Just as global weather turns hot then cold, so the business cycle features inevitable upswings and downturns. There's not much you can do about the weather, but author Peter Navarro says business cycles can be managed to considerable competitive advantage.
In this book he introduces the idea of “master cyclist” management, with specific strategies and actions that can be taken across functional areas—production and inventory control, marketing and pricing, risk management, capital expenditures, acquisitions and divestitures, and human resources management—at different parts of the business cycle. In HR management, for example, companies should protect their most highly skilled workers during times of recession, cherry-pick top talent from competitors in anticipation of recovery, and never negotiate a labor contract in an economic boom.
Plenty of real examples are presented, such as the experience of former Johnson & Johnson CEO Ralph Larsen. In 2000, Larsen divined an economic slowdown from various indicators including rising oil prices and interest rates, and cut capital expenditures by $100 million to protect cash flow. At the same time, says Navarro, Cisco CEO John Chambers had his company on full throttle when the recession hit, causing the company to write off $2 billion on excess inventory and lay off 8,000 people.
The final chapter presents tools that allow executives to turn into economic forecasters. A small group of indicators prove especially prescient in predicting the economic future. The yield curve, which measures the spread between short- and long-term interest rates on U.S. Treasury securities, is almost “infallible” at foreshadowing economic downturns and expansions, says Navarro. Other indicators executives need to pay close attention to are stock and oil prices, and the Economic Cycle Research Institute's “economic dashboard.”
Navarro, a business professor at the University of California, Irvine, says his book is the first serious look at strategically and tactically managing the business cycle. We can't verify this claim, but it is certainly true that very little in the popular business press has been devoted to this subject. That alone makes The Well-Timed Strategy a well-timed read.
- Sean Silverthorne