You make your own news….

Inflation down. Unemployment down. There you go, this week there has been some good economic news. Last week it was probably bad. To be honest I can’t remember. And as for the week before…..

But then again does it matter? We live in a media age where 24 hour news outlets are desperate for a story. Online, TV, radio, hard copy, everywhere you look. Any snippet of news will be magnified and analysed to the nth degree. Bad news is inevitably given a higher priority than good news. Everything, however trivial, is important for at least a few minutes.

I am often asked when preparing strategic plans how macroeconomic events should be taken into account. For example should GDP growth forecasts be factored into the numbers? How should inflation or unemployment predictions be accounted for? What should be made of interest or exchange rate trends?

My answer is always be aware of them and consider them but don’t let them rule your plan. They should form part of your PEST (Political, Economic, Social, Technological) analysis certainly. But when I am dealing with an SME I tend to get them to focus on their SWOT (Strengths, Weaknesses, Opportunities, Threats).I want them to think about what they can influence not about what they can’t.

Because smaller businesses have small market shares there are always opportunities to grow and be successful. It is about knowing your market and using your strengths to develop the right products and services to exploit your niche or expertise. Your strategic planning should focus on the resources and steps necessary to achieve this goal.

Alternatively it is about recognising the inevitable. If your offering is not right or your business is badly run no amount of positive economic news or GDP growth will lead to real success. Indeed positive economic news might lead you down a path that the fundamentals of your business are screaming at you not to follow.

External factors do come into play and it would be silly to pretend they don’t. But it is easy to be seduced by a stream of bad news into negative thinking. Many businesses are thriving at the moment. Concentrating on the basics of running a business well and on what you can control will give you your best chance of success and enable you to create your own headline. One you can control. At the end of the day it is up to you write your own news…..

Business planning – up in the clouds or down to earth……?

The two major news items of the moment, Nick Clegg’s apparent triumph in the televised election debate and the volcanic cloud that is currently playing havoc with the skies have brought to mind Harold MacMillan’s alleged quote when asked what was most likely to blow a government off course.
 
The source of the ex Conservative prime minister’s comment “events dear boy, events” has never been properly substantiated, but nonetheless, it is probably haunting his would be successors now, as all their months of meticulous election planning have had to be put to one side, to deal with these two unexpected events.
 
Many businesses, not least those involved in air travel, are also having to come to terms with the impact of the Icelandic eruption, which threatens to wreak more havoc on the UK economy than the collapse of the Icelandic banking system. Whether it is key employees being stranded, or the disruption of key transport connections, or the impact on customers and suppliers, companies are having to find solutions to the problems that have emerged.
 
It is moments like this where the merits of business planning tend to be questioned. “How can you plan for this?” is a common jibe, dug up whenever somebody has the temerity to suggest that their organisation might need some sort of business plan. A lot of this stems from the corporate or government approach to planning, which in many organisations means a political exercise designed to promote or preserve the position of senior executives or civil servants.
 
The reality is that planning is not just about plotting a single course. It is about preparing for the unexpected. It is about creating a culture within which uncertainty can be recognised and dealt with. Above all it is about producing a framework within which quick decisions can be made to deal with a range of scenarios.
 
Businesses with robust planning processes will have already started to look at the risks and opportunities that the current situation presents. They will be aware of the resources that they have available to manage these, and will be working out how to deploy them to maximum advantage. In short they will be much better prepared and much more able to survive than businesses that don’t have such processes.
 
As for the politicians…..

Feeling good – for now…..

The latest business trends survey released this morning by BDO , the accountancy firm, reveals that business confidence  has reached its highest level for four years.  This pretty much fits with much of the anecdotal evidence that I have gleaned from clients and contacts over the past few months, and is a welcome antidote to the gloom and doom that has been prevalent for the last year or so.

But anybody who takes this as being the end of the recession and the beginning of a glorious sustained recovery is being a tad naïve. As the survey itself says, much of the boost in output has been down to companies deciding to re-stock after letting their stock levels run down during the recession, and that a significant, and as yet unidentified, increase in private sector investment is needed to keep any recovery on track.

Many businesses that have cut things back to the bone in response to the downturn are now having to get their stock levels back to a least a reasonable level.  Building maintenance and basic equipment upgrades can only be postponed for so long.  But like the VAT reduction and quantitative easing, these are only going to be one off boosts to economic activity.

UK economic growth is driven by public sector spending, consumer demand, business investment, and export activity.  It is the latter two that are likely to lead the way out of this recession, and given the comments above regarding investment and the fact that global demand is still not exciting enough for there to be a strong expansion of exports, the situation remains fragile.

Add to this the fact that businesses are understandably not believing any pre election pledges about what the parties intend to do, and are waiting for the reality of the post election economic situation and the actions that will be necessary to deal with that, you can understand why I am still cautious about the immediate future.

I still believe that it will be up to businesses to make their own recovery in 2010 (and maybe even 2011), and that the basics of business planning and financial management that many companies have had to revisit during the recession will play a key role in any success they hope to achieve.  There is still a long way to go.