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Pivoting for Slowdown

May 6, 2022

When your business is facing upcoming changes in the business cycle, it is important to change your way of thinking to be strategically prepared for the next phase. Catch our newest TrendsTalk episode with ITR Economics Senior Forecaster Connor Lokar to learn more.

 

 

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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.


Hello everyone, Connor Lokar, Senior Forecaster here at ITR checking in for our latest Trends Talk. So, topic for today is talking about how to strategically pivot for our slowdown, and this is a thought exercise I went through with some clients on the road the other day in some breakout sessions, and I really loved the takeaways there so, I wanted to bring that here to the Trends Talk forum. And basically the gist of this thought exercise was getting and challenging the clients, and companies, and the audience to think about strategically what you're doing now that is not going to work or could put you out of position say two, three, four quarters from now as we get deeper into this economic slowdown, and I thought of this because a lot of companies have adopted some things, particularly in these anomalous times in the last year/year and a half, and they may not work and likely won't as things return closer to normal.

Because everyone now has accepted that this is our new reality, and that this is the new normal, and that's usually when things change again. So, some of the ideas that some clients brought to me that I wanted to share is, thinking about obviously pricing. Most clients of mine have experienced pricing power right now like they've never seen before. In many cases, justified based on their input cost acceleration, their labor cost acceleration, but also because they're a supplier the customers have had nowhere else to go. They've just had to accept that those price increases down the line because there is no sourcing alternative that works now in an environment where demand is vastly outstripping existing supply, but that rebalancing could put companies out of position say if we're still trying to run the pricing trade train down the tracks say late this year or particularly into this year, as we start to see some supply chain normalization, and some supply side rebalancing that could ultimately start costing you business. So that's one that we discussed.

Another was thinking about doing an analysis really of your customer base, because in a lot of cases a lot of folks picked up customers that they had never worked with before, or in a higher percentage. It became a higher percentage of their customers' overall supply base, because maybe they had better supply chains themselves, thus being the supplier, and they had more availability than folks they used to compete with, and so instead of maybe supplying 20% of Client A's total needs, maybe they moved up to 450 because they found themselves maybe strategically by intention or luck in a position to take share based on the fact that they could deliver more effectively, or quicker, or at higher volumes, whatever it is.

Is that sticky? Is that going to last, or is that customer going to want to get back to a more historical mix of their sourcing and get that business back, maybe to that 20%? That could be something not factored in into someone's budget and plan for 2023, just maybe blindly assuming that this business that we got in this current environment, assuming that in a slowing, normalizing and more supply flush environment next year, to be impervious to that. It may be, and maybe we've done a great job with that new account and done such a good job that that client remembers that, but may be assessing some of that vulnerability. Another company in this exercise talked about their chemical compound plastics manufacture, and they've had to change their mix just by need, by force, in terms of their products, which their clients have accepted.

And by mix, I mean their compound mix and basically slightly altering the final product, certainly in an acceptable form, but not historically what they did because they couldn't get the raw materials, the compounds, what they needed when they needed. So they did what they had to do, adapt on the flying. But again, thinking, is that going to be status quo, moving forward? Are folks going to accept that or are they going to expect a return to normal? The deceleration that's currently ongoing is going to be continuing. It's going to bring us back closer to what was historically normal. So that is a great thought exercise as folks start to think about 2023, is really ask your teams and think about what are we doing right now that, and this is even in normal economic cycles that aren't quite as exaggerated or bizarre as what we've experienced lately, what you do in phase B, what we call phase B accelerating growth in often cases, that needs to change.

It has to change in phase C is saying slow down. And I think that could be particularly exaggerated as a byproduct of how exaggerated this last cycle has been in terms of how different things have been relative to norms. And particularly, I think looking at some things, whether it's how we handle our customers, what we've been delivering, how much we've been delivering, really analyzing the stickiness of that or things that either could get us strategically out of position or blindsided in a normalizing environment, as we look into 2023. So asking those hard questions, thinking about looking at this upcoming change in the business cycle, this ongoing deceleration, that's going to look different from 2021. And how parts of the economy have looked in early 2022 and making sure are we strategically positioned adequately for where we're going and making sure we're not stuck in a strategic position that worked for where we've been and where we are currently.

So think about that. Think about the pivot, what we need to do to stay strong, stay resilient, stay profitable as we move into 2023 and what's left of 2022. So, thanks for joining. I'm Connor Lokar, and see you on the next one.

About

Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.