Up from the Rubble: Post-Recession Planning
At the height of the Cold War, government and military planners reached an interesting, if somewhat grim, conclusion that bears relevance for today's corporate leaders. They concluded that while it would clearly be important for the U.S. to sustain less damage than the USSR in any nuclear war, it would be equally important for the U.S. economy to regain its ability to function faster than the adversary's. Whichever returned to a semblance of functionality first would be the long-term winner.
They thus developed plans to restore the basic payments system in the U.S. after a nuclear war. At first it sounds crazy to design a plan to be implemented at a time when 98% of Americans would think the lack of a basic payments system was the least of their problems. But the more you think about it, the more obvious it becomes that those planners were right. (Even though, thankfully, we never experienced an empirical test of their plans.)
CEOs and strategists of companies would do well to learn a lesson from those Cold War planners. Anticipating now what to do once the current disaster conditions clear—even partially—will be critical to any who want to emerge as long-term winners.
PostBellum Financial Services
By way of example, take the epicenter of today's crisis: the financial services industry. Bankers, investment bankers, and insurance company executives must undoubtedly feel that they are in the middle of the economic and competitive equivalent of a war. Like any generals, they cannot be sure whether the climax has been reached (in the guise of the meltdown of the last few weeks) or if the war will continue (as the recession that appears to be upon us).
Furthermore, the rash of bankruptcies and wave of mergers are already redefining the structure of the financial services industry. Investment banking has virtually disappeared as a separate industry. The three largest banks—Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC)) are massively widening the gap between themselves and the rest of the industry.
In the midst of all this, CEOs and strategists at other financial institutions are sure to be in hunker-down mode—focusing on short-term operations to avoid being the next victims. But as hard as it might be for them to contemplate—and even though they would (temporarily) be criticized for spending time on something "irrelevant" in the midst of a crisis—those executives need to carve out time to think about how their institution can act faster and more decisively than their adversaries when the war is over.
The first to recover a competitive and aggressive stance will look out over a landscape of widespread opportunities and a period of unchallenged leadership while their adversaries remain hunkered down or absorbed in post-merger integration. The big moves of the next 24 months will likely determine everyone's prospects for the next 5 to 10 years.
there's nothing inevitable about winning
This window of opportunity will exist in other industries as well. The competitive industrial structures of the housing (including suppliers), automotive (including suppliers and distributors), airline, and certain high-tech and manufacturing sectors all appear to have "critical sensitive" characteristics, in which early recovery strategies could reap disproportionate gains that are unlikely to be reversed after economic recovery.
Five years from now, when the rubble has long since cleared, we will look back and believe it was "obvious" that certain players would recover, others would be the ones to act boldly, and so forth.
After all, we have revised history before. Haven't you heard people say that "of course" it was obvious Bank of America would recover from the LDC debt crisis in 1984, when its market cap fell to $400 million, and First Interstate made a hostile bid? That "of course" it was obvious that NCNB should buy bankrupt First Republic from the FDIC—when in fact there were zero other bidders—thereby setting itself on the path to become NationsBank, which later took over Bank of America itself (but for $19 billion, not $400 million)? That "of course" it was obvious that Lockheed (LMT) would recover from its government bailout? This list can go on forever.
The truth is that it is by no means obvious which companies will win. But if we had inside information as to which management teams are sparing some effort today to act more boldly and swiftly than their adversaries when there is a pause after the disaster, it would be pretty obvious whom we should bet on.