Mark Thomas: Be very afraid: you're about to enter the world of the zombie

WE HAVE avoided an economic apocalypse and a form of recovery is imminent. But we must prepare ourselves to live in a world dominated by powerful forces of half-dead, half-alive zombies.

In this zombie world, business leaders have at least two years before they can start thinking about business as usual – and even then it will not be the same business as usual. It will be at least 2011 before we return to pre-crisis performance levels and growth rates will remain subdued for longer.

What, you may ask, is the zombie economy? It is an economic condition made up of not quite dead entities staggering along, struggling to function in the new world. There are zombie banks whose balance sheets are too weak to support sufficient lending. Banks may be declaring huge profits, but their recovery is partly an illusion. Losses of $3.4 trillion in the financial system have still not fully unfolded.

We have zombie governments whose finances are too stretched to sustain expansionary policies. Government intervention means debt-to-GDP rates will rise to levels not seen outside wartime.

There are also zombie consumers whose wealth is too depleted to allow them to consume. US consumers are spending 5 per cent less of their disposable income – they are no longer the world's "consumer of last resort".

This helps to create zombie companies saddled with debt they cannot comfortably service, impeding growth and investment. Company insolvencies are at record rates.

These zombies are set to create a vicious circle that prevents any rapid return to business as usual, and a recovery that feels more like a recession. The simultaneous existence of the zombies has not occurred in the working lifetime of anyone in business today and business leaders are struggling to assess the impact of this new phenomenon.

Companies are battening down the hatches and waiting for recovery – but this is a high-risk strategy. We must prepare ourselves to live in this new zombie world and business models will have to be reinvented.

The zombie economy will divide the business world into winners and losers. Winners are highly liquid, are more likely to benefit from competitor distress and are unlikely to go under. While there will be winners and losers within each sector, some sectors have shown signs of resilience. Healthcare has so far been most resilient, though even here greater challenges await.

The losers are companies that are not liquid or whose business model is unsuited to the zombie world. They could go under and, even if they survive, are likely to struggle. Manufacturing, banking and construction all face significant short-term challenges.

There are four steps to thriving in the zombie world. First, businesses need to secure liquidity by ensuring they have sufficient cash to meet any immediate obligations. Second, organisations should aim to create a portfolio of potentially winning businesses. Leaders must fix or remove failing parts of the business. Subsidising any loss-making part is no longer an option.

Third, businesses will need to refocus on the priorities that will enable it to compete strongly in the new world by exploring new efficiencies, business models or customer propositions. Finally, and subject to the success of the first three, businesses will need to take bold action to stake out an enhanced market position, exploiting any competitor distress or new market opportunities that will emerge from the upturn.

• Mark Thomas is head of the strategy and marketing practice at PA Consulting Group and author of The Zombie Economy: Leadership in times of uncertainty (PA Consulting, 12.99).