I was driving home from work recently and heard on the radio that the stock market had declined that day. The announcer blamed the drop on falling oil prices. At first, I could not think why that would cause a decrease in the market.
Personally, lower oil prices are good for me because it now takes a lot less money to fill up my car’s gas tank. I see it much like a tax cut, although one that has a greater benefit for the middle and lower classes who generally spend a larger percentage of their available funds on gas, food, and other necessary purchases.
If the average American – and, by extension, our economy – has more disposable income, isn’t that a good thing?
However, it stands to reason that if the average American is a “winner,” then somewhere there must be a loser. In this case, countries that have historically been large oil exporters (e.g. Russia, Iran, Venezuela, and Mexico) stand to bear the brunt of the negative impact from falling oil prices. Their economies could experience a large drain, and they will need to make adjustments very quickly if oil prices do not recover.
Think about what would happen to your business if you had to reduce your sales price by 40 percent overnight. If these countries can’t make adjustments to their economies quickly enough – and many say they can’t – they may experience financial meltdowns that could lead to a domino effect in more countries, including the U.S.
So what are the business lessons to be learned from this situation?
- There is usually a winner and a loser in every transaction. As leaders, we need to spend sufficient time evaluating how changing economies and prices would impact our businesses. When was the last time you performed a SWOT analysis? What actions do you need to take now to take advantage of or protect you from the items identified in your analysis?
- How can you protect your products and services from being commoditized? Are you truly unique and continuing to improve? If not, you might be vulnerable to increasing competitive pricing pressure.
- How can you best position your company to take advantage of change – whether it arises from technology, the economy, or other sources? If change happens unexpectedly, do you have the right people and processes in place to embrace it?
David E. Shaffer is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.
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