The Well-Timed Strategy: Managing the Business Cycle for Competitive Advantage [NOOK Book]

Overview

Most companies ignore one of their best opportunities for honing competitive advantage: the opportunity to proactively manage business cycles and macroeconomic turbulence. Despite the profound impact that the business cycle has on the fortunes and fate of so many businesses large and small--and the employees and investors that depend on them--not fa single book offers a comprehensive guide to strategically and tactically managing the business cycle. The Well-Timed Strategy shows how to manage not just the ...

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The Well-Timed Strategy: Managing the Business Cycle for Competitive Advantage

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Overview

Most companies ignore one of their best opportunities for honing competitive advantage: the opportunity to proactively manage business cycles and macroeconomic turbulence. Despite the profound impact that the business cycle has on the fortunes and fate of so many businesses large and small--and the employees and investors that depend on them--not fa single book offers a comprehensive guide to strategically and tactically managing the business cycle. The Well-Timed Strategy shows how to manage not just the business cycle and industry cycles but also today's unprecedented level of macroeconomic turbulence. Peter Navarro shows how to align every facet of business strategy, tactics, and operations to reflect changing business conditions. Drawing on hundreds of examples, Navarro distills clear, simple management principles for managing economic upswings and downswings. Navarro addresses everything from inventory, production, and supply chain management to marketing, pricing, and long-term capital investment. Navarro presents examples from around the globe, ranging from Broadcom and Cemex to Paccar and Xilinx Chinese real estate developers to U.S. small caps. Clear, concise, and exceptionally readable, The Well-Timed Strategy makes complex macroeconomic forecasting easy to understand -- and even easier to act upon.

Introduction xvii

Chapter 1: Strategies and Tactics of the Master Cyclist Executive 1

Chapter 2: Countercycling Your Capital Expenditures 15

Chapter 3: The Acquisitive Master Cyclist Buys Low and Sells High 39

Chapter 4: The Art of “Cherry Picking” and Other Well-Timed Tactics of the Human Resources Manager 55

Chapter 5: “Macromanaging” Your Production, Inventory, and Supply Chain 75

Chapter 6: Master Cyclist Marketing Through the Business Cycle Seasons 95

Chapter 7: Pricing the Cycle and Managing Credit and Account Receivables 111

Chapter 8: Proactive Profiting From Oil Price Spikes, Interest Rate Hikes, and Exchange Rate Risks 129

Chapter 9: When You Can’t Beat the Business Cycle, Hedge Its Risks! 149

Chapter 10: Surviving–and Prospering from–the Economic Shocks of War, Terrorism, Drought, and Disease 169

Chapter 11: The Master Cyclist’s Favorite Forecasting Tools 185

Concluding Thoughts 211

Appendix A: The Master Cyclist Project’s Treasure Trove of Data and All-Star Team 213

Appendix B: A Business Cycle Primer 223

Notes 233

Index 239

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Editorial Reviews

Soundview Executive Book Summaries

As inexorably as the sun rises and sets, the business cycle moves from a bright and healthy expansion and prosperous peak to a dark and often difficult recessionary trough and then back once again to prosperity. So, how can the modern executive team strategically and tactically manage through the various recessionary and expansionary phases of the business cycle to gain competitive advantage over rivals? Peter Navarro tackles this question in The Well-Timed Strategy, analyzing hundreds of companies that run the gamut from well-known behemoths such as DuPont and Citigroup to much smaller niche players such as Isis and Xilinx.

Strategies and Tactics of The Master Cyclist Executive
Timing is everything. Consider, for example, a "Master Cyclist" CEO such as Johnson & Johnson's Ralph Larsen, who studiously follows key leading economic indicators, who accurately anticipates an approaching recession, and then implements an appropriately "well-timed strategy." Navarro contrasts Larsen with "Reactive Cyclist" CEO John Chambers of Cisco, who he claims failed to read numerous signs that the March 2001 recession was on its way. While Cisco was forced to write off more than $2 billion in excessive inventory, J&J's stock price was soaring when the recession hit.

What all CEOs need is to keep an eye on the management "wheel" that provides an overview of key functional areas of marketing and pricing, production and inventory control, and human resource management. Add to the wheel risk management, the strategic implementation of capital expenditure programs, and the tactical timing of acquisitions and divestures. Navarro stresses that a careful understanding of this wheel will help any business executive team dramatically improve company performance.

Cutting capital expenditures in anticipation of recession is a prudent defense, but a proactive Master Cyclist might consider a potent offensive weapon and increase capital expenditures in anticipation of a recovery. This tactic applies to acquisitions and divestitures (the Master Cyclist knows that it is precisely at the trough of a recession that the labor pool is at its deepest and highest quality) to developing new products and retargeting old markets.

Countercycling Your Capital Expenditures
Nothing can get a company into more trouble than ramping up an overleveraged capital-expansion program into the teeth of a recession, Navarro warns. Readers can take a page out of J&J's playbook; DuPont's highly sophisticated forecasting team pays shareholders big dividends as the company prospers by cutting back on capital expenditures in anticipation of the recession. The Master Cyclist goes on the offensive through the implementation of a well-timed countercyclical expansion, remembering the following key points:

  • The Credit-Crunch Dangers of Overexpanding Into a Recession. Top executives can easily fall prey to a "build the empire" syndrome.
  • Protecting the Cash Flow Through Countercyclical Retrenchment. Countercyclically cutting capital expenditures in anticipation of a possible recession is an important defense strategy, preserving cash flow at a most opportune time.
  • The All-Important Well-Timed Countercyclical Expansion. A true Master Cyclist also goes on the market-share attack by countercyclically increasing capital expenditures during a recession so the company is ready for the recovery.


Master Cyclist Marketing
The Master Cyclist marketer is adept at tactically changing both the marketing messages and the product mix to fit the customer's changing "moods" across the business cycle seasons. Navarro points to El Pollo Loco's value proposition of cheaper dark-meat specials for dark recessionary times that allowed this not so "Crazy Chicken" to boost revenues and profit margins. And Singapore Airlines retargeted its market toward first-class and full-fare customers flying transcontinental routes to smooth out the effects of business cycle volatility while boosting profit margins.

The Master Cyclist marketing team also understands price elasticity — how sensitive buyers are to changes in price. Raising prices in the face of "price-elastic" product demand will decrease — not increase — profits.

Master Cyclist Risk Management Wheel
Navarro sees three major components of the Master Cyclist "risk management wheel." These are:

  1. The hedging of general business cycle risk. Using tools such as business unit and geographical diversification typically accomplish this. Other tools include natural business hedges, outsourcing and offshoring.
  2. Hedging — and often opportunistically leveraging — the more specific risks associated with movements in commodity and oil prices, interest rates and exchange rates.
  3. A wide variety of so-called exogenous shocks. These include shocks to the economy from war, terrorism, drought, disease, earthquakes or tsunamis. The onset of such shocks can create opportunity for the Master Cyclist executive team to develop new products or markets.


By diligently following the macroeconomic calendar, your Master Cyclist team can effectively become your own forecaster. By watching how the stock, bond and currency markets react to each piece of economic news, you can build both financial market literacy and a savvy business cycle "sixth sense" about where the economy is heading and how your business can strategize accordingly. Copyright © 2006 Soundview Executive Book Summaries


—Soundview Review
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Product Details

  • ISBN-13: 9780132716048
  • Publisher: Pearson Education
  • Publication date: 1/27/2006
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition number: 1
  • Pages: 272
  • File size: 3 MB

Meet the Author

Peter Navarro is a business professor at the University of California, Irvine.

He is author of the best-selling investment book If It’s Raining in Brazil, Buy Starbucks and the best-selling audio lecture course “Big Picture Investing: How, When, and Why the Stock Market Moves.” His weekly newsletter on the economy and stock market is distributed widely and is available to the public at peternavarro.com.

A widely sought-after and gifted public speaker, Navarro has appeared on Bloomberg TV, CNN, CNBC, NPR, and all three major network news shows. Navarro’s articles have appeared in a wide range of leading publications, including Barron’s, Business Week, Harvard Business Review, The New York Times, The Wall Street Journal, and Sloan Management Review.

Professor Navarro holds a B.A. from Tufts University and a Ph.D. in economics from Harvard.

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Read an Excerpt

Introduction

As inexorably as the sun rises and sets, the business cycle moves from a bright and healthy expansion and prosperous peak to a dark and often difficult recessionary trough and then back once again to prosperity. Over the course of this often dangerous economic roller coaster, the fortunes of most companies quite literally ebb and flow while at least some companies, caught totally unaware by the advent of recession, will tumble down the trapdoor of bankruptcy—often never to rise again.

Over the course of the business cycle so, too, is it that thousands of jobs are created in boom times while thousands more are again lost when things inevitably go bust. Meanwhile, millions of stock market investors—from penny-pinching pensioners to Master of the Universe mutual fund managers—will watch their portfolios exuberantly grow, then troublingly shrink and, if they are lucky or skilled enough, watch them grow once more again.

Despite the profound impact that the business cycle has on the fortunes and fate of so many businesses large and small—and the employees and investors that depend on them—you will not find a single book that offers a comprehensive guide to strategically and tactically managing the business cycle. This gaping gap on the managerial bookshelf is truly the "black hole" of corporate strategy—for it is arguably the case that the business cycle is one of the single most important determinants of corporate profitability and stock price performance.

Moreover, this lack of a comprehensive guide to managing the business cycle is all the more astonishing because, as I demonstrate shortly, the business cycle is not just fraught with numerous dangers. Its key expansionary and recessionary turning points also offer up a veritable cornucopia of profitable opportunities for the business cycle–sensitive corporate executive team.

The purpose of this book is to teach you how to effectively and presciently exploit these considerable opportunities—and thereby gain a powerful competitive advantage over your business rivals. I do so by illustrating a comprehensive set of well-timed strategies and tactics that you can deploy over the six major areas of "Master Cyclist" management.

These Master Cyclist management areas encompass virtually every major activity of the modern corporation. They range from the functional areas of marketing, production, supply chain management, and human resources to the all-important timing of capital expenditure programs, the equally timely execution of acquisition and divestiture strategies, and the intricate methods used not just to hedge business cycle risk but also to tactically exploit its opportunities.

Each of the well-timed strategies and tactics that this book introduces you to have all been "battle tested" and proven to lead to superior performance. Each has been developed from the extensive research of the Master Cyclist Project conducted at the Paul Merage School of Business at the University of California-Irvine. The goal of this five-year endeavor has been to answer this one very big question:

How can the modern executive team strategically and tactically manage through the various recessionary and expansionary phases of the business cycle to gain competitive advantage over rivals?

The quite literally hundreds of companies analyzed to answer this compelling question run the gamut from well-known behemoths, such as DuPont and Citigroup, that staff their own teams of economists and use their own sophisticated forecasting models to much smaller niche players, such as Isis and Xilinx, that few have heard of—but many executives can learn from. These companies also span the globe—from the Mexican cement giant Cemex and high-flying Singapore Airlines to the boutique Chinese real estate entrepreneur SOHO China.

Chapter 1 provides a brief overview of the concept of Master Cyclist management and the high stakes involved in managing—or mismanaging—the business cycle. Chapters 2 through 10 then use a host of highly entertaining real-world examples to illustrate each of the well-timed strategies and tactics of the Master Cyclist executive.

Having established the overriding importance of managing the business cycle, I illustrate in Chapter 11 how any business executive can learn to be his or her own economic forecaster using a relatively simple set of "off-the-shelf" forecasting tools and "leading economic indicators."

I hope, then, that you will enjoy this book as much as I have enjoyed researching and writing it. It truly offers a treasure trove of managerial insights. These are not mine but rather those of the finest strategic minds running some of the best companies in the world.

On behalf of the hundreds of members of the research team who contributed to the Master Cyclist Project (described in Appendix A), I can therefore confidently echo these words of the author of Good to Great, Jim Collins, who, in similar circumstances, had this to say:

Our five-year quest yielded many insights, a number of them surprising and quite contrary to conventional wisdom, but one giant conclusion stands above the others: We believe that almost any organization can substantially improve its stature and performance, perhaps even become great, if it conscientiously applies the framework of ideas we've uncovered.

© Copyright Pearson Education. All rights reserved.

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Table of Contents

Introduction xvii

Chapter 1: Strategies and Tactics of the Master Cyclist Executive 1

Chapter 2: Countercycling Your Capital Expenditures 15

Chapter 3: The Acquisitive Master Cyclist Buys Low and Sells High 39

Chapter 4: The Art of “Cherry Picking” and Other Well-Timed Tactics of the Human Resources Manager 55

Chapter 5: “Macromanaging” Your Production, Inventory, and Supply Chain 75

Chapter 6: Master Cyclist Marketing Through the Business Cycle Seasons 95

Chapter 7: Pricing the Cycle and Managing Credit and Account Receivables 111

Chapter 8: Proactive Profiting From Oil Price Spikes, Interest Rate Hikes, and Exchange Rate Risks 129

Chapter 9: When You Can’t Beat the Business Cycle, Hedge Its Risks! 149

Chapter 10: Surviving—and Prospering from—the Economic Shocks of War, Terrorism, Drought, and Disease 169

Chapter 11: The Master Cyclist’s Favorite Forecasting Tools 185

Concluding Thoughts 211

Appendix A: The Master Cyclist Project’s Treasure Trove of Data and All-Star Team 213

Appendix B: A Business Cycle Primer 223

Notes 233

Index 239

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Preface

Introduction

As inexorably as the sun rises and sets, the business cycle moves from a bright and healthy expansion and prosperous peak to a dark and often difficult recessionary trough and then back once again to prosperity. Over the course of this often dangerous economic roller coaster, the fortunes of most companies quite literally ebb and flow while at least some companies, caught totally unaware by the advent of recession, will tumble down the trapdoor of bankruptcy—often never to rise again.

Over the course of the business cycle so, too, is it that thousands of jobs are created in boom times while thousands more are again lost when things inevitably go bust. Meanwhile, millions of stock market investors—from penny-pinching pensioners to Master of the Universe mutual fund managers—will watch their portfolios exuberantly grow, then troublingly shrink and, if they are lucky or skilled enough, watch them grow once more again.

Despite the profound impact that the business cycle has on the fortunes and fate of so many businesses large and small—and the employees and investors that depend on them—you will not find a single book that offers a comprehensive guide to strategically and tactically managing the business cycle. This gaping gap on the managerial bookshelf is truly the "black hole" of corporate strategy—for it is arguably the case that the business cycle is one of the single most important determinants of corporate profitability and stock price performance.

Moreover, this lack of a comprehensive guide to managing the business cycle is all the more astonishing because, as I demonstrate shortly, thebusiness cycle is not just fraught with numerous dangers. Its key expansionary and recessionary turning points also offer up a veritable cornucopia of profitable opportunities for the business cycle–sensitive corporate executive team.

The purpose of this book is to teach you how to effectively and presciently exploit these considerable opportunities—and thereby gain a powerful competitive advantage over your business rivals. I do so by illustrating a comprehensive set of well-timed strategies and tactics that you can deploy over the six major areas of "Master Cyclist" management.

These Master Cyclist management areas encompass virtually every major activity of the modern corporation. They range from the functional areas of marketing, production, supply chain management, and human resources to the all-important timing of capital expenditure programs, the equally timely execution of acquisition and divestiture strategies, and the intricate methods used not just to hedge business cycle risk but also to tactically exploit its opportunities.

Each of the well-timed strategies and tactics that this book introduces you to have all been "battle tested" and proven to lead to superior performance. Each has been developed from the extensive research of the Master Cyclist Project conducted at the Paul Merage School of Business at the University of California-Irvine. The goal of this five-year endeavor has been to answer this one very big question:

How can the modern executive team strategically and tactically manage through the various recessionary and expansionary phases of the business cycle to gain competitive advantage over rivals?

The quite literally hundreds of companies analyzed to answer this compelling question run the gamut from well-known behemoths, such as DuPont and Citigroup, that staff their own teams of economists and use their own sophisticated forecasting models to much smaller niche players, such as Isis and Xilinx, that few have heard of—but many executives can learn from. These companies also span the globe—from the Mexican cement giant Cemex and high-flying Singapore Airlines to the boutique Chinese real estate entrepreneur SOHO China.

Chapter 1 provides a brief overview of the concept of Master Cyclist management and the high stakes involved in managing—or mismanaging—the business cycle. Chapters 2 through 10 then use a host of highly entertaining real-world examples to illustrate each of the well-timed strategies and tactics of the Master Cyclist executive.

Having established the overriding importance of managing the business cycle, I illustrate in Chapter 11 how any business executive can learn to be his or her own economic forecaster using a relatively simple set of "off-the-shelf" forecasting tools and "leading economic indicators."

I hope, then, that you will enjoy this book as much as I have enjoyed researching and writing it. It truly offers a treasure trove of managerial insights. These are not mine but rather those of the finest strategic minds running some of the best companies in the world.

On behalf of the hundreds of members of the research team who contributed to the Master Cyclist Project (described in Appendix A), I can therefore confidently echo these words of the author of Good to Great, Jim Collins, who, in similar circumstances, had this to say:

Our five-year quest yielded many insights, a number of them surprising and quite contrary to conventional wisdom, but one giant conclusion stands above the others: We believe that almost any organization can substantially improve its stature and performance, perhaps even become great, if it conscientiously applies the framework of ideas we've uncovered.


© Copyright Pearson Education. All rights reserved.

Read More Show Less

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