Management teams being tested as never before in our fast-changing world: Martin Towers
That was compounded by the global pandemic and then a Russian military invasion of Ukraine that was not the walkover Putin assumed.
An immediate consequence of this lethal cocktail of events happening in short order has been the re-igniting of inflation into double figures, a level not seen for years. Consequentially this lead to significant increases in interest rates by the monetary authorities, from virtually zero for many years to around 5 per cennt in 18 months in the UK, a level not seen for some 15 years. All bad news.
What a backdrop for the businessman to navigate. And we may not be at the end of the pain.
There is a growing consensus that interest rates will stay higher for longer than first thought, if not as high as feared. Use of the term ‘transitory’ has long since been dropped in the context of inflation, doing nothing for the credibility of the UK financial authorities that we’re in control of this.
On top of this elections in USA and UK in the fourth quarter of 2024 add a further element of uncertainty both before and after these respective events.
For the business manager all of these ‘macro’ and geo-political events are way outside their control. That important spark of activity and investment, business confidence has been anything from shattered to dented at the very least. Because consumer confidence has.
Major strategic or capital decisions are put on hold awaiting clarification or simply to preserve cash, which resumes its regal status as King in these uncharted waters. There is so much uncertainty, we go on hold and do nothing, kick the can down the road, as so much is going on out outside of direct control.
Who knows what could happen next given the range of forecasts available, which are all different.
We note two major effects on business here. First management teams are being tested in a way never envisaged. Not taught at business school or through empirical experience, simply because we have not seen these circumstances before.
Secondly we have recently seen the economic cycle re-assert itself post-pandemic and given the continuing hostilities in Ukraine.
Macro-factors have come back into play in a way that we had forgotten about, or for some never experienced.
Unfortunately the first sign of this over the last 12 months has been that what goes up in the economic cycle can also go down, as is now being painfully witnessed and unfortunately where we start.
So if this is Back to The Future, what will happen in future? Things have changed and there is not much to go on by way of precedent. Business models are being stress tested as never seriously envisaged and in some cases fatally so.
Management teams, particularly in young companies with a growth agenda but limited funding, experience and resource, are struggling. Is it just back to basics and forget the frilly stuff. If we do that since the competition may be in no better position, so is this period actually a business opportunity?
With all aspects of doing business affected, there will be change.
Martin Towers is the former finance director of Kelda Group, which was the parent company of Yorkshire Water, and former CEO of Spice PLC. He is now an early-stage business investor.