The Zombie Economy

Same Game, New Rules

In a previous post, The Financial Crisis – A Dummies’ Guide, we looked at the causes of the meltdown. But looking beyond the plummeting house prices, the credit crunch and the recession, where does that leave us. After all, super-clever people have managed to prove that our economic system is fallible once again.

So business is clearly not as usual no matter how much we try to convince ourselves of a recovery and a positive year ahead. Naturally, that’s what we have to think. And perhaps it may be true for many. Things can only get better, right.

But clearly, the rules of the game have changed, and people need to learn to play again. Banks don’t want to do what they’re supposed to do, lend money. People don’t want to, or rather, can’t afford to buy, buy, buy anymore. Companies are going into administration, not just one-man-bands but big names like Woolworths and Borders! And Governments, yes even governments and whole countries are in trouble as debt mounts and credit continues to tighten out of fear (Times Online: Saving the Greek economy).  Everyone these days seems to be in need of some rescuing. So what kind of crazy world are we living in these days?!

Welcome to the Zombie Economy

According to PA Consulting Group’s new book ‘The zombie economy’, we have avoided an economic apocalypse and a form of recovery is perhaps imminent but we must prepare ourselves to live in a world dominated by powerful forces of half dead, half alive zombies.

Why a zombie economy?

The zombie economy is made up of half alive half dead banks, governments, consumers and companies staggering along, struggling to function in the new world.

  1. Zombie banks whose balance sheets are too weak to support sufficient lending
  2. Zombie governments whose finances are too stretched to sustain expansionary policies
  3. Zombie consumers whose wealth and spending power are too depleted to allow them to consume
  4. Zombie companies who are saddled with debt that they cannot comfortably service, impeding growth and investment

The impact of a zombie world on recovery

Business leaders are struggling to assess the impact of zombies on the economy, and it cannot be overstated. The zombies are set to create a vicious circle that prevents any rapid return to business as usual, and a recovery that feels more like a recession. Companies must prepare themselves to live in the zombie world and take radical action to reinvent their business models in order to survive.

The winners and losers in the zombie economy

The zombie economy will divide the business world into winners and losers.  The winners are highly liquid and either fairly or over-valued. The losers are companies who are not liquid and are fairly or over-valued. There are challenges and opportunities for both.

For organisations to succeed and thrive in this difficult new economic climate, their leaders must take action now. While few businesses will find the next few years easy, some will be better placed than others. There are fours steps to thriving in the zombie world:

  1. secure liquidity
  2. create a portfolio of potentially winning businesses
  3. remodel each business to ensure that it can perform strongly in the new world
  4. (subject to the success of the first three steps) take bold action to stake out a massively enhanced market position in the new world.

(Source: PA Consulting/ Zombie economy)

How’s that for something to whip out and impress in an interview! After all, everyone likes zombies.

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