A manager needs to: Be able to navigate the complications that come with economic recession. They can do this by understanding the true value of their goods, and understanding what needs to be cut or inflated during a time of economic downturn. ## Summary
Table of possible options in a contiengency plan
| Expecting a downturn | During moderate downturns | During severe recessions | |
|---|---|---|---|
| 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 |
Review and assess capital spending Stay on top of inventory and staff
Eliminate capital spending Review staff, cut out replaceable workers
Eliminate all spending Lay off workers Keep small amount of sales workers Sell assets to stay afloat
Understand most everyone is struggling to stay afloat, keep your company afloat and put yourself in the most advantageous position.
The lower the operating cost the better. Identify opportunities that increase capital.
Try to not get to competitive with pricing. It can be a dangerous road to start down. The market will be much weaker in a recession, so be smart and play your own game.
Managing in the recovery requires a manager to ensure capacity to expand production. It is important to retain workers. Once sales increase company cash positions will typically be stressed.
A business manager should use the boom to get credit lines in order as well as make sure prices do not soar too high. At this time it is important than ever to concoct a contingency plan for the next economic downturn.
A business managers reputation and skill relies on how well they manage during a recession. A good manager takes all the significant steps required to be prepared for any type of recession and is always prepared even when the economy is booming.
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 from customers that have not yet been paid.
perfect competition - no market power, lots of sellers with the same product, the market is easy to enter and exit
monopolistic competition - pretty much the same as perfect competition except there is a small amount of market power due to the products being different
oligopoly - not many sellers, difficult to enter, large market power
monopoly - one seller with a distinctive product, no entry, absolute market power
The process a business goes through to maximize profits at a fair price.
Describe the characteristics of the following events briefly.
After Washington Mutual laid off nearly 900 workers and closed 50 offices their customers were stolen by competing banks which caused Mutual to lose almost all of their business.