Terrorism Requires Reflective
The terrorist attacks sent shock waves through the global economy. While hurricanes, tornados, and other acts of nature often cause economic disruptions, few events will impact the way we do business as the recent terrorist attacks have. What has changed?
Long-term structural changes:
The economic costs are offset by the social benefits of reduced risk and increased security; however, the economic costs also curtail productivity gains that allowed the economy to grow with little inflation in the 1990s.
In addition to changing the cost of doing business, the attacks brought on an increase in bankruptcies. Many firms declared bankruptcy when the dot.com bubble burst in 2000. Still other firms were able to hang on, at least until September 11th, when many saw revenue drop significantly. Midway Airlines over-expanded, only to see business travel decline in the spring of 2001. This decline in business travel was aggravated by the terrorist attacks, causing Midway to go out of business now rather than later. Renaissance Cruises suffered the same fate, as over-expansion led to an inability to service debt. Their cash predicament resulted in immediate bankruptcy, when cruise travel evaporated after the attack.
Prior to the September 11th attacks, economists debated whether or not the economic slow-down would turn into a recession. After the attacks, the consensus opinion is recession, defined as two consecutive quarters of negative economic growth. This definition will be met as the 3rd and 4th quarters of 2001 go negative.
With the new overall increase in the cost of doing business, what will turn the economy around?
Some good news:
The Federal Reserve cut interest rates throughout 2001 to stimulate the then -- slowing economy. The effects of this monetary stimulus should fuel growth in 2002. This monetary stimulus, combined with tax cuts and increased federal spending, will further stimulate growth during the second half of 2002.
While consumers manifest their decreased confidence since the terrorist attacks, reporting increased uncertainty, fear for personal safety, and significant job loss, there is a silver lining for many individuals: many have refinanced their mortgages at lower rates and continue to benefit from reduced fuel costs. Home ownership reached a record of 68.1% of households during 2001. As the tax cuts flow into the system consumers will once again fuel the economic turn around.
This recovery should occur late in the second quarter or early in the third quarter of 2002 as the various monetary and fiscal stimuli kick in. And the timing - how will it differ among industries?
What should the senior management team do?
This strategy review will position your company to compete, given changes in the economy caused by the recent terrorist attacks.
Denise Harrison is a consultant for Center for Simplified Strategic Planning, Inc., a consulting firm with a strict focus on strategic planning services for the small to mid-sized company. For more information, call 203-255-2080 or visit www.cssp.com .
Also from CSSP - Planning is Dead? ... Long Live Planning! by J. Peter Duncan, Strategies and Processes for a Changing Economy by Dana Baldwin | Many more articles on Strategic Planning and Competitive Strategy in The CEO Refresher Archives