Archive for July, 2010

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ENTERING THE FINANCIAL STARVATION ZONE

July 1, 2010

Climbers face many challenges, particularly in extreme zones like the summit of Everest. Apart from being physically demanding, the highest peaks are oxygen depleted, which means at the very moment when you require extra energy, you are deprived of the sustenance you need to perform effectively. Climbers call this is the Starvation Zone, and many excellent low altitude climbers are simply incapable of managing the physical and mental challenges of high altitudes.   

Credit is the oxygen of business; it courses through the system feeding the body and animating the limbs of commerce. Over the past decade we’ve been operating at low altitude, a credit rich environment but business leaders beware, you’re about to enter a Starvation Zone of your own.

The extraordinary period of Keynesian stimulus ended at the Toronto G20 summit. In future governments have agreed to rein in their stimulus spending and are obligated to half their operating deficits by 2013.

It was also agreed that banks must significantly increase the quality and quantity of their capital assets. Capital requirements act as a kind speed-limit for banks, increasing capital levels has a real cost as it makes credit both more expensive and less available. Every extra dollar a bank holds in capital equates to at least $15 that it is unable to lend.  

If that weren’t enough, The Bank for International Settlements warned on Monday that central banks must raise interest rates even before their respective economies are clearly in recovery.

All this of course is sensible and prudent economic management from the macro level, but for business in the short to medium term it spells falling demand and a rapid contraction of credit at a time when the global economy is far from healthy. It’s as if, having almost broken our backs getting to base camp, we decide to push on to the summit of Everest in poor health and lacking oxygen – good luck.

Things to Think About

  1. The past is NOT a reliable guide for the future; going forward you’ll need MUCH better teaming and what we call a High Altitude Mind Set to succeed in this difficult environment.  
  2. Successful High Altitude climbers manage the Starvation Zone by preparing in advance, acclimatizing their bodies, adjusting their pace, strengthening their internal fortitude. Its time for businesses to do the same. Begin now to condition your organization for far more challenging times than you’re experienced to date. (for details on how to accomplish this see (www.heroichearts.ca)
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