06
Apr
09

Five Critical Change Themes from the Kellogg School Turnaround Conference

The Kellogg Business School presents an annual Turnaround Conference on campus at Northwestern. It’s a terrific event for people focused on taking advantage of change. This year’s event took place on Friday (April 3rd) and proved the rule. Experts from across the country participated in the sessions. Five themes emerged during the day.

One: Survival Key for 2009

No one saw any kind of economic recovery during the remainder of 2009. The leading indicators look weak and there has been negative GDP growth during the past two quarters. None of the experts saw anything other than minor improvements during 2009, with no significant recovery until 2010. Some of the predictions pushed the recovery to late 2010 or even early 2011. The recession is already the longest since the Great Depression and may well double the previous record of 15 months.

That makes 2009 a survival year. It’s time to focus on executing business basics and solidifying market position. That does not mean being tentative or defensive. It means clearly defining company strengths and building on those strengths to prepare for the end of the recession. The companies that will thrive are those that continue to move forward during the recession, increasing their visibility and positioning for new opportunities.

Two: Slim Margin for Error

The financial crisis created a liquidity crunch that dried up many capital pools available to companies. This crunch can make any misstep in managing cash flow a fatal error. Banks are lending and good companies are maintaining their credit lines; but the financial safety net has disappeared for everyone else.

There are now three distinct groups of companies: ones that deserve to live, ones that deserve to die, and ones that live in the grey zone in between. Deserving companies have capital. Companies at the other end of the spectrum are being killed quickly and mercilessly. Companies caught in between depend on convincing capital markets that they deserve to survive. That entails demonstrating a solid market position, great execution of a good strategy, and ruthless attention to cash flow.

Three: Instant Information Flows Change Everything

The near-instant availability of information – both accurate and rumor – increases the volatility of the markets and creates a herd mentality across regions and markets. The zeitgeist is one of bad news and feelings of doom. It’s tough for any good news to break through the static and any cloud casts an impenetrable shadow. That means rallies are short lived and any misstep can cause disastrous consequences.

Four: Economic Mechanisms Do Not Address Political Issues

Economic mechanisms cannot address all of the current economic issues. Politics and policy are and will play major roles in the disposition of mortgages, banks, auto companies, and credit card debt, among others. Pure economics alone will not determine the future of these markets, nor set the policy governing them. The change from a Republican to a Democratic government would suggest significant policy shifts. The economic crisis guarantees it. These changes will determine many winners and losers in the months ahead.

Five: Tremendous Time for Optimism

There are incredible opportunities being formed in the middle of this economic storm. The US market is still dominated by an entrepreneurial spirit that can take advantage of those opportunities and turn them into economic growth and prosperity. Despite the serious messages being delivered throughout the day, an optimistic perspective held sway over the participants. Even in this downturn, good companies will continue to do well and good ideas will continue to find support. The coming months will be difficult, but the tough times will end, the economy will recover, and we will write a new chapter of success.

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