– On the other hand, the market economy always involves changes, fluctuations, uncertainty and the difficulty of making predictions, so they are quite common issues, says economist Jouko Kangasniemi from the Confederation of Finnish Industries (EK).
But what makes the current situation unusual is the exceptional number of major crises within such a short period – from the COVID-19 pandemic to Russia’s war of aggression, and the consequent production bottlenecks and increasing price levels. Since crises have varying effects on different companies and industries, there is also variation in forecasting and preparing for crises.
Kangasniemi lists what businesses should consider when making future predictions in exceptional times.
1.Learn from past events
Amid constant change, turning to historic events may seem questionable. Still, taking a look in the rear-view mirror can be beneficial. The information helps re-organise existing and future operations and prepare and adapt to change.
– There is a huge amount of information available. The tricky part is filtering it and finding the relevant facts. This is easier for larger companies with better resources, but more challenging for smaller businesses, Kangasniemi says.
There is no such thing as absolute information. This means that decisions must be made according to which facts are available.
Uncertainty simply needs to be endured. It exists and is inevitable.
– Looking backwards, everything seems very clear. Uncertainty simply needs to be endured. It exists and is inevitable.
2.Keep track of economic fluctuations
In his daily work, Kangasniemi deals with trend surveys and economic statistics. Monitoring economic trend fluctuations is invaluable in uncertain times, and there is great interest in Purchasing Managers’ Indexes and confidence indicator surveys.
– The media follow these closely as well. A recession may be declared today, only to be cancelled tomorrow, and the day after an economic downturn is once again incoming.
The development and adaptation of businesses can be monitored both on a national and broader level based on the companies’ assessments and realisations. According to Kangasniemi, the prerequisite for functioning businesses and public economies is to identify the current phase of the economic trend and whether the fluctuation is within the typical range, or if a major shift is possibly on the way that becomes the so-called new normal.
For example, the financial crisis ruined the confidence of companies in the economy for an extended period, while the COVID-19 crisis only caused a short-term slump. The war and increasing prices have had a significant effect on the confidence of consumers, but much less so on business.
Besides tracking economic fluctuations, consumer behaviour and other predictive indicators and simulations provide crucial information on what is forthcoming.
– It is important for companies to identify signs of an upcoming structural change or disruption. This leads to certain groups of consumers or businesses completely changing their behaviour and causes the previous market to collapse and disappear.
The market economy always involves changes, fluctuations, uncertainty, and the difficulty of making predictions, says economist Jouko Kangasniemi from the Confederation of Finnish Industries.
3.Recognise the current situation
To contemplate the future, one must be familiar with the current situation. Although reacting to and preparing for the existing state has been challenging in the short term, companies have survived by adjusting their operations. An indication of this is the fact that the number of bankruptcies has not increased despite several difficult years.
– Businesses are familiar with their sector and, for example, follow the state of demand closely. Major upheavals naturally come as surprises for everyone.
Companies need to be constantly well-informed and contemplate their operations and requirements. In addition to having alternative procedures, it is advisable to have an extra buffer for coping with downturns. Also, active communications and sharing information swiftly with partners make operations more flexible and smoother.
4.Create models of future scenarios
Kangasniemi mentions working on scenarios as a good way of controlling future risks and reacting to fluctuations. For example, three different scenarios can consider varying outcomes and create simulations of the future.
Protecting oneself from new challenges and risk factors can also mean that companies need to obtain some novel know-how.
Simple preparation is not enough, as the issues need to be anticipated.
– For example, issues related to the climate, environment and energy create new risk factors that open up a new problematic area. These factors need to be analysed thoroughly. Simple preparation is not enough, as the issues need to be anticipated.
5.Make plans both for the short and long term
Periods of stability rarely last long, Kangasniemi notes, and fluctuations will surely remain significant now and in the future. Forecasting the next crisis is difficult, or even impossible.
– The two driving forces are adapting to climate change and the green transition, together with digitalisation and artificial intelligence, which have caused a lot of contemplation in companies. The questions are difficult, but they unlock opportunities.
Due to this, companies should make plans for different future scenarios, balance between short- and long-term strategies and check long-term plans more frequently. Kangasniemi recommends recognising new ways of operating.
– What provides added value today may be a prerequisite tomorrow, as things tend to become mundane. Sustainability may have once created added value, but nowadays it is a requirement for a successful long-term business operation.
