Anticipating the end of the Recession: Time Now for Managerial Changes Séan Rickard August 2009 SM
Hello, we are keen to open up our thoughts for your comment. To kick the process off today, we are joined in the studio by Séan Rickard. Now, Séan we are going to look at the recession, and particularly we are going to look at post recession. Is it time that we started to look over the parapet? SR Well recessions are always a time of pain for some people who lose their jobs and other people, who have lower incomes, but they are also times of opportunity and they are certainly times of change. As the assessment now seems to be that the recession has bottomed out, then this is precisely the time when I think all good managers should now be raising their eyes to the future and thinking very carefully about what the world is going to be like in which they are operating and what changes they need to make to their business. SM That is all very well, but there is the poor old manager dealing with issues right here and now, encompassing most of their time, how do you think that they are going to find time beyond that? SR Well, I understand that in a recession, and in this case – in this recession, which I think took everybody by surprise with its severity and speed – the first priority is to try and cut costs, to try and ensure the survival of the business. And as I judge that we are now generally past that point, or at the end of that stage of the recession, a good manager will find the time – will have to find the time – to think very carefully about how their business is going to move forward in the future. What I am concerned about really is that the world – 2010, 2011 and on – is going to look very different than it looked prior to this recession. SM Now what evidence have you got for that because most people will say, look if we can see this recession out, then we can get back to business as usual? SR Well of course for some firms it might be. But I am talking here about the vast majority of firms. Let’s take a step back. For the last ten, fifteen years, the engine of growth in this economy of ours has been the financial services. We know that in the future the financial services are going to be constrained; they are going to be held down by legislation and regulation and some of the practices they engaged in in the past are going to be barred to them. Knowledge Interchange Online © Cranfield University (August 2009) 1 Séan Rickard
Secondly, we know that a lot of the jobs that were created – in fact the vast majority of jobs that have been created over recent years – have been created in the public sector. As a result of bailing out the banks and stimulating the economy the government now has a huge debt – probably in excess of £150 billion by the time it is all counted up. And over the coming years, whether it is this government or a new government, their priority is going to be to bring down that debt and that almost certainly means reducing the number of jobs in the public sector. So the public sector is not going to be a source of employment growth in the future. Where does that leave us? It leaves us really in looking at business services and manufacturing. These are the areas which are going to have to provide more jobs and more economic growth in the future, and I think any manager, whether they are in a manufacturing plant or whether they are in a business to service company or indeed in the public sector or the financial services, really need to be thinking rather carefully about what those changes might mean for their business. SM In practice what does that actually mean? I talked to a manufacturing manager last night on the phone and he was saying “Any talk of 4% overall decline in the economy – I am down 30% maybe even 40%”. SR We know that the manufacturing sector has taken a very large hit. One would expect that in a recession: we don’t turn off the lights; we don’t stop consuming water, so we have to look to the areas where people have discretionary expenditure. They are the ones that fall most rapidly in a recession. But let’s stand this on its head. One of the consequences of this recession is that the pound has fallen quite significantly against other currencies. Our manufacturing sector is now more competitive in global terms than it has been for many years. I also believe that there has been a change in the working practices in the attitudes of people within the manufacturing sector. We are now much more market orientated; we are much faster now to take advantage of opportunities that present themselves. If I put together the depreciation of the pound and the more market responsiveness of our manufacturing sector, I say there is certainly scope for quite rapid growth now from the dip they are currently in and I would go further than that – I think in the years ahead the manufacturing sector is going to increase its share, its contribution towards the GDP of this economy and that suggests to me that it will also offer the opportunity of more jobs than they have previously. SM What about in other sectors? You mentioned that financial services are going to shrink, what should be the attitude of the average manager in that sort of sector? Page 2
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SR Well, I am tempted to say a little more humility in the future. Our masters of the universe have got to recognise that the tremendous effects that their experiments, their recklessness have brought upon many other businesses – many viable businesses have now been fatally damaged by their attitudes. From my perspective I think we should begin to view the banks very much like we view electricity, water or indeed these days, according to an article by Gordon Brown this morning, the internet. They are a utility. They are something that is necessary to keep the economy going. Their primary function has got to be to provide loans to businesses and of course to consumers where people are in a reasonable position to repay. Banks have been failing in that service over recent months. As the recession has taken hold and has become deeper, partly because the banks have not withdrawn, but they have reduced their activity in this area. As we go forward, I think from an economic point of view and indeed from a political point of view, the banks are going to have to begin to recognise that their primary function is just that: they are there to help other wealth creators, rather than trying to be the wealth creators themselves. SM Do you think we can learn anything from the retail sector? There seem to be some supermarkets in particular that really seem to have taken off – they have actually increased their profits during this period. SR Well supermarkets are in a very fortunate position. We all need to eat and we are blessed, perhaps, in this country with some of the most efficient supermarkets in the world. And of course, for most of the goods that people purchase in supermarkets they are necessities; they are purchased out of current income – cash purchases or whatever. And their future growth really will depend on them continuing to more or less do what they have done before. But if we turn to other retailers, retailers where discretionary expenditure is a much larger proportion of their sales and where perhaps people had to borrow money or certainly go into debt on their credit cards in order to make the level of purchases, then I think we are going to see a very big change in the future. I think consumers themselves are trying to bring down the level of their debt at the moment, and I think in the future there will be more regulation and perhaps legislation to try and constrain the attitudes of some of these credit card companies which more or less encourage people to get themselves into enormous debt. That is not healthy for individuals, it’s not healthy for businesses and it’s certainly not healthy for the economy as whole. SM Séan, some good thoughts there. Now what we would like to do now is hear from you – so if you post your comments below the video, we would be pleased to hear from you. Page 3
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