High inflation makes it incredibly difficult to plan and invest for any business, as it has an impact not only across the supply chain but also on consumer spending. While larger companies may be able to hedge the costs associated with key inputs and smooth out any cyclical costs, smaller businesses may struggle to achieve this.

In his latest book, Leading Through Inflation, Ram Charan outlines eight key truths that all businesses should be aware of as they attempt to navigate these inflationary times.

Universal truths

• Inflation consumes cash – Cash can easily get trapped in things like accounts receivable and inventory, while growth can also rapidly consume cash.
• Price increases ripple through the supply chain – It’s almost inevitable that consumers will push back and demand will fall at some point.
• The Consumer Price Index and other aggregate measures aren’t always useful – Microsegmentation across the business and your supply chain will be more important in identifying how inflation will affect you.
• The effects of inflation are cumulative – If inflation is short-term then that’s manageable, but if it compounds over a number of years then businesses can quickly be destroyed.
• Inflation trends are psychological – The expectation of price increases affects consumer behavior, which can lead to hyperinflation.
• Inflation can turn well-planned capital expenditures into bad investments – After all, the assumptions under which earlier decisions were made are quite probably no longer valid.
• If you sacrifice consumer trust to protect the business, this will have long-term consequences – It’s very difficult to restore a brand once it has been tarnished. Consumers tend to have long memories.
• Inflation reorders competition – For businesses that deal with the inflationary period well, it’s a chance to leapfrog over those that struggle.

“These truths show why many business leaders need a broader and more urgent response to inflation than they have undertaken thus far,” Charan and his co-author Geri Willigan explain. “They should help you to appreciate the kind of cost cutting many companies have been doing to struggle through the intermediate hardships will not get them through a sustained period of inflation.”

While inflation that is caused by a single issue may vanish as quickly as it arrived, this isn’t the case when inflation is driven by a multitude of underlying and interrelated factors. For instance, supply chain bottlenecks may well be a relatively short-term issue, but things like the transition to a zero-carbon economy and the huge influx of money into the economy from quantitative easing are likely to be far longer-term issues. Being able to manage the inflationary period well is likely to be crucial to how well businesses large and small manage to ride the tide.