Economic Stagflation: 5 ideas to consider NOW, The AI jump increases productivity & How the best leaders make everyone smarter
19 March 2023 Newsletter
If you want the most make it easy. If you want the best make it hard
– US Marine Slogan
Hope you’re Thriving!
Some weeks very little changes, and other weeks a lot changes.
This week a lot has changed. Before we get into it, I’d like to complain about the way we’ve come to rely on software for more and more necessary operations almost every day, and yet it’s hard to get through a day without software failing – or engineers making confusing structural changes. I’d like to complain, but I won’t.
Let’s instead consider the major challenges we’re facing as a society at the moment. You might include things like climate change, plastic waste, dictators, wars, politics, the pandemic (and its financial hangover), and artificial intelligence amongst others.
At least two of those had major changes in the past week.
Let’s boogie.
Economic Stagflation: 5 Ideas to consider NOW
Batten down the hatches.
Banks tend to collapse quickly. And we saw a few of these in the past week, with questions and bailouts on others. Anything can happen in the short time between my writing this and your reading it.
However, I’m going on the record saying that this past week, I feel that we’ve gone from a 65% chance of a recession to a 95% chance of a recession.
It’s now hard to find a path forward where we avoid recession.
Here are a few key points from a summary article “The market is telling us something very bad is coming” as the global banking crisis deepens:
“Two-year Treasuries (US government bonds) were returning over 5 per cent a week ago. Now they are at 3.88 per cent. This is telling us that those dealing in the money market across the globe have in recent days been feverishly buying government bonds. Why? Because in uncertain and volatile times they’re considered relatively safe assets. When this changes so quickly, the market is telling us something very bad is coming.”
So central banks have raised interest rates to slow inflation. Have they raised rates too hard, too fast? It’s not for me to say.
One other note from that article:
“The last reading on inflation in the US shows it to be “sticky”. We simply don’t want an environment where financial markets turmoil forces central banks to slash rates while inflation rips, but it’s become a real possibility.”
So the risk is that the central banks’ action to slow down inflation is damaging the economy but not actually containing inflation.
This is stagflation.
In my meetings with leaders in the past few weeks, we are already beginning to see stagflation, where costs are rising (such as labour), yet there is no opportunity to increase prices.
And when we look at the economy, according to Goldman Sachs this week, 99% of borrowers have a mortgage rate lower than the current market rate.
Between collapsing banks, the rapid move in the bond market, the risk of stagflation and the mortgage cliff about to impact discretionary spending, now’s the time to consider how this will impact your business.
But this is not all doom and gloom.
This is a call to action.
Here are five ideas to consider now:
- Consider what a 10% or 20% drop in revenues will do to your profit and loss. How should you react if this happens?
- How will you continue to service debt if interest rates rise (or remain where they are) and you have lower revenues and profit/cash?
- What is your cash buffer? Ideally, you can have two months of expenses in cash.
- How can you increase your cash buffer in the short term to weather the storm? If stagflation becomes a problem, how can you use the 7 financial levers to improve performance without price or volume (COGS reduction, Overhead reduction, reduce debtors days, reduce stock days, increase creditors days)?
- When considering strategy, what will your customers’ needs be in a recession? How can you better meet their needs (not wants) and improve your performance?
The AI Jump Increases Productivity
In mid-November 2022, the leaders at OpenAI started to hear that competitors were making gains in the AI space and were an emerging threat.
And so, they created an all-in company sprint to launch the next version within two weeks, which wasn’t due for months. That version was ChatGPT 3.5, the fastest product to gain 1 million users, which everyone has been talking about.
On Thursday this week, the full version 4 that was supposed to come out was released.
One of the amazing new features demonstrated in this week’s launch was when the host held up a handwritten diagram of a website, took a photo, and moments later, ChatGPT4 turned it into a website.
See the images below:
A few other points of note:
• ChatGPT4 is now embedded in Bing, Microsoft’s web browser.
• ChatGPT3 scores in the bottom 10% of the (legal) bar exam whereas ChatGPT4 scores in the top 10%
And a few other issues they’ve raised with the release:
- It may help criminals
- It may help spammers
- And from page 14 of the GPT Technical report, it may “create and act on long-term plans, to accrue power and resources (“power-seeking”), and to exhibit behaviour that is increasingly “agentic.”
But never mind, it’s not ALL bad.
In another report this week, worker productivity is improved.
“Our results show that ChatGPT substantially raises average productivity: time taken decreases by 0.8 SDs and output quality rises by 0.4 SDs. Inequality between workers decreases as ChatGPT compresses the productivity distribution by benefiting low-ability workers more. ChatGPT mostly substitutes for worker effort rather than complementing worker skills, and restructures tasks towards idea generation editing and away from rough-drafting. Exposure to ChatGPT increases job satisfaction and self-efficacy and heightens both concern and excitement about automation technologies.”
From the report: “Experimental Evidence on the Productivity Effects of Generative Artificial Intelligence”
How to Write A Better Email
This week I came across an excellent 4-minute video outlining how to write a better email. It talks about three main ways to improve email:
- Write subject lines with keywords
For example, what do you want the recipient to do with the email—Action, Sign, Info, Decision, Request.
If you need your manager to approve a vacation request, put “Vacation – Request” in the email’s subject line. This forces you to articulate what you want. - Begin the email with Bottom Line Up Front – BLUF
This outlines who, what, when, where, and why. For example, start an email “We will reduce the number of days employees work from home from three days to one beginning on December 1st.” If that’s the beginning of the email rather than the end, then people know what matters. If required, you can then elaborate on it. - Be economical
Short emails are more effective than long ones. Try to get the whole email onto one pane without scrolling.
Check out the 4-minute video here:
Read the HBR article here: How to Write Email with Military Precision
Adjusted EBITDA
This week on The Growth Whisperers Podcast
Liz Wiseman’s Multipliers – How the best leaders make everyone smarter
Liz Wiseman is an ex-Oracle Executive who wrote an amazing book about how we all have moments as leaders where we accidentally diminish team members and ‘shut down’ their smarts, making our people less capable.
What makes it worse, is that our intent is usually to be helpful and supportive, and yet it has the opposite impact.
She breaks out the difference between the behaviours we have that multiply the intelligence of our team (and potentially family members too) and those that diminish their capability and intelligence.
You can understand the accidental diminisher traits, and where you can improve, and then, you can understand how to multiply the capability of your team members.
This week we’re talking about the Multipliers concept from Liz Wiseman, and how it can apply to you as a leader.
Episode 153 Of The Growth Whisperers
Listen to The Growth Whisperers
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Keep Thriving!
Brad Giles
