• by Diane Mermigas , April 13, 2009

The only thing worse than an insufferable recession is an abnormal recovery -- and not being prepared to make the most of it.

Businesses are making a grave mistake if they think they can survive another year of strained supply-and-demand and deteriorating economics, then ride the rebound into better times.

A growing number of experts warn that emerging from the recessionary abyss will be a long, arduous task of adjusting to new norms. Unless you have altered your infrastructure, processes, expectations and strategies, improved financials are not assured. There is no more business as usual; there are only ways to avoid the pitfalls.

First, get real.

Accept what former deputy Treasury Secretary Roger Altman, a partner at Evercore Group, describes as the rare nature of this recession, which precludes a cyclically normal U.S. recovery and promises prolonged pain. Devastating damage to household- and bank-balance sheets translates into three more years of subnormal spending and lending. Home values and equity markets will continue falling to mid-2010. Companies and financial institutions still have billions of unrealized losses. And today's federal stimulus spending could be an inflationary speed bump to a full recovery.

"It is illogical to expect a full snap-back in the consumer sector in 2010 or 2011. This alone mandates a drawn-out, weak recovery," Altman wrote in last week's Financial Times.

Temporary bear market rallies aside, distressed and toxic assets continue to lose value, some of which may never be restored due to the ongoing economic and technologic transformation of entire industries. The prospects for global growth are dashed as world trade falls 6% and the entire world economy contracts 3%.

Second, get focused.

With the stock market expected to reset its lows, unemployment headed past 10% and quarterly earnings results generally worsening, NYU professor Nouriel Roubini is among the economists who are warning companies to focus on adapting to changing business dynamics rather than obsessing over when The Great Recession hits bottom.

Jeff Immelt, Chairman and CEO of General Electric, owner of NBC Universal, said it best in a recent shareholders letter: Business will never revert to what it was and new opportunities will come from the global economy and capitalism being "reset" in important ways.

Media industry executives and analysts have begun wrestling with the dual notion of consumer and ad spending remaining tepid even in better times that will be defined by radically altered economic and business dynamics.

Citigroup analyst Jason Bazinet makes the point that without a return to the artificially inflated "wealth effect" that fueled discretionary spending for decades, industries such as entertainment may suffer some permanent retrenchment. A 7% decline in recreational spending this year would be akin to the 1938 lull also triggered by huge declines in personal consumption and household net worth (down $11.2 trillion in 2008 according to the Federal Reserve).

Personal consumption could decline another $150 billion in 2009. This new "poverty effect" could play havoc with already weak DVD sales and other forms of home entertainment, television advertising, theatergoing and theme park attendance. In the year it will take consumers to adjust their spending levels to changes in their net worth, some business segments could become seriously anemic or implode.

Bernstein Research analyst Michael Nathanson slashed his 2009 and 2010 estimates by 2% to 24% for every media conglomerate he covers -- except for newly streamlined Time Warner. It isn't just that recent downward trends will continue, but that many fundamentals will no longer be dependable variables. Forget what you think you know about scatter market strength, upfront ad sales, film studio earnings (diluted by half from weakness in international markets), the state of in-home entertainment and DVD sales (down another 12% in the first quarter), the collapse of newspaper publishing and the "continued carnage" in local and national broadcasting (even the network-owned station groups will see revenues decline nearly 30% this year). With the growing realization that deteriorating trends will not reverse soon, companies all of all sizes must become architects and masters of their own future.

Third, get smart.

With fewer hard-and-fast rules about business, it is a good time to design a new MO. Figure out how to best leverage existing assets and strengths in a marketplace shaped by digital interactivity, cost efficiency and immediate connections to consumers and quantifiable value.

Inflated consumer and corporate/advertiser spending that spurred uncommon economic growth will not reoccur. Give consumers, advertisers and other companies new reasons to spend by providing more novel and effective applications. Identify marketplace voids, study changing consumer behaviors, and get in front of changing expectations and needs.

The value that is vaporizing in one business can be created anew in another. Capitalize on the new paradigms of a digital interactive age by embracing socialization, personalization, monetization and other means to a profitable end. Wean off of traditional, legacy structure and assets and embrace virtual, interactive solutions. Use the "Blue Ocean Strategy" to achieve value innovation and more favorable economics in new and existing markets. It is mandatory to take some measured risk with what you know and can control.

Deep cost cuts that sacrifice talent and intelligence have become a damaging, counterproductive reflex to a situation that is as much about transformation as recession. These times call for shifting -- not eliminating -- spending, and forging new game plans to capitalize on tech advances. Consumers' digital adoption continues full steam ahead, even in economic tough times. Translate everything you can be and do to smaller screens, mobile devices and interactive exchanges with key constituents. Reinvent yourself. It beats sitting on your hands.