The subject of inflation has become the latest 'big issue' for many business leaders in a short space of time. For many, it's the first time they've seen this type of event, leading to confusion, worry and fear for the short and long-term health of their business and increasing their own stress. How can coaching help you to understand what you can control and let go of stress?
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Today I thought I'd share with you one of the subjects that are really looming large in the coaching sessions that I'm having with executives now and that’s inflation. Inflation has become a big issue for many organisations in a very, very short space of time.
Probably since March 2022, have we seen sustained, rapid inflation in just about every aspect of life. For many of the executives, business leaders and owners that I'm working with, this is the first time they've seen this sort of event. I have been around long enough to have experienced it once before, back in the seventies and eighties, and experience tells me lots of things about inflation - and I will share some of those with you a little bit later - but the point of this conversation is to share with you what's happening in the coaching environment.
I'm finding myself with clients - because it's such a new phenomenon for them - who are confused, worried, and fearful of what it all means in both the short term and long term. They see, at every turn, risks from suppliers putting prices up that they can't afford, the inability to increase selling prices to compensate for wage increases either from existing staff or from staff that they're looking to hire, which is just not comprehensible in their field of experience. This stress, this uncertainty, this fear, is causing an awful lot of difficult times and unnecessary worry.
With clients, I explain to them that they have to focus on the things that they can influence. Other things outside of your sphere of influence and your sphere of control are exactly that, so you need to cut them out from all thinking and all consumption of time, and certainly any generation of stress, the things that you can do absolutely nothing about.
The second thing about inflation is trying to help them understand how inflation impacts their business very specifically, because whilst inflation is quoted at a percentage amount at any moment in time, that is usually a consumer price inflation rate - it's an average. Not everything is moving uniformly up at that inflation rate. Some things are going up much faster and some things aren't increasing at all. It's only when you put the shopping basket together that you get this overall average inflationary percentage increase.
The other aspect is that it's a year-on-year measure - it's today's price versus that price a year ago. And so, a year from now, six months from now, we'll have seen the vast majority of those increases from the lower prices of 2021. And it's not certain therefore that this rate of increase would continue cumulatively at 10% or whatever it averages out at.
So, we may see just mathematically a levelling off at a higher plateaued price. And that doesn't mean that inflation itself will slow down. It doesn't mean that inflation itself will go away. That's not what I'm actually saying. What I'm saying is that the cumulative effect may slow.
When you are looking at inflation, that's specific to your business, you must also understand its impact specifically on your customer's business because their ability, their willingness to absorb price increases, is entirely down to their situation as well. The strength that they have in their markets, the competitive position in their markets, what their customers' expectations are and so on and so on.
So, generalisations don't really work. The way in which you have to respond to inflation is entirely personal. Inflation itself can be a good thing; It can be a sign of growth, it can be an opportunity -would you like to make 10% on £100, or would you like to make 10% on £110? Clearly, it's not necessarily a threat. It's also a very real opportunity from a short-term financial perspective.
The difficulty with inflation as a generalisation, as a wider economic impact, is clearly it is extremely destabilising. My experience of it decades ago is that it's extremely difficult to unwind it. It becomes self-propelling. For example, wage increases this year of say 5% - 10% (or whatever people are asking for) suddenly place an expectation that every year there's going to be an inflationary award and it's going to be meaningful. That in turn fuels the need to continue to increase selling prices and that just knocks on and knocks on knocks.
Inflation in that context is very similar to COVID in the context that it is contagious. Once you've got inflation, you have to pass it on. You can't survive by absorbing all the impacts of input inflation without increasing your prices. And that's true for everybody. What that ultimately drives are a slowing down of the economy because the money goes less far. People can buy fewer goods. And as a consequence, the economy starts to decelerate, which is not good for anybody, but that in itself, ultimately doesn't destroy inflation or undermine inflation quickly enough. So, you get what's called stagflation.
The kind of thinking that I'm encouraging with business owners and business leaders in inflationary times is to be aware of this contagious nature. It's going to keep coming, and to understand that it could ultimately lead to a slowdown in certain markets, which could impact them.
I also encourage them to think very deeply about their individual personal and business circumstances. I also try to help them seek solace or respite by assuming that everybody's in the same boat - their competition, their suppliers, their customers; everybody's in the same position. Everybody's sitting in the same room, scratching their heads and wondering what to do next. Therefore, it's not a unique problem.
Inflation itself is often seen as a precursor to a recession for the reasons I mentioned earlier, this particular set of inflation may or may not lead to that. It's being driven largely by supply chain shortages. If those supply chain shortages were reversed, the imbalance of supply and demand will quickly correct itself.
So, it may not lead to the kind of demon recess in a recessionary situation that we've seen historically. So again, trying to instil confidence and hope for the future by minding the shop today and being very focused on things that you can deal with and not be distracted or disturbed by the things going on that are effectively background noise, that you can do nothing about.
We've beaten inflation before as an economy, we've beaten inflation before as businesses, and we've lived with it as individuals. This is a moment in time, and like all moments in time, it will pass. So there, we have it, my experience of working with business leaders coping with inflation. I hope you've enjoyed that and I hope it's been useful.
That was the latest edition of The Coaching Conversation. I hope you found it interesting. I hope you found it useful. You can find out more about our coaching programmes at theexecutivemindset.co.uk
If you want to reach out you can send us an email at firstname.lastname@example.org you can book a free 15-minute coaching session at theexecutivemindset.co.uk which will give you a really good feel for how coaching can help you.
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