Inflation crisis, Phillips curve, Strategies to Help Weather Inflation, AdBlue plan, Beer shortage & How safe is your password?
12th December 2021 Evolution Partners Newsletter
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” Ronald Reagan
Hope you’re Thriving!
It’s been a good week and a good feeling getting closer to the end of the year, where most of us get a well-earned break. This week, I’ve had lots of meetings and a speaking event for my book Made to Thrive. It was great getting these leaders to have the ‘penny drop’ about their role, how they’re doing other people’s jobs, and the opportunity in front of them to achieve great results. But, of course, it will be hard for anyone to achieve great results unless we can catch the ‘runaway horse’ that is inflation.
Quick note, the five main BHAG mistakes podcast this week shown below is a cracker, but first…
Can the inflation crisis in the U.S. be stopped?
I remember about 15 years ago interviewing a manager who’d moved to Perth from Zimbabwe, where they were experiencing runaway inflation. During the interview, I asked him about the operating environment, and he said they could only ever provide quotes for work 4 hours ahead because prices changed so often. So they would quote the first 4 hours of labour and materials, obtain approval, do the job, and then have lunch. Then they’d quote the afternoon’s work. And this was their life every day, which he understandably found tiring.
Inflation is nowhere near that for us today. Still, when considered with the introduction quotation from Ronald Regan above, it indicates that runaway inflation is something we should be fearful of. And one of the main reasons is that we haven’t had high inflation problems for over 30 years, but not because I’m implying it’s thereby overdue. Instead, the reason we should be fearful is that there are very few decision-makers today who were decision-makers when inflation was a problem. Look around you; we don’t have a lot of hands-on experience to draw upon to manage companies through a high inflation environment.
But what’s really going on here? It seems that for the past 40 years, there has been a decoupling of productivity and compensation, or in other words, output goes up, and wages stay the same, which prompts people to ask WTF happened in 1971. Of course, the thesis on that link is that many of our woes emanate from Richard Nixon disconnecting the U.S. dollar from the gold standard – or that foreign governments could no longer exchange their dollars for gold. It makes sense. When you follow that link, everything skewed from that point onward.
Maybe you remember when I discussed Survivorship Bias which was when they would reinforce planes in World War 2 based upon where the returning planes had bullet holes. But, of course, that was the complete opposite thing they should do because the holes actually indicated where you could survive damage.
And so what if the dashboard that the Federal Reserve uses to try and control inflation contains data that is not complete or an out of date decision-making model?
The Fed’s decision to adjust interest rates is based upon the Phillips curve, which states that “inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.” But the efficacy of this model on the underlying data upon which decisions are being made could be becoming less relevant.
It’s certainly interesting to watch, and it’s something that could impact all of us. It’s interesting to consider again how the data and models that we use to make decisions in our businesses could, in fact, be skewed.
Watch a fascinating CNBC video here Can the inflation crisis in the U.S. be stopped?
6 Strategies to Help Your Company Weather Inflation
If indeed inflation is not actually transitory, an HBR article I came across recently identified six strategies to help your company weather inflation – for those of us not old enough to remember the decisions necessary to survive. One of the most significant impacts it found was controlling or cutting costs.
These six effective strategies to control inflation are;
Get spending visibility
Differentiate between strategic and nonstrategic spending
Unpack the drivers of spending
From the article, “The evidence is clear: Even as many companies deal with inflation by devoting more energy to adjusting prices or finding new sources of growth, cutting costs remains an important part of managing in this economic environment”. The point here is not to obsess over the negative or geek out on economics but be prepared if you need to deal with inflation. As Jim Collins said, you can only learn from your mistakes if you survive your mistakes.
Read the article here 6 Strategies to Help Your Company Weather Inflation
Of course, a critical mistake is failing to be prepared for a crisis, as I detailed in my book Made to Thrive in the section 5 Key risks to the business are reduced through Succession Planning. And right now, if you’re saying “What if, What if, What if” as Kevin and I outlined in our podcast a couple of weeks ago entitled 86 What is Productive Paranoia and why it’s a critical leadership tool there’s a ‘blip’ on the radar that should generate at least one leadership team discussion. And this ‘blip’ is an exhaust pipe additive for diesel engines made from high-quality urea and deionised water called AdBlue.
China, the primary global manufacturer, has stopped exporting at this stage, and the price has tripled. And transport industry heads are saying that Australia has enough to get us through until February 2022 (with one 250 truck fleet out next week), and if we can’t solve the problem by February, deliveries will stop.
Of course, politicians have called for calm, saying they’ve appointed a task force. There’s talk of deals to import. But the job of leaders is consistent results, so now’s the time to consider how the AdBlue situation impacts the consistency of your results?
Maybe you don’t have diesel engines? Perhaps that makes you think it won’t impact you? Then perhaps consider your entire supply chain; for example, South Korea has rationed urea and drivers are panic buying.
At the outset of the pandemic, I asked how would you manage if your company revenue dropped by 50% or more and should you build a plan around that.
Right now, what if deliveries in and out of your business dropped by 50% or more? Should you build a plan around that?
Don’t even get me started that there’s a timber shortage, which led to a pallet shortage, which led to a beer shortage at Christmas time in Australia. Australians face Christmas beer limits as pallet shortage, shipping challenges choke supply
How safe is your password?
Surely even getting hacked is a lighter note than a beer shortage?
Well, here’s a quick reference guide I found that shows how hard it would be for a computer to crack a password.
This week on The Growth Whisperers podcast
What are the main BHAG mistakes that leadership teams make? If your Big Hairy Audacious Goal isn’t alive, driving growth and inspiring the team, maybe you’ve made a BHAG mistake.
In this episode, you will learn the important considerations when setting a BHAG, the definition of a BHAG and why BHAG’s matter. Then you will understand the main mistakes that leaders make when setting BHAG’s.
The 5 main BHAG mistakes
Listen to The Growth Whisperers
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