysis indicates it will be imperative, especially if there is further economic deterioration, as I believe will unfortunately occur.

As we have seen, this period of economic weakness has held plenty of unforeseen events and surprises. As I mentioned in here:

http://sites.google.com/site/prosperitybypen/you/business

there is a lot on the plate here with regard to managing a business in our "new (economic) environment." Perhaps the biggest mistake will be to underestimate the complexity.

I will be discussing more of this issue soon...

SPX at 944.38 as this post is written...

The Importance of Scenario Planning to Businesses

The Wall Street Journal ran a story yesterday titled, "Pendulum is Swinging Back on 'Scenario Planning."  Perhaps most interesting is the history of scenario planning.

As I have written about previously in the June 18 post,  those who own or manage a business will likely continue to find themselves in a very challenging economic and business environment. As I've discussed in this article, there are quite a few things that businesses can do to mitigate and/or avoid the potential damage this economic weakness can cause.

Of course, it is unwise to generalize advice for all businesses, especially in an economic environment like that we currently have. However, scenario planning (and the associated modeling) can be a very valuable tool in helping businesses understand their specific situation (options, vulnerabilities, opportunities, etc) over a range of economic scenarios. It is paramount in effective business planning.

At this point, based upon the statistics I have seen, it would appear as if businesses in general are underutilizing scenario planning. I think this is very unfortunate, as it exposes businesses to risks and uncertainty that may be avoidable.

Should this economy continue to deteriorate, as I have discussed extensively on this blog, businesses could face a very difficult and tricky environment that may well be unpredictable. In such an unpredictable environment, scenario planning increases in value.

SPX at 892.56 as this post is written



Copyright 2009 by Ted Kavadas