We are entering a phase where many organizations will stumble – and some may require a complete overhaul. A portion will not make it, but for others the experience will unleash new vigour, new ambitions, new talents.
In 20 years in business, I have realized that all businesses and industries are cyclical, and that boom and bust comes to virtually every company. It is human nature to become exuberant at the top and depressed at the bottom – such a rollercoaster is the essence of life itself. Indeed, I would go so far as to say that in general I prefer the company of those who have highs and lows, rather than someone whose mood is flat and unchanging. Those dull spirits remind me of entropy, and all life is engaged in a perpetual battle to resist that.
When times are good and money is easy we misallocate capital. This leads to waste and an eventual reckoning. As the wheel inevitably turns and conditions deteriorate, so credit tightens, companies fail and assets are recycled. This is an irresistible sequence of events.
Markets and exchanges are merely mechanisms which reflect the temperament of man. Witnessing and taking part in such upheaval can be traumatic. Take the collapse of Lehman Brothers and the forced sell-offs of Merrill Lynch and HBOS. For the staff, their families and other stakeholders, this classic example of economist Joseph Schumpeter’s “creative destruction” is hardly something to be celebrated. Here is a sudden and jolting realignment of resources. Overnight, venerable institutions are destroyed and new ones spring up to fill the gap.
But this process of renewal is at the heart of capitalism. Inefficient and misguided organizations disappear and ultimately more productive ones arise.
The lesson is that all organizations must reinvent themselves periodically or die. The market is a great leveller. Even the mighty are humbled, or as The Tiger Lillies’ marvellous song “The Crack of Doom” says, “Every empire turns to dust”. Of course, value is destroyed in the violent process of reordering but without such a threat, which institution would ever undertake the painful restructuring that is part of staying relevant and competitive?
I for one choose to reinvent and march. And you?
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