Plan ahead to get ahead

Media advertising’s Harold Mitchell suggests that there is a lag between interest rate cuts and their effect on retail spending that may take over a year to come through to the cash registers.

Following Glenn Steven’s Cup Day rate cut, smart companies should therefore plan ahead to get ahead of a resurgent Australian economy in 2013-14 after Wayne Swan delivers his first budget surplus.

In the same way, Gillard’s couple of billion support for community service workers will take a year to flow through to the cash registers. Roy Morgan Consumer Confidence is virtually unchanged at 116.4 (down 0.4pts) after the RBA cut interest rates for the first time in 2 1/2 years to 4.5% (down 0.25%).

Gary Morgan says, “In the wake of the RBA’s interest rate cut an increasing number of Australians (60%, up 2%) say now is a ‘good time to buy’ major household items — the highest this indicator has been since mid-August. However, fewer Australians now expect ‘good times’ for the Australian economy over the next 12 months (33%, down 3%) and over the next five years (33%, down 3%).”

We all wait for evidence that Julia Gillard’s call for more funds to the IMF and Tony Abbott’s conversion to a global bail out strategy represents the first signs of a concordat to address the Eurozone crisis.

There are fears that our banks will have their financial reputations lowered a peg and that the next set of banks to go under the austerity hammer will be in France as growth grinds to a halt. In the meantime, the predicted replacement of a few European leaders may presage a longer-term recovery in global trade with China taking its foot off the brakes and the US placing its foot on the jobs accelerator.

A weak market has lead to months of business corporate failures that have finally convinced our central bankers to increase liquidity in the small business arena. This has been associated with a surge in savings driven by the gap between consumer confidence and business concerns, household debt consolidation and a big rise in as retailers, their suppliers and print advertisers facing the reality of our three-speed economy

It all depends on the stage of development of start-up, emerging and developing smart companies as small businesses struggle to convince lenders to appreciate the difference between risk management and R I S K taking to manage growth.

Increased insolvency rates appear to confirm SMEs’ increased inability to obtain short-term financing. The main factors exacerbating the banks’ attitude towards lending to SMEs are: a) the poor SME economic prospects already discussed; b) stagnation in inter-bank lending and increased cost of capital; and c) the desire to rebuild bank balance sheets.

Smaller firms are more vulnerable now for many reasons: not only has the traditional challenge of accessing finance continued to apply, but new, particularly supply-side, difficulties are currently apparent. It is important to stress that SMEs are generally more vulnerable in times of crisis for many reasons among which are:

• it is more difficult for them to downsize as they are already small;
• they are individually less diversified in their economic activities;
• they have a weaker financial structure (ie. lower capitalisation);
• they have a lower or no credit rating;
• they are heavily dependent on credit and
• they have fewer financing options.

Until funds start to flow from the miners to the masses, the best path to follow may be that of Myer’s Bernie Brookes, who has made a strategic investment in customer spending analysis to identify where to put on more customer service staff and where to do the Kenny Rogers thing and fold unprofitable businesses.

The median path may be that of Fairfax CEO, Greg Hywood giving his readers extra features, including turning off the automatic playing of videoclips in exchange for giving basic information of use to advertisers. The worst path to go down may be that reported for new News Ltd’s Kim Williams to step up cost cutting with a freeze on hiring staff.

Focus on the fundamentals over the next year requires a balance between systematic efforts to address innovation and productivity by getting close to the market and early investment in brand building and advertising to gain share of mind as the wallets begin to bulge. Smart companies will plan ahead to get ahead and follow the evidence from Gary Morgan that shows customers can be convinced to make this a very merry Christmas.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.