Resilience for the Default

In a speech given at the NY Stock Exchange, RISKVIEWS said that there are four paths to Resilience, depending upon the economic environment:

  • Boom – During the boom, the best resilience strategy is to grow!
  • Bust – Triage is the strategy best-suited resilience strategy for the bust.
  • Moderate – During the moderate phase steadily improving is the best strategy.
  • Uncertain – And the best strategy during uncertain times, as you have all figured out the hard way, is to diversify your business.

Many people and companies have been sticking with the Uncertain stage strategy – some for several years now.  The political uncertainty has made that the sanest strategy.  But when there is an actual default situation, we will all be faced with assuming that we will be continuing on with the drabness of the Uncertain stage or will we be popping into the Bust stage?

It makes a big difference to corporate and personal actions.

Under a continuation of the Uncertain phase, the best strategy is to continue with the small decisions to incrementally grow or shrink operations.  Not making any big commitments or any big decisions.  The firms that emerge successfully when the economy finally climbs out of Uncertainty are those who are already doing something that becomes a booming growth area.  But only if they quickly recognize that the Uncertainty has ended and they shift into growth mode.

If the default creates a Bust environment, the companies who will be best off will be those who most quickly realize that and who immediately start to trim their less successful activities and associated expenses.  These firms will deplete less of their resources defending a losing business and be better prepared to protect their core business through the Bust period.  The ultimate winners will also need to recognize the end of the Bust and still have the resources to support the slow (or fast) growth that marks the end of the Bust.

This is where those scenarios come in handy.  A company that has worked its way through the scenarios of the changes in environment will be better prepared to make these decisions about shifts in the environment.

 

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Explore posts in the same categories: Enterprise Risk Management, Financial Crisis

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