What will business as usual look like?
Are you ready for the new normal?
Even as the casualties pile up, business leaders are sifting through the rubble of the current economic crisis for clues to what the postrecession business landscape might look like, what role their companies might play, and how to manage going forward.
"People are going to be in a rebuilding mode," said Alan Trefler, founder and chief executive of business software company Pegasystems Inc. in Cambridge, who predicted a swing back to business basics. "Both people and companies are going to spend the next couple of years looking at, and reinforcing, their core."
In an essay titled "The new normal" in McKinsey Quarterly, the online journal of strategy consulting firm McKinsey & Co., the firm's worldwide managing director Ian Davis suggested the coming era would be characterized by much less financial leverage, much more government regulation, a new wave of technological innovation, and a shift away from US consumption as the global growth engine.
"It is increasingly clear that the current downturn is fundamentally different from reces sions of recent decades," Davis contended. "We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order."
Other captains of commerce, whether focused on survival or positioning themselves for renewed expansion, have taken to calling the economic tumult a "reset." That was the word used by Steve Ballmer, chief executive of software giant Microsoft Corp. on a recent visit to the company's New England Research and Development Center in Cambridge. Ballmer, like Davis, said there will be substantially less debt in the economy when it finally snaps back to growth mode.
"I think everybody understands there was too much borrowing," Ballmer said in an interview. "That borrowing's going to come out of the economy. Debt as a percentage of GDP [gross domestic product] is coming down. I don't think anybody thinks that money's coming back into the economy. So we're going to reset, and then productivity and innovation will drive GDP off that new level."
The wringing of debt from the financial system will be a sobering change, especially for businesses - like banks and real estate - that ballooned with the credit bubble. But even more wrenching for many will be stepped-up regulation, especially of Wall Street investment firms and their portfolios of arcane financial instruments. Accounting reforms like the Sarbanes Oxley Act, passed in the aftermath of dotcom-era abuses, did little to shield investors from the packaged scourges of mortgage-backed securities and collateralized debt obligations.
"Asset-based securities turned out to be critical in increasing the velocity of lending," Harvard Business School professor William A. Sahlman told students during the school's first Research in Action Day, a series of informal faculty presentations earlier this month. "Through alchemy, basically, people were able to make a profit."
For regulators, the trick will be to rein in the excesses without smothering economic recovery. They'll need an overarching regulatory framework, and the help of managers and corporate boards who must patch up a business model that is badly broken, Sahlman maintained. That will mean more transparency and disclosure, along with better incentives and controls that align behavior with outcomes.
As debt deflates to healthier levels and regulators police financial transactions, it will be up to the innovators - the same folks who brought us personal computers and the Internet - to reignite the economy through new products, services, and efficiency advances. The breakthroughs this time could arise from emerging fields like genetics and alternative energy, as well as information technology.
Businesses will use technology to boost productivity and fuel their growth. "Organizations will figure out a way to squeeze out profit by increasing scale," said Trefler at Pegasystems. "We will see a return of entrepreneurs, but we will not again see the open checkbooks of the mega-venture funds. The new entrepreneurs will be scrappy and pragmatic about how they engage with customers."
They will also have to be global, because tapped-out US consumers will no longer be able to power world economic growth to the extent they have in the past. "Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors - such as the entry of women into the workforce, an increase in the number of college graduates - that have now played themselves out," Davis wrote in his McKinsey Quarterly essay.
American companies will need a rebound of economies in Asia and others regions, most of which have been brought low by the global slump, to drive their future expansion.
Depending on growth engines beyond our borders - like other aspects of the new normal - will take some getting used to. But business leaders understand that there will be no going back to the debt-fueled bubble economy.
"Things had been frothy for a while, frankly," Trefler said.
Robert Weisman can be reached at weisman@globe.com. 
