Terrorism Requires Reflective Response
Economic Implications for Your Business

by Denise A. Harrison

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:

  • Airport and airline security measures, including sky marshals, enhanced detection equipment, and stronger cockpit doors will increase both the cost and time of air travel.
  • Firms face increased insurance costs as insurers assess the risk of further terrorist attacks and the results losses would have on their bottom lines.
  • The movement of goods and people will cost more in time and money as security checks increase.
  • Organization will reevaluate their just-in-time inventory policies and will add more slack to their systems. These steps will increase the buffers and inefficiency of the systems.
  • Financial institutions will incur costs as they follow more stringent money laundering reporting requirements.
  • Postal services will add equipment to eradicate deadly disease from the mail.
  • Company mailrooms will add security procedures for all types of packages.
  • Food processing companies will increase monitoring of the food supply to ensure that harmful ingredients are not present when commodity goods arrive for processing.
  • Organizations will scrutinize and track hazardous material purchases and movement in greater detail. They must install new systems to handle this tracking.
  • Municipalities will mobilize to handle bio-terrorist attacks.

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?

Leaders:

  • Defense
  • Security
  • Information (background checks, credit for mortgage refinancing)
  • Pharmaceutical
  • Food
  • Healthcare

Coincident:

  • Automotive
  • Housing
  • Transportation (not airlines)
  • Entertainment
  • Paper
  • Wireless telecommunications

Lagging:

  • Airline
  • Aerospace
  • Telecommunications
  • Lodging
  • Technology

What should the senior management team do?

  1. Assess the impact of this threat:
    • Should we change our disaster recovery plans?
    • Should we change our inventory policy?
    • How should we enhance the safety of our building? Mailroom?
    • Have our insurance costs changed? Will they?
    • Are there any supplier issues?
  2. Some sectors of the economy have felt the economic shock more severely than others. Some may have benefited. Think through how any impact(s) change the market strategy for your core business segments.
  3. Within each of these sectors there will be winners and losers. The senior management team should take the time to review your market segments and the winners and losers within each segment. Is your company playing with the winners? Is your company playing with the potential losers? If so, what action should you take? Be sure to assess your credit exposure to the weak players.
  4. Has this threat created any opportunities?

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 .

Simplified Strategic Planning:
A No-Nonsense Guide for Busy People Who Want Results Fast!
by Robert W. Bradford, Brian Tarcy, J. Peter Duncan, Chandler House Press, 1999.

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

   


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