Recovery or Not? Your Toughest Business Call

Last Updated Apr 7, 2010 12:55 PM EDT

Like weather forecasting, predicting the economic recovery is an inexact science. This fact is especially vexing now as businesses start to make strategic bets based in large part on where they think the economy is headed. Make the wrong guess and your enterprise could be rained upon for a long time.

Who do you believe?

In the April edition of Harvard Business Review, financial adviser Eric Janszen, president of iTulip, says that if you are hanging your business strategy on expectations of a near-term recovery, you are playing a loser's game.

"Companies planning for sudden and relatively near-term growth should reshape their strategies to make the best of economic flatness," Janszen writes in Welcome to the False Recovery.

Even as the U.S. savings rate increases -- seen as a sign of optimism by many economists who think this money will eventually fuel consumer purchasing -- Janszen believes consumers are instead using this money to pay off debt. It's not a harbinger of growth "but rather a drawn-out malaise that will soon become something like a lost decade."

Just as you start believing those words along comes a face slap, like today's very optimistic news reported in the New York Times, Upbeat Signs Revive Consumers' Mood for Spending. The reporter concludes, "Consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again." One economist marks the mood of American consumers as "almost giddy."

I'll tell you who is not giddy. Anyone who is responsible for formulating business strategy based on such conflicting data. Should you plan for a long recovery, and thus potentially miss out on a year of delirious shoppers throwing their wallets at anything wearing a price tag? Or should you beat your competitors to the rising wave of consumerism, but potentially face disaster if the latest spending numbers are short lived.

I think if we've learned one lesson in this crisis, it's this: In uncertain times, risk management is a strategist's best friend. Look, you should trust your own gut and what your customers and business partners are telling you, to guide you going forward.

But take baby steps, and always be playing your risk management scenarios should the economy tip one way or the other. What will you do if banks start lending again? What if the Fed starts raising interest rates? How healthy are your suppliers, and what would you do if one or two went out of business? What new partners do I need to ride this thing out?

Forget the economists and analysts for a moment. What is YOUR prediction on how the economy will play out over the next six months, a year, five years? And how does your strategy reflect that forecast?

(Fortune teller image by benleto, CC 3.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.