Chater Openning Questions
A manager needs to:
Summary
Table of possible options in a contiengency plan
| capital spending |
reevaluate |
cut entirely or almost entirely |
not only cut entirely, but consider selling assets |
| employment |
slow hiring |
freeze hiring, layoff generic production workers |
eliminate future-oriented positions (e.g., R&D), keep sales
personnel though not at previous levels, cut all other staff areas to
the maximum extent |
| inventories |
monitor closely |
monitor closely, review for unnecessary inventory items |
the same as the left |
| account receivable |
tighten credit terms, set up a factoring (selling account
receivables) relationship |
collect as rapidly as possible, on the payment side delay to the
extent possible |
the same |
| financing |
secure a larger credit line, delay payments to vendors, get some
long term debt |
consider stop paying dividends, keep good relationship with banks by
disclosing the company’s condition early and fully |
the same |
| lines of business |
|
shut down unprofitable operations |
the same |
Easy steps
- When the early warning system begins to flash a warning, review and
update the contingency plan. We need to limit new hires to vital
positions. Also, set up credit lines if possible.
Moderate steps
- The moderately severe steps taken in a recession are similar to the
easy steps, but they are taken further. Business managers should review
employment, capital spending, and financing and they should keep lenders
fully apprised of conditions.
Survival steps
- Companies whose survival is at risk should consider bringing in a
turnaround specialist. Selling the business may provide more shareholder
value than continuing the operation until bankruptcy.
Taking advantage of recessions
- Surviving the recession is a necessary prerequisite to benefiting
form a recession. Once survival is likely, then its time to exploit the
economic slowdown to improve competitive position.
Identifying opportunities
- A recession provides several opportunities for a company with cash
or credit facilities. The most obvious is acquisition of weaker
competitors.
Pricing and sales strategies
- Prices often weaken in recession, but businesses should be very
hesitant to initiate price warts to build market share. There are
several sales opportunities that arise in a recession, mostly by taking
advantages of competitors weakness.
Managing in the recovery
- Managing in a recovery begins with ensuring capacity to expand
production. Expect employee turnover to increase unless significant
steps are taken to retain workers.
Managing in a boom
- Use the boom to get finances in order, including credit lines.
Compare the least profitable sales price to the cost of the last few
percentage points of production.
Summing Up
- Managing in a recession occurs well before and well after the actual
recession. The most important element is thinking ahead about how to
incorporate flexibility into the business.
Economic terms
Explan each of the following terms in your own words. The author
explains the terms in the textbook. If necessary, you may also Google
the term on the Web. Good resources include:
Explain the terms in your own words briefly.
Accounts Receivable
- the money owed to a company by the people they are in debt
with.
Antitrust (page 163) - Market Structures
perfect competition
The ideal model of a market economy
monopolistic competition
is a type of imperfect competition such that there are many producers
competing against eachother.
oligopoly
it is a market structure, an industry is dominated by a small number
of large sellers or producers.
monopoly
A market structure in which only one seller sells a product for which
there are no close substitutes
Profit Maximization (page 169)
- Occurs when Marginal Revenue equals Marginal Cost. The short run or
the long run process by which firm may determine the price, input and
output levels that lead to the highest possible total profit.
Economic events
Describe the characteristics of the following events briefly.
The case of Washington Mutual in the summer of 2004 (page 163)
- Washington Mutual closed down 53 business banking offices, laying
off 850 workers. The action was well reported in the press, and
competing banks immediately stated calling on WaMus business customers.
WaMus problems became other banks opportunities.
The case of the airline industry during the 2001 recession (page
164)
- A young discount airline names AirTran Airways had a small, aged
fleet of airplaines. Their 46 aircraft averaged a 26 year old. 5 years
later after a harrowing recession and the terrorists attacts, AirTrain
had 76 airplanes with an average of 3 year old. The simple lesson:
recessions are bad for most businesses, but some companies can use a
recession to their own advantage.