Jul 15

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Economic Reset

I just returned from the Microsoft Worldwide Partner Conference 2009 in New Orleans. At the conference I heard Steve Ballmer discuss the direction of the economy over the next several years. He believes that the world economy is going through an “economic reset”.

Economic Reset

According to Ballmer ,the world economy becomes overheated every twenty-five to thirty years. Credit expands until the economy becomes so heated that risk is priced out of the market. In other words, there is so much money chasing too few good deals. Ballmer pointed out that total debt reached 350% of GDP in the United States at the height of the most recent boom. Prior to the Great Depression, that figure was only 150% of GDP. He believes that the economy won’t resume growing until that figure comes down significantly.

He contends that every 25 to 30 years the economy “resets” itself at a lower level thereby flushing out the high leverage and poor investments. Because this process takes time, he believes that the recovery will not be the quick rebound many predict.

Consequently, companies should be prepared to restructure their businesses to survive at a lower economic level. It will be difficult, if not impossible, to grow revenue in this environment. Instead he suggests that companies should focus on increasing market share.

Economic Growth

Finally, when economic growth does resume it will not be fueled by debt. The growth will need to come from increased productivity. Because IT continues to change and most companies are stretching the life of their IT infrastructure there will be pent up demand once the economy grows.

So what should you or your company do to survive in these tough economic times? First, evaluate the effectiveness of your marketing dollars. For those marketing initiatives that work, you should increase your spending.

Second, invest in processes, tools, and training to improve your productivity, both personally and as a company. Acquire new skills and capabilities to prepare for when the economy does start growing again.

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Economic Reset

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