Sunday, April 10, 2011

When Do Political Games Impact Business Strategy?

A budget stalemate that gripped the United States ended just before the midnight deadline on Friday, 8th April, as congressional leaders and the White House agreed to a package of ‘stopgap’ spending reductions to avert a federal government shutdown, and keep things running for the next few days until the budget agreement can be formally enacted, (LA Times, 9th April, on-line; and The Telegraph, 8th April, on-line).

Preceding the last minute compromise, the White House was actually drawing up detailed plans to shut down the federal government from Saturday, 9th April, that would mean the suspension of an estimated 800,000 employees without pay and the disruption of hundreds of services, including the processing of tax returns and the processing of about 30% of tax refunds, loans to small businesses would not be processed, there would be no home loan guarantees, the National Institutes of Health would stop taking new patients, and national parks would be closed, (cited in the

However The Telegraph in the UK reported that the biggest incentive for a deal may not have been the concern for the hundreds of thousands that could be out of work or the impact on the infrastructure; but the risks that failure might have on the public perception of Democrats and Republicans as the 2012 presidential election campaign gathers steam, (7:19 am BST, 09 April 11).

The mere threat of the shutdown sparked a procession of negative economic news, fuelling the decline in the value of the dollar, which in turn helped push up oil prices by 2.3%, to more that US$ 112 a barrel, and was cited as the main cause for the 30-point drop in the Dow Jones industrial average.

Despite the apparent resolution of the impasse, the bitter political fight raised questions about the ability of Obama and the divided congress to deal with the bigger issues looming down the road, from the federal debt ceiling to reining in budget deficits.

One must remember that this ‘fight’ is over the 2010/11 budget that they still have not agreed on and which expires in September this year. At which point the government should have agreed a budget for 2011/12.

Can you imagine running a business like this and what the response of the shareholders would be? The Board would be fired. What this ‘political brinkmanship’ seems to show is that marginalised government does not work and has a significant impact on the economy and the citizens of that country. Imagine a divided Board, how would they be able to optimise the running and growth of their organisation? So one has to ask how a divided government can optimise the growth of a country – especially at a time when the ‘dissenters’ are vying for power and worse still the world is trying to recover from a global recession?

The problems in agreeing the budget are part of an ideological battle being waged over the size of the federal government and the size of the national debt; as well as the republicans looking to ensure trillions are cut from the federal deficit in the decade ahead. Also, it should not be forgotten that if the US can’t agree to an increase in the current debt ceiling then the government will actually go broke – so this recent spat is nothing compared to the fights to come.

Yet as the US government was arguing about a budget that should have been signed-off months ago, they agreed with little hesitation to spending US$ 4 million a day to keep 50 fighter jets and nearly 40 support aircraft in the Libyan conflict, including the cost of munitions. Air Force Secretary Michael Donley told reporters that, as of Tuesday 5th April, the US Air Force had spent US$ 75 million on the war in Libya; worse still, the total cost of the entire US military operation, on 28th March, was already estimated to be US$ 500 million.

Budgets define and constrain corporate strategy. If the strategic leadership have a vision for the future, the organisation will ‘normally’ develop the strategic plan and the financial budget to get them there in advance of the strategic implementation. As if you can’t agree the budget, then you can’t agree the strategy going forward. This impasse would lead to the organisation being forced to focus on ‘very short-term’ strategic goals, based on the money available – which would never allow the organisation to optimise their future opportunities. This strategy would be one of day-to-day survival, with little hope of getting the organisation to buy in to a long term positive future vision.

Governments would be well advised to seek a little bit of business and strategic input – and concentrate on principles that allow for the development of future optimal growth strategies for their country, rather than on short-term political success for themselves.

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