Our capacity extends beyond product breadth to a wealth of knowledge in both your provincial and global target markets.
Opportunity in crisis – how winners respond in tough times
With rising inflation and interest rates, low unemployment and a possible recession ahead, Geoff Colvin shares how leaders stand out in times of uncertainty.
By Geoff Colvin, presented at the 2022 ATB Business Summit
What makes business leaders stand out during remarkable times? They embrace reality, not just observe it, says Geoff Colvin, senior editor-at-large with Fortune magazine.
For more than 40 years, Colvin has covered the economic, political, technical, and competitive forces challenging businesses, and how successful business leaders adapt and win. What stands out for the New York-based author and commentator is “Winners confront reality. It sounds so simple and obvious, but it’s not,” he told an audience of business leaders during ATB’s recent 2022 Business Summit. “They confront reality – not as they wish it were, not as it used to be, but as it is.”
Colvin described winners as leaders who stop protecting yesterday and start inventing tomorrow. This winning attitude is more important than ever in the current business climate.
Inflation hit 6.8 per cent in April, up from 3.7 per cent a year prior, a 30-year high in Canada, as the cost of living shot up and Russia’s invasion of Ukraine impacted global energy and grain supplies. In addition to cost pressures, the historic high is significant because few managers have experience managing inflation at this rate – which requires agility.
To make sure your business mitigates this threat successfully, you’ll need a dedicated person, or a team solely focused on pricing, Colvin said. “Monitoring competitor prices, input prices, consumer psychology – all are crucial because setting price in a high-inflation environment is enormously important. Getting it right – do you do pre-emptive price increases? or do you wait? – these turn out to be big, big issues,” he said.
The other key skill needed is cash management. Everyone is trying to pay slow and collect fast. Managing cash, reporting cash inflow and outflow on a daily basis to decision makers, finding cash traps, and freeing up cash are crucial tasks when the price of goods and services jump and the purchasing power of money drops.
Interest rates - The Bank of Canada already has started taking action against inflation by hiking interest rates from record lows of 0.5 per cent last year to 1.50 per cent late May. However, experience indicates interest rates will get inflation under control only when they are higher than the inflation rate.
The idea of rates rising so high that they are adjusted to inflation seems impossible. Although yields on Canada 10-year bonds rose to 2.7 per cent in January 2022, from 0.5 in the summer of 2020, it remains a negative rate against inflation. Which makes it extremely prudent to do a what-if scenario exercise, said Colvin, adding, if something seems unthinkable, you should probably think about it.
Labour supply – North America faced a conundrum of low unemployment rates against depressed economic growth coming out of the pandemic. This is in part due to people choosing early retirement during the pandemic as well as younger people accepting government stimulus and not hurrying back to work. But as inflation drives prices up, more people are expected to return to the workforce to meet the cost of living. Again, Canada is ahead of the U.S., as unemployment rates are lower, with more people south of the border no longer looking for full-time work.
Recession expectations – While North America is not in a recession yet, and possibly might not get into one, Colvin encouraged businesses to complete a recession scenario exercise to measure the different ways it would impact their business.
Historically, the best predictor of inflation is an inverted yield curve of 10-year government bonds, minus the two-year bonds. “When that goes negative, it almost always signals a recession in the next year,” Colvin said. While most economists expect a global recession within the next year, he suggested it could be a mild one.
Unexpected COVID lessons
“The big thing that we’ve learned in the past two years since the pandemic is I think we can work miracles when we decide to,” said Colvin. “The most dramatic example is the vaccination. If you had told anyone in the pharma industry that they could develop multiple effective vaccines for a new virus in 10 months and not the 10 years it usually takes, they would say you were crazy.”
Executives and business leaders were amazed at their ability to respond to the pandemic, moving to a work-from-home model, changing technology procedures, and being successful at both in incredibly short periods of time.
“What we learned is that if we have to do stuff, we can do it. And let’s not forget that, as we go into what’s ahead of us now,” Colvin told the audience. Tumultuous times are when the leaders change, he added. “This is when all the shifts happen, this is the chance to improve your position in the competitive order, no matter where it is.”
For example, when shutdowns happened because of the pandemic, the Chipotle restaurant chain embraced the reality of nobody eating in and invested millions of dollars into building new kitchens specifically to service pick up and delivery. More than 100,000 restaurants shut down in the U.S. during the pandemic. Chipotle hired tens of thousands of new employees and their stock hit new highs.
Successful leaders are willing to revise their business models, invest in their people, and in innovative technologies. “It ultimately comes down to this: winners summon the courage to act,” Colvin said. “Ultimately this isn’t about spreadsheets, it’s about something inside us.”
About the speaker
Geoff Colvin is an award-winning thinker, author, broadcaster, and speaker on today's most significant trends in business. As a longtime editor and writer for Fortune, he has become one of America's sharpest and most respected commentators on leadership, globalization, wealth creation, the infotech revolution, and related issues. He is heard daily on the CBS Radio Network, where he has made over 10,000 broadcasts and reaches seven million listeners each week, and he is the author of two books. A native of Vermillion, South Dakota, Geoff is an honors graduate of Harvard with a degree in economics and has an M.B.A. from New York University’s Stern School of Business.