The Post-COVID Business Paradigm

As I am writing this article, the financial markets are nearing new all-time highs, despite the fact that continued protests are ongoing throughout major metropolitan areas across the country in response to the death of George Floyd in Minneapolis. In addition to this, over 40 million people have been plunged into unemployment from COVID and there is a steep earnings decline spreading across most of the companies in the major equity indexes.

In summary, there is a giant tornado of chaos swirling without any clear signs of a plan to address the problems at a Federal, State, or Local level.

The short version is that the economic paradigm of the US economy over the past half-century is changing in an extreme and dramatic fashion. There are three primary 'hinge factors' that are particularly important:

1. Most major corporations can preserve their revenue stream with a small fraction of their current headcount. Over the years, organizations and 'newly created roles' have bloated the payrolls beyond what is needed to sustain the core business. It is only a matter of time before the boards of these companies come to the conclusion that current headcount levels are unsustainable.
2. The carrying cost of Full Time Employees (FTE's) is a greater risk than most companies are currently willing to bear. The cost of employees exceeds their payroll and benefits. In many cases, employees are recognized as an 'Operating Expense' which is reflected in the current accounting period versus capital expenditures, which can be spread across multiple years. The pressure to protect earnings will create a major curb against adding FTE's to the company payroll.
3. Almost every company still in business still needs to get a major business objective accomplished. (Or possibly many major objectives) This can span from product creation to technology projects. What it ultimately needs is a pool of highly skilled resources to accomplish the critical business needs, without incurring the high cost of carrying FTE's. This clearly points to an increase in the proportion of contractors and consultants utilized to address key company objectives.

All of this leaves us in a situation where companies need to accomplish a lot of important things while reducing near-term operating expenditures. What this ultimately brings us to is a major paradigm change for both employers and employees.

Employers: The 'Empire Building' days of the past where executive influence was demonstrated by massive organizations of employees are rapidly becoming extinct. The old mantra of 'do more with less' is becoming more prevalent than ever before. Companies need results and they need them soon. Timeframes are shortening and the model is changing.

Employees: The fact of the matter is that the 'new economy' will have less permanent corporate jobs than ever before and the competition for those jobs will be tighter than ever before. This means that the old method of working a W-2 job for a stable employer will be facing a rapid rate of decline. We must adapt if we are going to survive and thrive in the new world.

Net-Net: The change is real, and it is permanent. Some people at well-funded companies may be insulated for a while, but everybody will be impacted in some way. Now is not the time to hold on to old traditions, it is the time to adapt and identify new ways to create value. It is not possible to create a broad economic turnaround through 'more of the same.' There needs to be a massive influx of disruptive ideas to shake the economy into a new (sustainable) growth trajectory.