Batten down the hatches

I see a lot of fiddling while the economy burns. In fact there appears to be an air of "phew that's over". The recession drops off the media's radar thanks to their infantile attention spans. Please be aware that this recession hasn't even started - and plan your coming years accordingly.

According to McKinsey

Financial crises occur with surprising frequency—in every decade in the past century there has been at least one big shock to a major economy’s financial system. Judging from that history, the current upheaval will probably rank among the largest, and we face the prospect of a severe, painful recession. Yet comparing the current financial crisis with those of the 20th century may provide some comfort: the impact of past crises on the real economy was by no means uniform, and it depended, critically, on the way governments acted to recapitalize the banking system and to restore stability and confidence.

The boom that preceded the present crisis uniquely combined several leverage-driven bubbles: a residential-mortgage bubble, an associated one in the real-estate market, and a bubble in corporate earnings. At the time of writing [December 2008], US financial institutions had taken total credit crisis–related write-offs of almost $1 trillion. McKinsey estimates that the total eventual credit losses in the United States are likely to be between $1.4 trillion to $2.2 trillion in a base case. The losses will be greater if another major asset area (such as credit default swaps) collapses ...

This base case range of possible losses represents 10 to 15 percent of US GDP. By historical standards, that is substantial. In the past century, it was exceeded only three times: during the banking crisis that inaugurated Japan’s “lost decade” in the early 1990s, the Asian financial crisis of the late ’90s, and the Great Depression....

On average, countries have needed two years to emerge from past recessions after major banking crises and up to twice as long to return to trend growth...

There is, however, one important difference in the current crisis... This time, corporate earnings... experienced a bubble as well...

By historical standards, the real-estate market bubble is more worrisome... Going into the present crisis, the US economy was more exposed to real estate than ever before... Losses in housing, when realized, could be of the same order as in the stock market as of early December 2008...

We do not yet know how the current crisis will evolve. The confidence of consumers, corporations, and investors—a key factor—cannot be forecast. Nor can government policy.

I took a gamble three years ago and went out on my own to chase web-based income streams. My first year's income was a third of that of the previous year. Then I had a good one (thanks to consulting not to any of my ventures). this year is down again. next year could rub me out. Do I come back in from the cold and *shudder* get a real job? Or will ITSM benefit from the recession (as it often does, as people try to increase efficiency)? You should be asking yourself the same strategic questions right now. if you have your own buisiness, how will it survive? If you are employed, what is your fallback if you get laid off? In either case, what are your accessible reserves and how long can you live on them? Can you get out from under some financial burdens now while they are still worth something? And so on.

It is not over, it is just beginning. The world's financial managers just might get us through this unscathed, probably by flying through on pigs.

At a business level, McKinsey are bullish

...research shows that in past recessions, companies pursuing a purely defensive strategy fared less well than their more active counterparts. As the economy enters what will probably be a difficult downturn, companies should prepare to seize their opportunities.

For those of you running your own businesses it may (or may not) be a time to take some calculated risks. For the individual I think the message is clearer. We bear the brunt of retrenchment, of business failure, of falling asset values. Storm coming.

Be ready. Batten down the hatches in your life.


Bob Jones on recession

One of New Zealand's sharpest minds is Bob Jones, a wealthy real estate businessman and ascerbic writer. This from In Business Wellington magazine:

We're moving into a recession which will be deep and long... The myth of the central bank's ability to smooth out the business cycle will be laid to rest for another generation... [Recession] is excellent news. Just as booms are wonderful... so too the inevitable night and day sequence of ensuing busts are equally healthy...
...busts always end. The next generation of great fortunes will be made by those who act at the inevitable onset of the economic spring... The utter predictability of this patterned behaviour... will be lost on most, who in commercial terms will do as they always have and go with the mob, which is nowhere.

The Long Wave

Jones has picked up on a pattern of long term fluctuations within capitalism called the "long wave". There is an argument that periodic over- and under-investment of capital is a cause of long waves.

This remark by a Nebraska farmboy, written in the 1970s, sounds utterly perfect in describing todays conditions: "The long wave brings an overbuilding of the capital sectors during which they grow beyond the capital output rate needed for long-term equilibrium." He predicted, in the 1970s, the next cycle of the tipping of capital markets "early in the 21st century." Spooky.

The pace of the wave is an expression of the internal dynamics of capitalism. The expansion is ended by a depression during which the excess capital is physically worn out and financially depreciated on the books. It is this expression of cyclical behavior that, in turn, shapes the conditions favorable to technological innovation. This implies that technological innovation is not the cause but the effect of this cyclical behavior.

Schumpeter explains the mechanism as "creative destruction". It involves the self-ordering of emerging sectors from existing capabilities (e.g. the unemployed ITSM chap in his mom's basement or cheap firesale electronics).

For example, Schokley using Einstein's quantum theory to develop the transistor for radio and television, Berners-Lee using DARPA's protocols to create the web, or Ford's combining Old's assembly line invention with conveyor belts to create automotive mass production. Each of these sparked the end of a deep recession.

Mensch calls this the interplay between stagnation and innovation ("s-shape curve"). The old economic system becomes powerless and unrest emerges. This sparks the speed and urgency for innovation, as well as the availability of cheap resources. The result is clusters of emerging industries that move ideas from theory to practice; sparking and leading the next upward swing of the long wave.

(This is why the approach of "let markets be free" is such a clumsy tool. Its like ships without oars or sails left at the mercy of mighty ocean currents.)

Now is the time for service management to show it can deliver

Its a gloomy business world out there for sure. It will pass, hopefully before I have to resort to cutting grass and cleaning pools. That said, if you take a moment to remind yourself of the true promise of a service management initiative, now should be the time we have all been waiting for. It is now that we should be able to march into a prospective stakeholder's office and announce we can help. Service Management has always been about ensuring the right quality of service is provided to the right folks at the right time, etc etc... at an affordable price.cost.

A Service Management initiative should help target waste, remove it, ensure resources are applied to known levers that result in customer satisfaction and success. We provide information systems as a service as IBM once lauded in the 80s. Our customers prefer to use IT as they would 'software as a service' providers. Service management is meant to help us transform IT organizations from managing infrastructure to managing service and customer relationships. So what happened.

Back to my earlier red shirt society comment. Who put a red shirt on the service management initiative? If you are out there now thinking your service management project is vulnerable to being parked or worse, take a moment to return to the initial promise of service management. Its not about implementing an onerous best practice framework, or processes, or even achieving a specific level of maturity. Its about providing service in a manner that customer want and need.

There is no better time to do service management as it was intended than now...

Recession is not necessarily a bad thing for ITSM consultants

I agree, this is just the intro, the real recession is on the way but recession treats people differently. I jumped out of a safe big corporation in 1990 when Finland went to a deep recession. Unemployment was stellar but it-people actually had time and money for process improvement. At the same time they need to lay off their internal deveploment staff. It was harder to find consulting in the boom of 2000 as everyone was so busy creating new internet businesses.

I think this website is quite valuable, there is SO much bullshit in circulation and people tend to be too un-skeptical. Try to hang on.

Br Aale

Good for the good, bad for the rest

I agree with the view that the alst recession was good for those with the experience to offer real help to clients. The consultants who will suffer are the ones with limited experience who only really know how to deliver cash cow ITIL assements and projects. The winners will be those who can make the connection between ITSM and business benefit/survival concrete.

Layoff at one of the big ATOs

I agree with you James, I know of one major ITIL ATO that had to recently lay off a chunk of delivery staff..............

A sign of bad times to come? Tough times demand tough people.

Improving the herd

There are those who argue that we need recessions, that they are a natural part of the cycle. We need them to blow out the pipes, cull the herd, prune the dead wood, trim the fat... The strong prosper while the weak die.

Stay out in front...


I read the McKinsey article with great interest. We're not done by a long shot. As these derivatives continue to unwind, it's going to get all the messier. It's not just real estate. The same games have been played with commercial paper as well. Two good books to read, if you want to get your head around what we're in, are:

  • "Bad Money" by Kevin Phillips
  • "The Trillion Dollar Meltdown" by Charles R. Morris

So, while there is a ton of bad news, that's not the end of the story.

In war movies, when the squad is out on patrol, it always seems like the guy at the front is the one that gets taken out first. Makes for an easy target, I guess. Unfortunately, many people seem to operate this way. Don't stand out. Just go along. Keep up with the pack. I don't think that this is bad, but in times like these, I think it's a stupid bet.

I think that our current circumstances are a call to action. Those that have the chops need to get out front and lead -- whatever it is where your passion and capabilities come together. Those that don't have the chops need to invest and develop them. At a minimum, each of us can focus on adding value each day. I firmly believe that those who can demonstrate they can produce value consistently and are not willing to "just go along" (and get beat up) will be fine. The next few years may be tough and chaotic, but I see this as a time of enormous opportunity.

Yes, mitigating your risks and preparing for the worst is called for, but not at the expense of getting out there and making something happen. I think that not doing so is a great way to make yourself an easy target.

I'm staying out in front, whatever the risks might be.

ITIL Service Manager - Honorary member of the "red shirt society


For some reason your comment made me think of the Star Trek Red Shirt Society. Given the fact the economy is taking a bungee jump of a very high place with a very, very long chord, analysts are already making smoke signals that IT management should re prioritize their projects - now. For those in the ITIL funny farm that includes you, and all service management initiatives merrily plodding along replacing processes or maturing their capability. If you are not delivering some tangible bottom line benefit within 90 days - watch out for a red shirt under the Xmas tree.

I've recently added a pastel mauve (thats grey/purple to non-French) ITIL Expert badge to the red one I earned many years ago as an ITIL Service Manager. I'm hoping it offers me some level of protection but frankly -I've taken to keeping some rosary beeds in my pockets 24x7. 2009 will be the year of the 'red shirt society'.

Unless of course your name is Scotty. He seems to be the ONLY member of the security team that survived all the shows. But then he was the token minority person - Scotsman. (yes I am English - bring it on)

I'm in the mood to tackle that Pink Verify blog now....

not the slowest

Keeping ahead is essential. In fact the guy who gets shot on real patrols is often the guy at the back. Companies lay off the least valuable, or at any rate they lay off whoever their f***ed-up metrics system tells them are the least valuable (bitterness coming through from my experiences with my past employer laying off some of the best minds in the company due to facile metrics and inept managers). The analogy I prefer is of a group of people outrunning a lion. You don't have to be fastest. And you don't have to be faster than a lion -you can't. You just have to be not the slowest. Or not in the slowest third...

And you need to outrun the lion which is your employer's assessment of you, not yours. i.e. never mind what you think is important: worry about what they think is important. Deliver to the KPIs they use when they set the lions loose.

Likewise for independent consultants; never mind what you think you should be doing - sell the services the customers want. And if you can get right out in front, that is great, that dififerentiates you. But if you can't, just try to stay in the front half of the pack, OK?

Syndicate content