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Lejla Arapi, Jasmina Hamzi, Aida Salihovi and Nezira Brigi ECON 101 Tuzla Harvard Case Study 8

The Well-Time Strategy Managing the Business Cycle

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1. Why is there "no one east-to-duplicate formula" which can help firms navigate the ups and downs of business cycles?

During the recession in 2001 some companies were in possession of certain skills for business

while others did not succeeded. Every company had each own tactics to get out of the recession. CISCU did not succeed and continued with het pro-cyclical tactics of employing more workers on high income positions. LOW and DELL are with a countercyclical strategy increased their resources for marketing and insured their place on the market compared to its competition. ISIS, PROGRESSIVE and AVON have also increased quality and quantity of work power by using this strategy, on lower income jobs. However, KMART did not succeed and went bankrupt by lowering their marketing.

Recession can not be predicted in a precise way. We can not determine how is the recession going to happen using a specific formula and what does the company need to do to not go bankrupt and to stay on top. And we can never determine that the tactics that we are using We have to risk. However, good leadership of the business does not depend at all of that we can predict the movement of the business cycle than the people who lead the business have or posses certain abilities that allow so they can answer to their competition on the turn outs of business cycle. Although some are already succeeded to discover how to keep their advantages over the competition. With the combination, unique combination of abilities, company gains possibilities over the others. could bring to ups and downs of the business cycles and is the income going to be the same.

With this we can conclude that there actually there is not a skill that can develop the winner or the loser in the world of business. And there is not a formula simple enough to copy to successfully lead the business cycle. There is always more ways for that, it is on us to determine or decide which is the best way for our company.

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2. What is meant by business cycle orientation? How can this help a company maintain a competitive advantage?

The term business cycle orientation has been adapted from the marketing literature and the related concept of a market orientation, which is typically distinguished from a product or sales orientation. 1 The most important way that we can achieve advantage in front of the competition and keep the business is an ability of the top management team to predict and to use all the chances for the inside and outside changes right. Knowing the business cycle and the orientation of the business cycle by the side of the company team ( management team ) are the most important attributes of one company. The real leader, the owner of the company needs to have on his mind how to make certain strategically choices. The business cycle is connected to each industrial cycles and with their movements. For the business cycle it is necessary a lot of experience. For example, after one overcame by recession the company needs to prepare for the other, to be ready for the possible arrival of another recession. Although, the company needs to expose herself to a much less risk, that can help comparing and maintaining the results. The most important thing is to note that the orientation of the business cycle actually is understanding making decisions based on what is happening out of the company, with all the information about the consumers, the competition and about that what is on the market. That can help the company to make the decision, good decision, that is going to be based on a real situation and not by guessing. This can bring a huge advantage to the company over the competition. The companies need to, I would rather say that they need to be focused on all of the movements and changes in the business cycle. The company needs to constantly evaluate and information what is happening outside of the company in the real world, about the suppliers and the consumers. Further strategy of the company needs to be based on those informationes.

Peter Navarro; The Well-Timed Strategy Managing the Business Cycle CALIFORNIA MANAGEMENT REVIEW VOL.48.NO.I FALL.2005 ; page 74

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3. What types of signs helped foreshadow a need to change business strategy for a shift in the business cycles? What did DuPont do differently from Conexant that helped DuPont?
We all do evaluation of conditions of maintaining of the business cycle so that we can make efficient business decisions. Decisions are mostly brought in relation on the economy indicators and models that are going to be used. Though that really are not only important decisions that need to be brought ( capacity in the company or employment out of the company.) Besides that we have and design with the organization structure that encourages process and spreading information and with that bringing and decisions. DuPont is a company that is always in contact with its stock holders by the question of the business cycle, it has already built very formal channels for processing and spreading information and preordered with a professional team that beholds very strong authority and ability to react fast on every single change of the business cycle. In the 1999 DuPont's experts have predicted the fall of GDP an the recession of the year 2001. During the recession they have ratchet down capital expenditures and as a result they won the recession and built big reserves of money. Using the cash hoard DuPont with seven strategically ventures (lowering prices) got a recovery of the recession. On the opposite side Conexant has given very little of attention to changes in behavior of the business cycle. Increasing of the supplies has been going on distributed locations and Thailand, while in the same time in Asia supplies have decreased but without complains because od any late shipment. Everything indicated on shutting down of the business cycle, but Conexant's economists did not react to that, did they not want to react or simply did not want to look the truth in the eyes. I think that the answer is that they did not want to look the truth in the eyes. In comparison of DuPont which had fairly constructed communication channels, Conexant did not have that. Except that they have exaggerated on making centralized decisions, not considering on the important information from the less functional areas that have in this case been very important.

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4. What "counter cyclical" approaches were discussed in this case? Why were the successful ones successful (describe them separately)?

Assuming that things go as they before ( more or less ) and ignoring everything that is happening with the economy will does not mean a big bet has not been made. In addition to strategy and good tactics, the company needs to know that the management of the business cycle should not only capture key functional areas of marketing and pricing, production and inventory control and management of human resources, but should also target the areas that are at risk, strategic spend all capital programs and tactical shoot all timed. Counter cyclically increasing advertising is very efficient strategy which company use during the recession to take advantages above the competition. This helps build brand strength and market share. Dell used counter cyclically advertising and gained market share. On the top of the recession, Dell increased its marketing dollars by more 300%, Dell significantly increased its market share. They changed the product may over different phases of the business cycle. El Pollo Loco is and excellent example, why it is not always necessary to accurately forecast the business cycle to succeed. Its management team did not predicted the 2001 recession. However, the company shifted its product line by aggressively promoting a Leg and Thighs. El Pollo Locos management team succeeded to saving along to its customers, highlight a purely dance of food at a great value just by temporarily shifting it product line and focus towards the much cheaper dark meat. And they increase transactions and total sales.

Counter cyclical Human Resources management Practices

During the 2001 recession Avons management team recognized that Avons products would be more attractive to all those women who would not be able to afford department store creams 2 and they also recognized that recession would result in an ever larger pool of women 3 to recruit to sell its cosmetics and other product. Avon is decided to use and old
2

Peter Navarro; The Well-Timed Strategy Managing the Business Cycle CALIFORNIA MANAGEMENT REVIEW VOL.48.NO.I FALL.2005 ; page 80 3 Peter Navarro; The Well-Timed Strategy Managing the Business Cycle CALIFORNIA MANAGEMENT REVIEW VOL.48.NO.I FALL.2005 ; page 80

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Arapcic 6 program called Sales Leadership in which companys top performers are taught how to recruit, train and supervise their own group. The results would be definitely amazing. Avons share prices increased 25 % and net income increase by 20%. We need to mention that earning per share is increased by 27 % while the increase in sale is for 13 % .

Progressives Recruitment Strategy actually bring us to that how a top management team can use a recession on strategically way and transform it to cheap raw recruit generalist into a well-trained workforce. They actually cared about unemployment rate, which is lagging indicator and give the signals when it comes the recessions. This is actually part of human resources strategy because they hiring college graduated generalists ( with no experience at all ) and training theme in the Progressive way. This strategy is used during the 2001 recession. Isis Pharmaceutical is the example for this strategy. They used the occasion of an economic downturn to increase hiring of permanent, highly skilled workers. But, one the recession hit, they changed their strategy. First they higher temporary workers and postdoctoral students and then they hired form the much deeper talent pool on a permanent basis. They survived the recession.

Countercyclical Capital Expenditure Strategies

Intel did something different then its competitions, during the 2001 recession, and sharply accelerated capital spending. Much of this investment was directed into building additional manufacturing capacity utilizing two innovations " jumbo " wafer production and a smaller 0,13 micron technology. This is results as a less cost to operate and its allowed the manufacture. In the 2002-2003 when the recovery came, Intel was able to react quickly and they can successfully launch new product. And they of course did that, and launch their new product Centro mobile processor technology and Mobile Pentium IV-M processor. After that Intel reported its highest rate of growth, 2003 net income rise by 81 %.

Countercyclical Acquisition Strategies

Micron and Fair Isaac are example of perfect marriage between the dictates of sound corporate strategy. Corporate strategy is actually a primarily static analysis.
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Arapcic 7 Fair Isaac Patiently Waits for HNC How economies of scale or the degree of product differentiation will determine industry structure and competitive advantage, is something about corporate strategy discusses. Hunt for HNC software has begun in 1999. Predictive technology was owned by HNC and its could be applied to forecast human behavior across a broad range of activities and applications. 1999 HNC was considerably over-value of the stock-market. But, finally in 2002 Fair Isaac acquired HNC. It has been like a dream acquisition. In just one year after bought HNC by Fair Isaac, revenues jumped 60 %, and net income per share more than quadrupled. This happened because it was well timed.

Microns Bottom Feeding Vital economic role in that to create opportunities for challengers to stir up and renew the industry are industry cycles. The Micron top management team has perfected simple strategy ( just one strategy ) and it is purchasing chip fabrication facilities from competitors at the bottom of the semiconductor market cycle to eliminate rivals and increase market share while they are cutting cost and expanding production capabilities. Buying the fabrications plants for Texas instrument, gave the Micron a sizeable advantage over two of Microns major competitors ( Hynix and Samsung ) because Texas Instrument are agrees to allow Micron royalty-free use of its patents for a full ten years. Hynix and Samsung had spent billions on similar licenses. We can not forget April of 2002, when Micron took advantage of the recession-battered Toshiba and by a DRAM operation valued at $ 2 billion for only $ 300 million. With this move they eliminated a key rival in market and allow pricing to return to profitability.

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CONCUSION In conclusion, business cycle is the most important thing for running a good business. But we need to now that there is no formula for business cycle and we need to be prepared for every move and change in business cycle. It actually forcing weaker players into bankruptcy and there by releasing resources to be pricked up by stronger and challenger firms. It is like a life actually, if you know how to play and you know the rules, and you are not afraid to risk, you will be successful. And we to know when is the right time to do our move and change everything.

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References : ECON 101, Principles of Macroeconomics The Time Well Strategy Managing the Business Cycle

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