The Year to Make or Break
The world has been through a lot these past few years. As always, we have become stronger, together. Given our unique place in a convoluted new normal, now is the time to put everything we have learned into making 2024 a momentous year. The economy still has its hazards but enough bright spots to forge a path. However, it is not the time to go back to the old ways of doing business. Leaders must step back and take stock of what is available and orchestrate employee efforts and resources in a way that seizes new opportunities.
The Economy
If the stock market is any kind of a sign, the economy is beginning a new growth cycle. There are a few spots that are still troublesome: like commercial & residential real estate, the technology sector, and the US government budget deficit. While earnings prospects are up, M&A activities were down 30% in 2023.
When interest rates went to zero, many M&A deals that previously looked good no longer had the return expected. While the Fed was raising rates, the overall economy was still getting its footing. I believe an increase in M&A activity will signal a more pervasive economic recovery. As companies work through issues in the first quarter, there will be some that cannot or will not do a good enough job. I am looking for a trend when those who make their way have enough equity to acquire or merge. Here is an article about recent and future M&A activity: M&A Industry Trends and Outlook 2024
Commercial real estate may take a bit longer because the past boom in development and construction assumed full office employment. There is a great deal of unused space. Also, companies are struggling to get employees back in the office for just 3 days a week. See Coffee Badging for an example of the informal policies employees have developed to resist going back in.
While layoffs picked up steam in the 3rd quarter, the technology sector experienced more than its share. Here is a list of layoffs by CRN: Tech Company Layoffs In 2023: Cuts Continued In Q4. Among other things, optimism for everything AI did not pan out in mass or wide-spread adoption. Even with existing technologies, manufacturing has not been able to significantly advance its technological integration. See my Quarterly Insight: A New Convoluted New Normal on more factors working against companies.
Government Support
The US deficit could cause a pullback on infrastructure spending as well as other social programs that help keep the economy easily moving. My concern is that the US interest payment on debt being equivalent or greater than to the GDP of 173 countries, printing more money will cause irreparable damage. According to Statista, interest was 2.97% of US GDP in September 2023. So not only are interest payments at or above 86.5% of the top 200 economies, but we also have the actual debt to consider: 121% of GDP.
So, the first quarter of 2024 will be the time to see the full effects of pulling all that money out of the economy. Inflation, consumer sentiment, employment, M&A’s, and real estate are the trends to watch. Organizations’ strategic choices will then face reality, with my belief that most will be making considerable adjustments before the end of the first three months.
Productized Solutions Will Not Help
Lean, six-sigma, or TOC have never been the holy grail to improving operations, let alone an entire organization. Everyone has access to those knowledge bases, dissolving any competitive advantage from their adoption. Organizations must break the mold when it comes to industry benchmarks.
If you consider that productized solutions are the artifacts of assembling capabilities at some historic place in time, then to be successful, leaders must learn how to package their own set of capabilities with each new challenge they face. We are in a new normal where the ole ‘tried and true’ is no longer correct. See my article for an example of why and how marshaling capabilities works: Is Your Strategy By Design Or Chance?
People and Supply Chain Efforts
By now we should have solved the issue of the walking wounded and be focused on leadership development and strategic capabilities. Supply chain relationships should be in a better position to deal with the current status quo but also prepared for what is possible in 2024.
One issue aggravated by the pandemic and continuing presently is customer returns. Policies making it easy for buyers to return items for whatever reason have caused retailers and wholesalers alike to rethink the practice. Amazon is starting to charge for certain returns. Others are turning to technology to help curb buying of highly returned items on the front end. This article by the Wall Street Journal ‘Retailers Enlist AI in Fight Against Returns’, describes how it is helping. Others are offering discounts to shoppers who promise not to return items. The airline industry has had for decades something similar with non-refundable tickets as the standard practice.
Things to Consider
Leadership is the key to all of this. Not just one person being in charge, but everyone working to make good decisions about the areas they handle. Maturing from developing oneself to others makes for stronger teams. Employees capable of developing a team ensure leaders can elevate cross-functional efforts. The most senior must be able to develop the enterprise. This will guarantee a robust business system that quickly adapts to changes in the economy and customer preferences.
It is worth mentioning technology integration as a necessity for every organization. Last quarter’s insights included suggestions of Robotic Process Automation (RPA’s) and AI. AI has by way of ChatGPT made inroads into many office tasks. My prediction is it will take a secondary market of AI experts to create workable solutions for organizations in every industry. It will be subject matter experts who master AI for the benefit of their specialty. As with most new practices, those interfaces that consistently deliver results will eventually become integrated within organizations, eventually eliminating the secondary market.
Momentum gained while rationalizing the new normal, coupled with leadership to marshal capabilities as needed, must be aligned with your strategic intent and purpose for being in business. If you do not have the barriers to prolonged profitability, then making a strategic choice should be the priority.
