Recently Winning Workplaces interviewed David Spitulnik, Director of Strategic Services for Blackman Kallick, on the accounting and consulting firm’s October 2008 survey of Chicago area business leaders. In January 2009, the firm surveyed these respondents again on their thoughts on the economy and their strategies on maintaining their cash position and hiring. In this interview, Spitulnik reviews how their recent findings differed from their initial survey.
One of your observations about the latest data you’ve gathered from Chicago business leaders is that while reported three-month sales declines are a lot higher than they were in October, their plans for layoffs and cash positions have not declined accordingly. Why do you think this is?
Sixty-six percent of respondents report that they have as much or more cash on hand than they did at this time last year, which is really a counterpoint to what we’re hearing in the media.
So the question is, why? After all, if you’ve got money, isn’t now the time to spend it?
When you don’t know when the storm will end, you’re really loath to use up all the food in your pantry, so you horde it a bit. In this environment, when some of these businesses go to their bank and they say they’ve got a $10 million line of credit, they’re finding out that it’s not really a $10 million line of credit anymore – it’s lower or there are a lot of hoops and time-consuming caveats involved. So, they can no longer count on financial institutions having their backs. And this means they need to be extra cautious with their reserves.
Our clients are predominantly middle market, closely held firms. As we discussed last time, they are not tied to quarterly results. The CEO certainly has to answer to stakeholders, but he or she is not trying to hit specific targets to stay employed.
Regarding their reported approaches to layoffs: while many closely held companies are starting to look at 12-, 18- and even 24-four month scenarios, charting how these declines will affect their overall strategies and costs, their layoff plans can be much more surgical in nature than if they were CEO of a much larger firm. Leaders of closely held businesses often have a better idea of the value an individual employee adds to the organization. And, without having to hit arbitrary quarterly targets, they can better position themselves to have the staffs needed to take advantage of the eventual upswing.
One of your respondents, from the banking/finance industry, said that “Uncertainty in the financial markets remains the biggest hurdle to begin to move past this recession.” Do you agree or disagree with this assessment?
An associate here at Blackman recently had the opportunity to lunch with the VP of one of Illinois’ top 10 companies. This organization has strong cash reserves right now, so my associate asked if the company was planning to take advantage of the down economy and their strong position to buy up market share and expand their business.
The answer was in line with our survey results. He said, “In the ivory tower, everyone believes that the economy is going to get better in nine to 12 months. But we don’t really believe that, and because we don’t we’re not in a hurry to jump on things. We have time, and we need to be careful and cautious.”
Even when we start to see some light at the end of the tunnel, companies large and small will have to really believe in the upswing. This shows both sides of the equation: Banks say we can lend, people say we can borrow, but until both really believe each other, we’re at an impasse.
So what can you do? I think one of the things that companies can do in the meantime is to look at their operations – not to cut the fat, but to add value – so that when the market reaches its inevitable turning point, they’re ready to capitalize on it. Be ahead of this curve. In many cases, this will actually mean not cutting staff, because they’ll need their people in place to jump on the upswing. The companies such as those that are members of Winning Workplaces could be in a really good position at the immediate uptick – assuming they have staffs in place and a strategy.
Do you plan to do another survey in April (three months after the January survey)? If not, when? Or will it be based on events or conditions and not on a regular interval?
There are two points I would make. First, our timing on both surveys was purposeful. The first one was done before we knew who would be President because we wanted to gauge what the next president would be facing, independent of whom it ended up being. We also knew that this was a time of serious contemplation – not just for the future of their business, or even our own city, but the overall economy and our country.
The second survey was done immediately following the inauguration. There was no longer any doubt who would be President. So the question was: how would the built-up hope play out?
Interestingly, while you can see some of the candid comments we received from respondents – such as the lead-off “Good luck President Obama” – the socio-political aspect did not seem to temper the business leaders’ assessments.
Second, if you look at the slide on the last page [the question “What Is Your Current Overall Feeling About the State of the Chicago Economy?”], we only had one data point in our earlier survey, and now we can compare. You can clearly see that the tide is moving in the wrong direction, to more pessimistic.
So the question is: When will the tide start turning toward optimism? We’re going to try to get ahead of that on our next survey. I don’t know if it will be in April, but we are planning another one before the summer.
Any final comments?
The wildcard in this discussion is the level and extent of government intervention. I believe that the stimulus programs, with their unprecedented amount and types of aid, are going to accelerate the turnaround. This may mean 18 months instead of 24, but my feeling is that they will help end this recession more quickly.