Not everyone loses during a recession
by professor Andre de Waal MBA - HPO Center
Always a Winner is yet another book in the ever-growing series of books on the secrets of excellent organizations. But this time we have a publication with an interesting and different perspective. Navarro investigates how an organization can better assess the economic cycle in order to subsequently prepare itself in a way that ensures a continuous advantage over the competition. Navarro has published articles frequently in recent years in both the professional and academic literature, so he has definitely done his homework. In Always a Winner, the successor to The Well-Timed Strategy from 2006, Navarro develops his position based on quite a large amount of research that shows that a recession does more harm than the ten strongest competitors. Interestingly, Navarro (or so he claims) not only uses the same method as Jim Collins (for his book Good to Great), i.e. conducting a pairwise comparison of, in this case, organizations who survive a recession either strongly or poorly, but he also considers something that Collins has overlooked. According to Navarro, truly ‘good’ companies has an excellent knowledge of economic and financial market indicators and use this knowledge to actively manage the strategic business cycle, which is the cycle in which the economy goes up and down in turns. This means that they work in a countercyclical manner based on that information: 1) reducing stock before the peak in the cycle instead of producing large quantities of products for anticipated sales that never materialize and, as a result, not being left with unmarketable products when demand collapses, 2) hiring extra staff before the low point in the cycle has been reached instead of firing (more) employees, in order to be prepared for the upcoming growth and enticing the best people away from the competition, 3) at the least, keeping marketing and advertising expenses at the same level at before the recession, but spending in a more targeted manner, resulting in greater impact since the competition no longer advertises, and 4) investing and taking over during the low point of the cycle, as this is when the best bargains are to be had. Organizations that follow these recommendations are called Master Business Cycle Managers and their ability to deal effectively with the strategic business cycle ensures that they emerge from difficult times as the winners. Given that Jim Collins conducted his research at a time when the American economy was undergoing a continuously upward cycle, he never encountered the importance of the strategic business cycle. Since there was no recession taking place, Master Business Cycle Managers did not stand out. According to Navarro, this explains why a number of Collins’ great companies nearly kicked the bucket. During the minor recession of 2001, it turned out that a number of ‘excellent’ organizations were not excellent at all in strategic business cycle management and incurred significant losses. An organization that learned from its mistakes during previous recessions and can now be called a Master Business Cycle Organization is Apple. Navarro agrees with the actions taken by Steve Jobs, CEO of Apple, during that recession: “We have had one of these economic crashes before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place – the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to increase our R&D budget so that we would be ahead of or competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time [during the 2009 recession].” Did it work? Absolutely! The iPod was invented and launched during the 2001 recession...
Navarro’s research shows that an organization must develop the following three skills in order to become a Master Business Cycle Manager:
1. Ability to predict the economic cycle.
By developing excellent prognosis skills, market movements and important turning points in the economy can be accurately predicted and managers can use this information to take the necessary measures. The most important indicators here are the ’real GNP’ (Gross National Product adjusted for inflation), movements in the stock market, income from government bonds, and the profit and loss figures from the quarterly reports from companies.
2. Ability to apply strategies for managing economic cycles in a well-timed manner.
The countercyclical measures must be taken in all functional areas of the organization in a coordinated fashion.
3. Creating the Master Business Cycle Organization.
Over time, these skills and an action-oriented attitude permeates into the very capillaries of all managers and company functions, thereby embedding them in the DNA of the organization.
Navarro offers a fresh perspective that stands out in the increasing amount of literature on excellent organizations, and has therefore discovered a niche in that market. In other words, this book is not the umpteenth variation on a theme, but truly gets the reader thinking differently. Navarro examines in depth the economic theory that is necessary to become a Master Business Cycle Organization and does it in a way that is also easy for a layperson to follow. Navarro does not really closely examine the connection between the skill needed to become a Master Business Cycle Organization and the results of other research into high performance organizations (HPOs). As a result, it can appear that an organization only needs to become adept in strategic business cycle management. But a company needs to not only see the economic turning points approaching, but also have the ability to use them to its advantage. The reader will therefore need to read other publications on HPOs in addition to Navarro’s book.
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