The New Normal

December 17, 2009

The rules of global commerce have changed profoundly; the events of the past few years have reminded everyone that predictable incremental growth is the exception, not the rule. We all hope that when the recession has passed that the economy will return to normal. Unfortunately there is no returning to business as usual, the ‘New Normal’ we’ll all be facing – although not unprecedented – will be significantly different from the recent past.

For instance, it was once possible to assume that the global financial system was stable and reliable; the reality today is we must adjust to a world of increasing financial instability. Former Barclay’s Bank CEO, Martin Taylor, has described Wall Street as incompetent at best, possibly fraudulent. He claims that this banking culture contributed materially to the 2008 crisis and is reforming rapidly. And although this is dangerous enough, it is being compounded by other troubling actions at the heart of the global financial system including massive quantitative easing and unprecedented levels of government debt.

We must also adjust to rapid technological and societal changes. No one knows what the outcome of Copenhagen will be, but the environmental tide is turning. The rules of the legal game are changing and changing fast: consider the implications of the recent judgment against IMAX for alleged misrepresentation in a press release. Investors have sued, that’s not unusual – but a few years ago this might never have seen the light of day – today Canadian courts are authorizing a ‘global class action’ against the company and its management.  

There is, of course, the now obvious volatility in the price of everything from basic commodities to real estate. Not only are prices volatile, the speed and global competitiveness of business is ratcheting up, with market opportunities opening and closing rapidly.

The ‘Age of Volatility’ essentially began just after the turn of the millennium, when Chinese growth finally tipped the supply/demand balance in many global markets. The impact has been felt most strongly in industrial commodities such as iron ore, metallurgical coal, copper, nickel, zinc and aluminium markets, but China has also impacted many related global markets, including global trade, shipping, currency and financial markets.

The extraordinary volatility going forward will present many challenges. The contrast could not be greater between the past 30 year period of slow, steady growth and the violent circumstances of today. Foundational assumptions must be revisited: for instance, using ‘rolling thirty year averages’ for commodity prices in capital projects was a useful and reliable planning assumption until recently: present circumstances have rendered it completely obsolete. Furthermore, the need for high performance planning, with real effective contingency plans in place, ready to go will be a survival necessity – not a luxury;  as will having a ‘strategic organization’ one that works together effectively as a team, can plan and move with speed when the inevitable changes in economic circumstances occurs. 

Things to Think About

  1. Giant forces, that have been at work for decades are beginning to impact your industry and company, learn how the rules of the game have changed
  2. The New Normal will challenge our leadership and management skills to the limit. Planning to succeed is vital.

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