Product details

By continuing to use our site you consent to the use of cookies as described in our privacy policy unless you have disabled them.
You can change your cookie settings at any time but parts of our site will not function correctly without them.
Management article
-
Reference no. SMR4525
Product 6192 (SMR4525) has no authors
Published by: MIT Sloan School of Management
Published in: "MIT Sloan Management Review", 2004
Length: 6 pages

Abstract

Despite studies indicating the contrary, many academics and practitioners assert that the business cycle can''t be predicted and therefore can''t be managed. However, managers who draw upon forecasting models, closely follow leading economic indicators and manage their business cycle proactively are likely to emerge from tough economic times intact, says the author. To this end, the ''master cyclist'' project has evaluated companies'' market literacy, forecasting capabilities and use of macroeconomic strategy. From the evaluation, it developed a set of managerial principles, defining how a market-literate management team would approach short-run functional decisions regarding inventory, production, marketing and pricing as well as more strategic choices regarding capital expansion, acquisitions and divestitures. According to the author, explicitly cycle-savvy companies like Johnson & Johnson, Southwest Airlines, DuPont and Duke Power weathered rough economic times well, while companies like Cisco Systems, which rejected the use of macroeconomic forecasting, was caught during the recent recession with crippling levels of product and supply-chain inventories. It follows then, according to the author, that strategic, tactical and functional decisions are better informed by intelligent speculations about the business cycle. As economic-forecasting indicators and techniques continue to improve, so should our understanding of both the business cycle and the principles associated with effectively managing it.

About

Abstract

Despite studies indicating the contrary, many academics and practitioners assert that the business cycle can''t be predicted and therefore can''t be managed. However, managers who draw upon forecasting models, closely follow leading economic indicators and manage their business cycle proactively are likely to emerge from tough economic times intact, says the author. To this end, the ''master cyclist'' project has evaluated companies'' market literacy, forecasting capabilities and use of macroeconomic strategy. From the evaluation, it developed a set of managerial principles, defining how a market-literate management team would approach short-run functional decisions regarding inventory, production, marketing and pricing as well as more strategic choices regarding capital expansion, acquisitions and divestitures. According to the author, explicitly cycle-savvy companies like Johnson & Johnson, Southwest Airlines, DuPont and Duke Power weathered rough economic times well, while companies like Cisco Systems, which rejected the use of macroeconomic forecasting, was caught during the recent recession with crippling levels of product and supply-chain inventories. It follows then, according to the author, that strategic, tactical and functional decisions are better informed by intelligent speculations about the business cycle. As economic-forecasting indicators and techniques continue to improve, so should our understanding of both the business cycle and the principles associated with effectively managing it.

Related