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Strategy & Business cycles

How well can you answer the following questions?

  • How can you predict business cycles?
  • What are typical “strategic” actions related to business cycles?

Article written by Jonas Hatem - Partner at MCL strategy consultants

The Belgian economy could be going down over the next 12months. Recently a colleague an me were debating the link between business cycles and strategy. Felt like a worthwhile blog post subject! Here is my go at answering some of the raised questions:

• How can you predict business cycles?

Predicting the cycle is not that hard. Getting the timing right is. A couple of tricks that come to my mind are: leading indicator forecasting and listening/seeing what happen at your customers. Some examples: the timeseries for tool or machine makers are leading for industry. Those for interim leading for certain HR related services, e.g. consulting. I’ve seen the exchange rate being used for the same purpose for trading commodities.

Another trick is to have enough growth scenarios to cope with the changes.

What are typical “strategic” actions related to business cycles?

A black & white description of what the average company does: On the uptick companies scramble for resources & capacity. They take all sorts of actions to make it happen. Most likely they should have taken those measures months or years before. Near the peak of the cycle, they haven’t realised they’re overshooting… They continue on the same rhythm and waste a lot of resources (best case) or fill warehouses with soon to be obsolete products (worst case). During the downward slope they go for rightsizing. And of course they then try to “grow” again… by misjudging price elasticities, inventing and making additional products (to max out the capacity).

A best in class company does something different: they understand the cycle and anticipate more. They use leading indicators to understand where they are in the cycle and anticipate. They might think in a countercyclical way. Investing in downturn and get better deals. Nurturing growth opportunities to match capacity. Managing the speed at which they develop to still have some gas later. Realigning the strategy every couple of years to not lose the outside-in advantage. Getting a pure business model, easily understood by customers and employees. Basically, they try to nurture growth in the downcycle.

Feels like 2019 will be an interesting year for CXOs and strategists…

** Like my article? Agree / do not agree ? Please share on LinkedIn & discuss below! **

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