Master the cycle
| Take Dell, America's top PC maker. One could say Dell owes its success to the classic power formula: invest the bulk of funds in innovation at one end (its made-to-order direct sales system) and customer engagement at the other (its mindspace invasion), squeezing all the flab inbetween ("costs" as Drucker said). But that would be too academic a story. In Navarro's version, Dell's a Master Cyclist. During the 1991 recession, while the US market's average PC advertising spend fell 20 per cent as part of an industry-wide tightening, "... the then upstart Dell jumped into this breach with its checkbook blazing", getting itself a much bigger bang for the buck in the bargain. The rest is detail. |
| Ten years later, in contrast, Goodyear got splattered silly by the business cycle; it was busy raising prices even as sales started slipping under the recession of 2001, which, like other tyrewalas riveted to oil price signals, the company ought to have foreseen. |
| To executives in the thick of cyclical market action, or even investment bankers familiar with Oppenheimer's asset quadrants and the like, Navarro's principal point would not be of much novelty value. It's just as well, then, that the author uses a nice big watch dial to illustrate what he's saying. And the most interesting story from this perspective is that of Progressive, an auto insurer. On one hand, it opted for a "cherry-picker" HR strategy as the 2001 recession set in, hiring smart college graduates as generalists to be trained in its own special way. And on the other, it outperformed rivals in market share, revenue and profit by cutting premia in anticipation of the recession (which would spell fewer road smash-ups). |
| Anticipation, of course, is everything ""and the reason that this book's real read is chapter 11: on forecasting tools. Navarro issues a note of caution from Lakshman Achuthan of the Economic Cycle Research Institute"" "there's no magic indicator that's infallible""" before outlining a set of indicators that he hopes will neither predict nine of the next five recessions nor clutter the dashboard. To his credit, his set of five "leading indicators" is quite compact. The big one on reliability is the yield curve, which traces the spread between short- and long-term bond yields (an inversion almost always flashes danger). Then, there's the obvious couple: GDP growth and inflation (no mention of the fiscal deficit here as a lead-in, though ... also note that the author assumes US monetary policy). And finally, the odd couple: the stockmarket index and oil price. |
| It's an oddness that ought to nudge further research on the business cycle as a global phenomenon. Navarro, however, hazards no opinion on this. He makes no mention of the cycle's demise as a possibility (recall the late 1990s?), nor of any amplitude and/or frequency-altering trends or convergences. |
| Then again, the general idea is but to master the so-called "business cycle" to one's advantage. Whether it's a curse or boon would depend on one's grasp of pre-lead variables. As Navarro concludes, the Master Cyclist must "manage 'polyphonically' at critical points in the business cycle" with a sound blend of strategies. |
| THE WELL-TIMED STRATEGY MANAGING THE BUSINESS CYCLE FOR COMPETITIVE ADVANTAGE |
| Peter Navarro Wharton Business School/Pearson Power Price: Rs Rs 499; Pages: xx + 244 |