A recession is typically characterized as where production, employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during the period, while bankruptcies and the unemployment rates rise.
Some economists argue that the latest recession ended in mid-2009 and that the past 18 months are better defined as a Lean Economy. Yet there is no formal definition of a Lean Economy or what it means to be in one. So let’s explore one view of a Lean Economy.
It is generally viewed that in a Lean Economy consumers become very particular and selective with their cash expenditures, demanding more value from the goods and services they intend to purchase. When this occurs the competition for the consumers’ dollars increases at a much higher rate than seen in a normal economy.
Businesses that are doing the same thing they have always done in the past to ride out a recession are left wondering when it’s going to get better. Not understanding this is the new economy, many continue to falter while some have already failed.
Businesses that have accepted the Lean Economy for what it is have made changes to their business to adjust accordingly and targeted their product and service offerings to meet these new consumer expectations. By doing this they have found that profitability in a Lean Economy is achievable at the same or better rates than before.
So what have businesses in a Lean Economy done to be successful?
First and foremost, they readily accepted change, for without it they could not survive. Next, they made improvements somewhere in their business to make their business more “lean.” In the simplest definition, becoming lean means eliminating activity that absorbs resources but creates no value. And third, they spend more and more time focusing on getting closer and closer to providing exactly what their customer wants.
These principals outline a philosophy called Lean Thinking, which many companies today are adopting as their organizational principles to provide a foundation for operating in a Lean Economy. Applying the principles of Lean Thinking in a Lean Economy only makes lean sense.
For more on the principles of Lean Thinking consider reading The Machine That Changed The World by Womack, Jones and Roos and Lean Thinking by Womack and Jones.