Roger Trapp: 'Zombies are all the rage in the movies and books this year. So it should not really be any surprise that they have entered the business language'

“Zombie banks” first emerged as a term in the late 1980s and came to be associated with the crisis that affected Japan in the 1990s, turning a once-thriving economy that was the envy of the world into a byword for stagnation. Now, Mark Thomas of the management consultants PA Consulting claims that the financial crisis that started in the autumn of 2008 has left behind a “zombie economy”. In his recently-published book of the same name, he states: “Even though many countries are emerging from a technical recession, the crisis has created a new class of groups and institutions which, although not completely ceasing to exist, have lost the ability to function normally.” As he explains, this means that, while these organisations do not cease to exist, they have become unable to perform the functions “that we expect of them in supporting growth of the economy.” Accordingly, zombie banks cannot lend as we need, zombie consumers cannot consume as we need and so on.

The worst may be over. But, with a general election campaign now in full swing and with higher taxes and a curtailed public sector likely whatever the outcome, the economy is not about to improve any time soon. As a result, organisations of all sorts need to prepare for a time when it is anything but business as usual.

Thomas, who is head of PA’s strategy and marketing practice and previously wrote a highly-regarded pamphlet “Thriving and Surviving in the Economic Crisis”, says they need to start by repositioning themselves urgently. Any business that has not been reinvented since the start of the crisis in September 2008 will no longer be well-positioned for the coming four to five years.

This involves taking four key steps. One, secure liquidity; Two, create a portfolio of potentially winning businesses; Three, remodel each business to ensure it can perform strongly in the new world; Four – depending on the success of the first three steps – take bold action to stake a greatly enhanced position in the new world.

Of course, all of these are much easier said than done. And Thomas acknowledges that taking action could be especially tough for smaller, independent businesses. This is despite the usual belief that smaller businesses are better able to deal with changing market conditions because of their greater agility.

As he explains, the current crisis is “at its heart” a liquidity crisis and “without liquidity companies cannot survive”. Larger companies can circumvent the problems in the banks by tapping the equity markets (as has been common in recent months) or using the bond markets. Such options are not really feasible for smaller businesses, which are therefore much more dependent on the banks and particularly on their bank managers’ attitudes towards them.

Equally, smaller businesses are unlikely to have a range of businesses with which to balance their exposure to the economic situation. Even larger businesses have tended to reduce the breadth of their operations in response to “focus” being the current management mantra. And smaller companies tend to see concentrating on niches as the way to succeed.

But Thomas is adamant that business leaders need to abandon the “binary mindset” of cutting costs in order to wait for the recovery and then moving into a more expansionary phase. Companies need to control costs and at the same time to reposition their businesses in order to meet the changed demands of customers. He cites how John Lewis, arguably everybody’s favourite retailer of the moment, has shifted into “affordable luxury” as an example of the sort of new thinking required.

Nobody is going to find the coming years easy. The sheer geographic reach of the downturn thanks to the rise of globalisation means that there are few markets in which to expand. But Thomas argues that those businesses that take the steps he recommends and seek to ensure that their leaders recognise the severity of the situation in which they find themselves will stand a better chance of surviving and prospering.

More than a decade ago, Andrew Grove, the former chief executive of the computer chip maker Intel, entitled his autobiography “Only The Paranoid Survive”. Such an outlook is all the more important now.

“The Zombie Economy – Leadership in Times of Uncertainty” by Mark Thomas is published by PA Consulting. To find out more about the crisis and how it might affect your business, visit paconsulting.com/financial_crisis.