Other Views: Are you ready for the `Next Normal’?

As our current economic malaise grinds on, there is a common refrain among many businesspeople, financial advisers and investors: “I wish things would just get back to normal.”

Though certainly understandable, such a viewpoint is based on two flawed assumptions: that there is a “normal” and that the current economic environment is an out-of-our-control problem that must be endured until the “invisible hand” – the government, the Federal Reserve or natural mechanisms – turns everything around.

In fact, “normal” doesn’t really exist. It is a figment of the imagination – an artificial construct that gives us false comfort. The “normal” of today is much different from the “normal” of just a few years ago. “Normal” continuously evolves and changes, and always will.

The “Next Normal” will most assuredly be different than the last “normal.” For those who can identify and capitalize on change, there is great opportunity in the transition from one “normal” to the next. The basic elements of the Next Normal are already in view for those who take the time to look.

It is important to keep in mind that business slowdowns are the natural corrections of previous excesses. While it’s true that we as individual businesspeople, citizens and investors have no real control over the national business environment, we can control our own response to the weakened and uncertain economic conditions. Our choices are simple: We can react (get defensive, hunker down and hope things blow over soon) or we can respond (figure out a way to harness the winds of change – if not to our immediate advantage, at least in anticipation of the Next Normal).

Our choice will determine if we are a victim or a beneficiary.

Are we reacting or responding? Investors and businesses large and small that have reacted view the current business environment as a phase of the economic cycle that must be endured until “normalcy” returns. Their attitude is: “Since it is extremely difficult to grow revenues, it’s time to cut costs, reduce expenditures, wait for things to return to normal, and have the economy eventually bail us out.”

Those who have chosen to respond have a much more proactive perspective, viewing the current state of the markets/economy as a wonderful opportunity to position their firm, business or portfolio to benefit from the newly emerging Next Normal. Although it will always be important to watch costs and control expenses, it is even more important to position our businesses to meet the new and different needs of customers and clients, who are still reeling from the traumatic experiences of the last few years.

These consumers want to solve their new problems and/or build their businesses in this less robust, more volatile, less predictable, lower-interest-rate – and, likely, lower-return – environment.

There is enormous opportunity in helping them meet those needs and challenges.

Of course, periodic business slowdowns are nothing new. If one studies the nine recessions and 10 bear markets that have occurred since 1950, a number of recurring patterns and lessons emerge.

Industry leaders often change. Leaders coming out of a business slowdown are frequently not the same ones that were in the vanguard entering the slowdown. An accelerated change in business leadership often takes place, creating business opportunities.

Clients seek alternative providers. Many market share leaders are knocked to their knees by recessions, forcing them to retrench and play defense. They often have slowdown-induced problems that alienate clients who loyally supported them in the past. This can drive clients to alternative providers.

Clients are more open to new alternatives. Everyone is aggressively looking for efficiencies and solutions to new challenges. As such, clients are more open to new ideas from new sources than in any other phase of the economic cycle. This diminishes the advantage of the big, established provider and helps level the competitive playing field for smaller, new or more nimble enterprises.

The playing field is temporarily leveled. The defensive postures and potential perception problems of some of the former market leaders can reduce their competitive effectiveness. A wonderful window of opportunity opens for innovative and resourceful companies. New or lesser-known companies, with proper positioning, can gain shelf space and market share much more easily than before.

Meeting changing needs pays off. Businesses most successful at gaining post-contraction market share tend to be those that are best at appealing to changing customer needs. They understand and adjust to the motivations, psychology and problems of consumers who have just weathered a major financial, business and psychological trauma.

Not adapting is risky. Businesses or investors waiting for things to return to “normal” risk being left behind or playing catch-up. They can be easily bested by firms that prepare, position and adapt themselves early to benefit from the developing Next Normal post-slowdown environment.

Leadership and vision are priceless. Savvy, experienced, creative leadership and practical advice can make all the difference during uncertain, changing and challenging periods.

In reality, our individual view of the current business, economic and investment environment, and the choice we make – to react or respond – will have a profound impact on our future success, individually and collectively.

Many people have lost sight of the positive potential inherent in every economic correction. The current weak environment, as with all such environments in the past, is ripe with opportunities.

Potential abounds for those who open their eyes and creativity to the numerous possibilities. Now is the time for people in leadership positions to lead and to position themselves, their clients and their organizations to be beneficiaries, rather than victims, of the Next Normal.

Michael T. Carpenter is a Boston-based senior executive with over 30 years’ experience in the financial services industry with such firms as UBS PaineWebber Inc., John Hancock Financial Services Inc., MFS Investment Management and Transamerica Capital Inc.