The next big theme is the surging Chinese and US GDP, but the broader theme is that we’re going to see a surge in growth post-COVID-19, which will mask bad, weak or improper strategy.

When I was a strategy partner and advised some of the world’s largest energy resources companies, one of the most common things we would see is that during a boom time, companies would make a lot of money. Even bad companies would make a lot of money. Even companies that were mismanaging their assets, inefficient and totally unproductive were making money. They would be making a lot of money, get excited about that, and it would pull management’s attention to: How do we exploit new resources? How do we build new sites? How do we build new production facilities?

Focus would shift away from whether we are as efficient as we should be, whether we’re in the right products, whether we’re deploying capital effectively, because there’s just so much capital to be deployed. When that inevitable counter-cycle comes along and prices drop, the bad decisions rise from the receding tide, and you can clearly see who hasn’t performed as well. That’s going to happen again.

When companies undertake any plans, they have to ask three things: Is the growth efficient? Is the growth effective? Is the growth in the right market? Is the growth in serving customers in such a way that customers will want to be served for a long time?

If you’re a management consultant, you can handle this in one of two ways. You can go to companies now and just focus on helping them grow. Or you could tell them, “Historically, this has been the normal practice, and we can help you grow. But let’s also focus on efficient and effective growth, so we can help you keep the money that you would have probably left on the table due to a lack of awareness or lack of focus.”

But not enough companies are going to do that because the reality is that when there’s a surge in markets, human nature is to always assume that, “I can take some very bad risks now because I’ll eventually fix it before the music stops playing.” But if the boom time lasts longer and longer, you take bigger and bigger risks because eventually you listen to what people are saying.

How many people today are talking about the great danger of inflation? If you go to The Wall Street Journal, Financial Times and New York Times, it’s not a front page topic. But it’s a big problem that’s going to rear its head.

When there’s euphoria—and there is euphoria now because the gates are about to be opened—people always assume it’s going to last. People assume this because in talking to many clients around the world, it’s very hard to know what causes inflation. That’s a fact. It’s very hard to know what causes a recession. That’s a fact. We know that it happens and we know certain things in a certain sequence will cause certain events, but we don’t know when it will happen.

You have these very smart people—CEOs, CFOs, senior managers, executives and so on—who know bad things can happen, but what they don’t know is when they will happen. This is the big issue. When you talk to people about inflation, yes, they’re worried about it. But most of them are going to take action as if there’s no inflation coming soon. They’ll talk about inflation, have strategy meetings about it and plan for it. But when you ask them to act on it, their strategy will assume that they’re going to listen to smart people. And the smart people are going to tell them when inflation will come. And when the time comes, they believe they can predict, regroup and change things in time.

I’ve talked to Timothy Koller from McKinsey, and we have a slightly different viewpoint on how much cash a company needs to keep on its balance sheet. We do agree on one thing: that a company should not keep more cash than it can deploy effectively. But my view is that a company needs to keep slightly more cash to buffer itself for unpredictable changes. I think Tim would agree on that, but we just disagree on the amounts.

But it’s the thing many companies don’t think about, especially in a boom period. They know bad times are coming, but they always think they have enough time to adjust. They’re caught in a peer pressure process because if all of your companies and competitors are running lean operations and the market is rewarding them for that, it takes a very strong leadership team to say, “We’re going to buck that trend. We’re going to keep cash on our balance sheet. We’re going to do what other people are not doing, and it’s okay if our share price is punished in the short term.”

You need to carefully think through how growth is going to create a bias in your thinking that forces you to abandon many of the contingency measures you know to be true and right—and that you may abandon them simply to please investors, shareholders, or someone whose affirmation you seek.

You need to be a pretty confident leader to make decisions others disagree with. You have to be able to stand up in a room where everyone is saying, “Inflation is not going to come soon.” Everyone is saying we’ve learned our lessons from COVID-19. We haven’t learned our lessons from COVID-19. It’s human nature that we will forget everything and repeat all of the mistakes. It’s always been that way, and it will likely always be that way.

Think about how you’re going to be that confident person to stand up in a room and say the counterintuitive thing that’s true and be able to push for it even though no one agrees with you.

For SCR-Advanced members, we have a big update coming where we’re going to have a very detailed analysis on how to respond to competitive threats. For Insiders, we have a very big update coming as well.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #24. Many of you have found Monday Morning 8 a.m. so useful that you’ve asked us to release a book version of these newsletters. We’ve obliged and released a Kindle version, which you can find on Amazon under “Strategy Insights.” It contains the insights from previous Monday Morning 8 a.m. issues, edited into a bite-sized format that’s very easy to use. And you can learn about other FIRMSconsulting books here. 

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