Now that the UK is officially in recession, can we expect an air of calmness to return to the markets? As some would say, ‘we are where we are’. Most of us have been drawn to the stories of global meltdown like moths to a light. Now we have had the news that we all expected, is it now not time to regroup, understand where we are, and work towards the end?
Over the last 12 months traders, investors and shareholders have been trying to track a trend that has shown all the signs of a drunken brawl and the net result has been panic in the markets, loss of business confidence and consumer surprise at the speed of the downturn. With the media, financial experts and business pundits commenting on the dire position of the future of UK Plc, we can expect more bad news to follow, with a greater number of layoffs and increased absenteeism bought on the stress of change.
But let’s throw a bucket of cold water over ourselves for a moment and remind each other that those organisations that failed did so because they had been given several reprieves in the good times. The good times were built on de-regulated lending which in turn allowed the consumer to power the economy through several boom to bust scenarios over the last 10 years. The luckiest escape was the ‘tech bubble’ that burst in 2001. UK Plc should have taken heed then, but public borrowing incentives, coupled with the property boom, disguised the pain and gave the economy new life.
This time around the banks have been bailed out by the Government (but have to pay back at 14%). This might explain why the banks have been reluctant to lend to UK businesses. But maybe the level of toxic debt has still to be established and the overall impact of this on the economy has yet to be validated.
Latest forecasts predict that unemployment will rise to 10% from its current 6.1%, (FT – Jan 25th). The optimists say that in the 1930s the great depression accounted for 33% unemployment but even then 66% of the US workforce was still working. But here is the but… nearly 50% of the UK Plc workforce is employed in the Public Sector therefore translating to only 40% of the Private Sector employed by the end of 2010. The Government bailout does not include laying off the Public Sector workforce. The Public Sector pension deficit will increase over this period thereby increasing the debt mountain still further.
Why does that matter? Because with tax income will fall requiring the Government to borrow more to pay the new debt. Based on current plans, Government borrowings are necessary to stimulate the economy but the more the borrowings the longer the recovery.
Is this like a boxing match? Like all boxers there have been winners and losers. Many prized fighters have hit the ropes, and a few over-the-hill brawlers have sadly passed away. As the last few champions regroup, they are looking around to see what has to be done to stay in the game. There are casualties still to come, but from the mêlée will emerge stronger, leaner and more healthy contenders.
This is a simplistic analogy, but one that has resonance with many within the UK Private Sector workforce. As the recession bites companies have to take decisive action to remain agile in these unprecedented trading conditions. Such adjustments in corporate behaviour are inevitable.
The initial response has been for costs to be paired back with discretionary spends being clawed back to fatten the trading account. This is the stance companies took in the third quarter of last year, if not before. As Christmas approached contractors were released further easing the pull on the cost base.
As we move into Quarter 2 of 2009 organisations are seeking to release up to 10 – 15% of the work force as trading conditions worsen. It’s now that we see survival syndrome work its way across the workforce, as we stay longer at our desks, work harder and try to make ourselves indispensable. As the inevitable redundancy notices land on the desk of some employees, those remaining feel hard done by as their workload increases and they fill the gaps. Consequently morale drops, output falls and teams break up as people leave or go on long-term sick.
Operational gaps increase and role responsibility disappears. Organisations or departments start to firefight process issues. By now the organisation is operating at a minimal cost base barely surviving a 5% increase in demand. It’s at this point that morale is so low that an air of fatalism inevitability starts to strangle operational performance. The weak are let go and the strong survive. Sickness increases and the exit door never closes.
To quote the Chairman of Next, “this is a recession not Armageddon,” but even in a recession we need to remind ourselves to smile. Companies need to protect those left behind and those who haven’t been made redundant. It’s these people who will form teams to grow the business when the recession is over.
