The unheralded growth over the seven year period 2002-2008 helped propel the United States economy to new heights as was evidenced by the Dow Jones all-time high of 14,093 during the week of October 8, 2007.  Great expectations for an even brighter future were abound. Even with the financial crisis beginning to unravel during the fourth quarter of 2008, economists recently noted that Real Gross Domestic Product (purchasing power) gained over one percent for 2008.  However, the collapse of our financial sector has triggered an imposing recession that continues to drag the US and, consequently, the global economy down to startling lows.  Thus far, the result has been the loss or furlough of thousands of jobs held by dedicated employees across our nation, including thousands in the Los Angeles and surrounding counties. One important question to ask at this early stage is: Could there be a silver lining in 2009 and 2010 in the deteriorating condition of the global economy?

The next 24-plus months present a once in a lifetime opportunity for companies to reposition themselves for the economy's inevitable recovery. Yes, there is another "r" word, "recovery."  Many of us remember all too clearly the tech bubble burst during the late '90s and early 2000s. The job market in Los Angeles county was not as negatively impacted as that of Silicon Valley, but Angelenos were less than unscathed. Those who invested in over-hyped websites and all-too quickly outdated software or hardware products witnessed their net worth erode drastically.  Most of these investors, however, held positions of employment outside the tech sector.  Those who did find themselves without a job were eventually assimilated by companies less affected by the bubble burst.  This historical rebound was possible, in part, because of all levels of leadership within those surviving companies maintained focus on the execution of their primary business objectives - with the critical support from their staff.  Then, as now, such staff will be needed to maximize a company's productivity during our economy's inevitable recovery.

Particular attention needs to be paid to the cost of downsizing.  Monetary cost is one aspect, but the cost of institutional knowledge walking out the door with a severance package significantly alters the equation.  Many employees who fall victim to downsizing leave with invaluable skill sets that include a detailed understanding of the company's processes, or better put, efficiencies.  As a result, those fortunate enough to retain their employment are forced to absorb the additional responsibilities and are expected to produce at the same level.  This concept has about as much popularity among staff as Hawaiian Shirt Fridays.  Unfortunately, this is sometimes overlooked by Management which often assumes their staff willingly cross trains each other during the normal work day. Ultimately, the elimination of brain power in the short term may result in a loss of precious productivity during a period of economic recovery or boom, however far or near that may be. 

Forward-looking companies focus a great deal of their financial planning efforts on updating a rolling 5-year forecast.  This is indicative of a Management that understands financial targets are needed for all business units to strive toward and to be measured against - in any environment.  Without question, many of these companies are drastically altering their targets for the next 2 years at least, but what about the three years beyond?  Many forecasts will likely predict a steady increase or perhaps a surge in revenues at some point and earnings begin to return to 2007 levels.  Will the necessary team be in place to capitalize on that growth or will Management be forced to struggle through breakdowns in the process due to the influx of new hires?

At Vaco, we have found that management's attitude may have a lot to do with how a company weathers this storm and how effectively it takes advantage of prosperous times that undoubtedly lay ahead.  A positive attitude and a set of priorities that are focused on both the individuals that comprise the company's work force; as well as the shareholder, will garner employee satisfaction and loyalty. That well may be the silver lining inside the cloud. In the near term, those attributes will be worth more to a company today than a few extra pennies per share.