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|In: Industry Commentary|Last Updated:

We’re all economists now.

We have no alternative. Whether you’re a CIO, IT manager, IT professional, business leader or just read KJR out of morbid curiosity, the economy’s future and your expectations thereof affect you profoundly.

Your plans depend on your short-term and long-range (three-year) economic forecast. They will drive your career planning, investment planning, and, if you lead an organization, your strategic and tactical planning.

Quite a few people think our current situation is just another recession — a speed bump in the road to prosperity. If you’re among them, my best advice is, using the ignore/defend/exploit/ally framework presented here a few weeks ago (“Surgery vs injury,” Keep the Joint Running, 10/13/2008), to ignore it all. If you honestly think we’re undergoing nothing more than a short-term inconvenience, your best response is to prepare for a future that’s very much like the recent past … which presumably is exactly what you had been doing all along.

Some friends and acquaintances are concerned we’re replaying 1929, and expect massive unemployment, food lines, and other forms of widespread misery. If you agree, my best advice is to invest in Walmart.

Maybe think about getting a job there too, to beat the rush, because low-cost providers will be just about the only businesses for which widespread poverty is an opportunity. Which means your company’s strategy should probably focus on finding ways to remain profitable while cutting prices by a hefty percentage. For most companies this constitutes a defend strategy. For companies that are low-cost providers already or are well positioned to head in that direction, exploit is the way to go.

My own expectation is in the middle. I see this as an economic replay of 1973. Then as now we saw huge economic disruptions presaged by years of deterioration in the fundamentals; then as now we saw large corporations undergoing massive layoffs.

The situations aren’t, of course, perfect parallels. For example, Johnson financed the Vietnam War by increasing the amount of money in circulation, which directly fueled inflation.

Our current story is all about debt. Bush financed the war in Iraq with it, and the private sector financed all sorts of non-real-wealth-creating investment through the accumulation of its own debt — I’ve seen estimates as high as $50 trillion for the combined total.

Eventually, debtors have to repay. If we repay without expanding the money supply we’ll have little left to invest, publicly or privately, in creating the real wealth we need to grow the economy.

So I expect at least some of our future national economic policy will include expanding the amount of currency in circulation (that’s “printing money” for those who prefer plainer expression). By doing so we’ll pay off at least some of our debt with cheaper dollars than the ones we borrowed. By doing so we’ll also have some money left to invest in economic growth.

And, of course, by doing so we’ll increase inflation.

This course of action won’t rescue us. It will just soften the blow. We’ll still see larger levels of unemployment than we’ve been accustomed to, coupled with higher levels of inflation and very limited economic growth.

In 1973 economists called this combination “stagflation.” It took the United States more than a decade to deal with it (Ronald Reagan usually receives the credit for ending it; Paul Volcker is the one who deserves it).

This is what I’m expecting and planning for. It’s why my consulting company, IT Catalysts, is repurposing its methodologies, frameworks, and intellectual capital to support (ahem) “aggressive cost management.” It’s also why we’re placing additional emphasis on promoting our Bare Bones Project Management seminars: We think we provide as much seminar value as our competitors at a much lower cost.

I’m not trying to convince you the future will be ten years of stagflation. I’m trying to persuade you to perform as dispassionate an analysis as you can, draw your own conclusion based on what evidence and logic tell you, and plan accordingly.

Then find ways to hedge your bets in case you’re wrong.

* * *

Tomorrow is Election Day. My by-now-predictable advice: Decide based on competence — on which administration, legislators, judges and other candidates you think would bring in the best talent, would accept no substitute for evidence-based decision-making, and would think things through before taking action.

We are privileged to have two fine presidential candidates this year, no matter what you think of their positions, policies, speeches and campaigns. We have important choices, and often fine candidates for other offices as well.

As citizens we are government’s owners, not its customers.

That’s how each of us should vote.

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|In: Leadership|Last Updated:

A brief history of finance:

In the beginning, all transactions were barter transactions. Then we invented money to act as a proxy for physical goods and services. Money simplified barter.

Next came credit, which smoothed out cash flows so businesses and consumers could buy goods and services with money they didn’t have at the moment, but expected to have.

Then, Wall Street securitized debt. The rest, as they say, is current events.

But while today’s crisis is a credit crunch, it’s a mere annoyance compared to the big risk — an employment crunch. If large enterprises start to lay off employees in large numbers we’ll be in trouble beyond anything we’ve seen thus far. Large unemployment numbers would leave consumer spending in tatters. And since consumer spending is what drives all other spending, layoffs could trigger a chain reaction.

What’s worse is that market forces take us in exactly the wrong direction, because they favor the wrong behavior: Any business that tries to be a “responsible public citizen” by retaining as many employees as it can will be punished by competitors who push costs to a minimum to gain a short-term advantage.

The only solutions I know of are: (1) Tax penalties on excessive layoffs, to encourage higher employment; (2) government spending programs that support private enterprises; or (3) government employment programs that pick up the slack.

Not that I claim expertise on this subject. The one I know something about is business spending — in particular IT spending and what you can do reduce it without excessively damaging the enterprise.

Last week’s column finished by dividing the enterprise into three categories of business responsibility: Revenue, Production, and Shared Service. It recommended you begin by defining the cost-drivers of each and setting goals for improving them: For Revenue departments, reduce the cost of sales; for Production, shift overhead cost into unit cost where possible to more flexibly add and shed capacity.

Shared Services … IT, HR, Purchasing and so on … can’t plan in detail until Revenue and Production know what they’re trying to accomplish. Revenue and Production will, after all, need new IT to accomplish their goals.

Still, there are some steps IT can take independent of any specific plans elsewhere in de company to trim de budget without destroying de organization. For example:

De-specialize: Typically, small entrepreneurships rely on generalists who do large chunks of work well enough, while large enterprises rely on specialists who do narrow pieces of work exceptionally well. It’s a case where good enough is literally the enemy of better, and vice versa.

In theory if there’s enough work to do, specialists and generalists cost the same. They just divide up the work differently. The specialists are enough more efficient at their respective tasks to cover the additional overhead needed to coordinate their efforts.

But over time, coordination can expand and specialties can turn into silos. When times are tight, reorganize work around generalists.

De-layer: How many layers of manager separate you from those who do real work? Second question: How many people report, on average, to those with supervisory or managerial responsibilities? Third question: How many managers have, as their sole responsibility, connecting people to each other? Get de picture?

Decommission: So you implemented a new system but left the old one in place because it generates a slew of reports nobody wants to take the time to inventory, let alone convert — is that what’s troubling you, bunky?

Turn it off. Connect end-users directly to the new one through your BI tool. If you don’t have a BI tool, write one dump-and-load-into-an-Excel-Pivot-Table program per workgroup instead of converting a dozen or more reports, and get rid of the dinosaur. It’s costing you staffing, maintenance fees, data center real estate, and watts.

Demolish: Last April, in Advice Line, I mentioned my old friend Fitz, who figured out back in the 1980s that instead of using chillers to cool the data center, in Minnesota a complex technology called OUTSIDE (OUtdoor Temperatures are Sub-zero In DEgrees) could do a very good job of it.

Fitz didn’t really demolish a wall. He just asked the maintenance crew to cut a hole in it and connected the ducts.

Viola! A bunch of watts saved. Interestingly enough, a few months after my Advice Line post, Intel gave the idea a try and discovered it could save hundreds of thousands of dollars a year with it.

Coincidence? Almost certainly. If it isn’t, I figure Intel owes Fitz a check.

Or a job offer.

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