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Plenary Session Three
Thought Leadership on
Risk and Change
Meg Lassarat
CFO
Mustang
Session Moderator
ECC Board Member
Thought Leadership on Risk and Change
Thought Leadership on Risk and Change
Jerry R. Strawser
Dean,
Mays Business School
Texas A&M University
Dr. William H. Glick
Dean and H. Joe Nelson III Professor of Management at
the Jesse H. Jones Graduate School of Business
Rice University
Doing Business in the “Reset”
Economy
Doing Business in the “Reset”
Economy
Jerry Strawser, Dean
KPMG Chair in Accounting
Mays Business School
Texas A&M University
In the last 6 months, have things:
1. Gotten much better
4%
2. Gotten a little better
44%
3. Stayed about the same
22%
4. Gotten a little worse
22%
5. Gotten much worse
8%
In the next 6 months, will things:
1. Get much better
3%
2. Get a little better
51%
3. Stay about the same
34%
4. Get a little worse
8%
5. Get much worse
4%
When do you think things will
get back to “normal”?
1. Within the next 6 months
0%
2. Sometime during 2010
16%
3. Sometime after 2010
64%
4. Never
20%
So What Happened?
Consumer Confidence Index
150
140
130
120
110
100
90
80
70
60
50
40
30
Feb-09
Aug-08
Feb-08
Aug-07
Feb-07
Source: The Conference Board
Aug-06
Feb-06
Aug-05
Feb-05
Aug-04
Feb-04
Aug-03
Feb-03
Aug-02
Feb-02
Aug-01
Feb-01
Aug-00
Source: www.conference-board.org/
People Who Plan to Buy a Home
in the Next Six Months
% of Respondents
5.5
4.5
3.5
2.5
1.5
Jan-09
Jan-08
Jan-07
Source: The Conference Board
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Source: www.haver.com
Small Business Outlook
“Now Is A Good Time To Expand”
% of Respondents
30
25
20
15
10
5
0
Jan-09
Jan-08
National Federation of Independent Business
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Source: www.haver.com
Small Business Outlook
“Planning To Hire People In The Next Six Months”
25
15
10
5
0
-5
-10
Jan-09
National Federation of Independent Business
Jan-08
Source: www.haver.com
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Net % of Respondents
20
110
100
90
Index 1997=100
Industrial Production Index
120
80
70
January-08
January-06
January-04
January-02
January-00
January-98
January-96
January-94
January-92
Source: St. Louis Federal Reserve
Capacity Utilization:
Manufacturing
95
Percent Used
90
85
80
75
70
65
Jan-08
Jan-06
Source: Federal Reserve Board
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Source: St. Louis Federal Reserve
Banks Reporting Stronger Loan Demand
From Large Firms
50
Net Percent
25
0
-25
-50
-75
Q1-09
Q1-2008
Q1-2007
Q1-2006
Q1-2005
Q1-2004
Q1-2003
Q1-2002
Q1-2001
Q1-2000
Q1-1999
Q1-1998
Q1-1997
Q1-1996
Q1-1995
Q1-1994
Q1-1993
Q1-1992
Source: www.haver.com
Federal Reserve Senior Loan Officer Survey
Banks Reporting Stronger Loan Demand
From Small Firms
50
Net Percent
25
0
-25
-50
-75
Q1-2009
Q1-2008
Q1-2007
Q1-2006
Federal Reserve Senior Loan Officer Survey
Q1-2005
Q1-2004
Q1-2003
Q1-2002
Q1-2001
Q1-2000
Q1-1999
Q1-1998
Q1-1997
Q1-1996
Q1-1995
Q1-1994
Q1-1993
Q1-1992
Source: www.haver.com
The Credit Crunch
22%
46%
No Effect
Some Effect
32%
For those affected:
• Reduced availability (58%)
• Increased cost (49%)
Source: “Business Outlook Survey, CFO, July/August
2009, p. 26.
Large Effect
6
(Percent)
US Civilian Unemployment Rate
12
10
8
4
2
0
Jan-09
Jan-07
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
Jan-91
Jan-89
Jan-87
Jan-85
Jan-83
Jan-81
Source: St. Louis Federal Reserve
US Employment:
Construction
Thousands of Workers
8,000
7,000
6,000
NAICS 23
Building, developing, construction of
Houses, buildings, power lines, highways, streets and bridges
5,000
4,000
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Source: St. Louis Federal
Reserve
Source: Bureau of Labor Statistics
US Employment:
Government
Thousands of Workers
23,000
22,000
21,000
20,000
Sector 92: Executive, legislative, justice, public safety, human
Resources, environmental quality, planning, national security.
National, state and local government.
This includes civilian employees only, military personnel are excluded.
19,000
18,000
Jan-08
Jan-06
Source: Bureau of Labor Statistics
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Source: St. Louis Federal Reserve
Oil Prices
Source: http://tonto.eia.doe/gov/dnav/pet/hist
In Summary
•
•
•
•
Nobody has much confidence
Activity is slow
Banks can’t (or won’t) loan.
Customers aren’t able to borrow (or
do so at reasonable terms)
• Unemployment is high
The Best Case Scenario
• Rise in stock price followed
by favorable corporate
earnings 4Q09
• Consumer confidence rises
with stocks
• Foreclosure pressure
continues to be heavy
• More spending results in
higher profits
• Layoffs end by the end of the
2009
• “Jobless recovery” in 2010
• Higher interest rates and
inflation in 2010-11
The Worst Case Scenario
• No effective fiscal package
gets passed
• Treasury and Fed continue to
stumble
• Bad banks and businesses
propped up
• No price discovery for “toxic”
mortgages
• Political risk for business stays
high
• Business / investors “sit on
their hands”
• Unemployment goes well over
10%
• Commodity deflation and price
deflation
Which is it?
Take a page from Cisco’s
“Playbook”
1.
2.
3.
4.
5.
6.
7.
Be realistic.
Assess your situation.
Get ready for the upturn.
Get closer to your customers.
Watch the stock market.
Always have more cash, not less.
Be aggressive.
Source: “Silicon Valley Survivor,” Wall
Street Journal, July 25-26, 2009, p. A11.
Three more ...
1. Tough economies will pare the field of
weak competitors
2. Tough economies provide cover for
certain behaviors and decisions
(customers, suppliers, and
employees)
3. Everything is up for grabs. Use this as
a business development opportunity.
How Others Have Coped
• GE: Communicating inside and outside
• Nalco: Motivating employees to cut costs
• Avon: Changing marketing to reflect the
times
• Waste Management: Getting customers to
share the pain
Source: “My Recovery Playbook,” Fortune,
August 31, 2009, pp. 61-66.
What is your Company Doing?
Limiting travel
Layoffs
Deferring new hiring
Reengineering processes
Changing terms with suppliers
Streamlining offerings
Reducing R&D
Excuse to restructure
0%
10% 20% 30% 40% 50% 60% 70%
Source: “How Bleak is the Landscape?,”
Harvard Business Review, July-August 2009,
92-93.
What Opportunities is your
Company Considering?
Restructuring for efficiency
Targeting new customers
Encouraging entrepreneurial…
Negotiating better terms w/suppliers
Improving current products/services
Creating new products/services
0%
Source: “How Bleak is the Landscape?,”
Harvard Business Review, July-August 2009,
92-93.
10%
20%
30%
40%
50%
What can Happen During a
Recession?
When will we recover?
40%
35%
30%
25%
20%
15%
10%
5%
0%
Already Later 2009
Recovering
First half Second half
2010
2010
Source: “Business Outlook Survey, CFO, July/August
2009, p. 24.
2001 or
later